On 11 February, FIA held a Compliance and Regulation forum on fintech and digital assets for members in London where central bank and industry experts discussed innovations in financial services and supervisory work around digital assets.
The first panel, moderated by John Ho, head of legal, financial markets at Standard Chartered, featured speakers from the Bank of England and leading technology companies who discussed digital currencies, cloud computing and the role of RegTech in an era of data-driven regulation.
Tom Mutton, Director of Fintech at the Bank of England, said the central bank is "positive" about the opportunities of fintech and the Bank's approach is to embrace its potential while working with the private sector to make sure risks are managed.
"What we have to think about as a central bank is what our specific role is in this," he added. The Bank of England's core functions are ensuring monetary and financial stability and the safety and soundness of the financial system. As such, its areas of focus this year include making sure that the UK payment system is fit for the digital age, as well as exploring topics such as the future of money, the evolution of the digital economy and central bank digital currency.
"We will also be thinking about how to embrace the potential of general-purpose technologies and how they may improve the effectiveness, resilience and degree of inclusion in the financial system. Machine learning is a huge interest for us, as is the cloud," Mutton said.
Benefits of cloud
Richard Caven, financial services business development lead, UK, Ireland and the Nordics at Amazon Web Services, discussed the benefits of adopting cloud computing, which provides on-demand delivery of IT resources on a pay-as-you-go basis via the internet. AWS provides financial services institutions with secure, global cloud infrastructure and services that enable firms to differentiate and adapt to the needs of tomorrow.
Caven said cloud technology empowers organisations to modernise their infrastructure, meet rapidly changing consumer behaviours and expectations and provides them with the ability to reduce costs, innovate, build scalable infrastructure and go global quickly.
"If you're a financial institution in one jurisdiction providing services to your customer and you want to do it somewhere else, cloud technology can help you to do that seamlessly. This kind of flexibility is not available in traditionally sourced and managed technology services."
Facebook Libra
Facebook's proposed digital currency Libra also came under the spotlight, with Edward Bowles, Facebook's director of public policy, Northern Europe, discussing the core reasons behind the creation of the digital currency project, including the desire to speed up remittance processes and lower the cost of sending money overseas.
Facebook has prioritised several markets where it would initially roll out Calibra, its wallet for delivering Libra, based on remittance volume. Calibra would work as a standalone service and also within WhatsApp and Facebook with "absolute security" designed into it. "From a compliance perspective, we will be building AML and KYC features, not only into the wallet but the protocol itself," Bowles said.
He added that Facebook has moved into an area where it is seeking, for the first time, permission for its products, describing the Libra white paper that Facebook published in June 2019 "as a means to consult as we move into a regulated world. We are working with regulators globally". He added that the second version of the Libra white paper will be published in a month's time.
"We are confident that [the launch of Libra] will happen, and other people will be welcome to take advantage of the blockchain language and use it for themselves, including central banks," Bowles said. "We know that a number of central banks are looking at adopting their own digital currencies, spurred on by the Libra idea. This will dramatically transform the operating mechanisms of central bank payment systems."
RegTech and data
Also under discussion was RegTech in an era of 'big data' and data-driven regulation. Diana Paredes, CEO and founder of Suade Labs, a software provider that normalises and cleans data and turns it into reports to meet regulatory data requirements, said that while machine learning is pervasive across the financial community, a lack of high-quality data and data standards is hindering participants' ability to fully leverage the power of machine learning technology.
"Leveraging machine learning to analyse data is important but a big problem around this is the data. The way data is organised is actually very poor," Paredes said. "One of the concerns that we have as a RegTech is how little regulation there is around data. There are few standards in our industry and if you really want to leverage machine learning in the current data-driven regulation environment, there is a lot more work to do. We know we have a lot of data in our industry and the best way to assimilate it will be driven by data standards."
Digital Assets
The second panel of the day, moderated by Brett Hillis, partner at Reed Smith, focused on digital assets and supervisory approaches in the field.
Talking about the key areas of focus for the Bank of England, Mutton said central bank digital currency is an active area of research for the central bank.
"While we are not looking to issue CBDC in the UK in the immediate future, we do need to be in a place where we know what options are available to us and what a UK central bank digital currency might look like," he told the audience.
Darko Pilav, senior product manager at Digital Asset, which has created the open source smart contract language DAML, and David Nicol, head of digital assets at blockchain software company R3, gave an industry perspective on the use of digital assets technology.
"When people talk about digital assets, there's almost always a focus on cryptoassets and payments on a blockchain," said Pilav. "It's important to see that cryptoassets are an example of digital assets, but the term is much broader than that. The same holds true for Blockchain. Blockchain is one implementation of a distributed ledger, but there are various other distributed ledger approaches that I believe would be interesting to look at as well."
Praising regulators' efforts to collaborate with the industry in the field of digital assets, Nicol pointed to the Cryptoassets Task Force, which was established by the UK government together with HM Treasury, the Financial Conduct Authority and the Bank of England in 2018.
"The Cryptoassets Task Force was very good in that it involved a wide array of stakeholders, it had a tight agenda and tight objective and it asked for input and contributions from industry members," Nicol said. "This was significant because it meant that we could all work together for the benefit of the entire industry and no one implementation was represented any stronger than the rest."
