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The Bank of England (BoE) and the Bank for International Settlements (BIS) today opened the BIS Innovation Hub London Centre, an initiative to develop insight into financial technology that is relevant to central banks and the wider financial system.
In remarks given during the opening event, BoE governor Andrew Bailey said, “the innovation that will come from the centre’s work will be felt on both a national and global scale.
“What this really emphasises is the importance of collaboration.”
He added that while the innovation hub would be based in London, it would draw on the entire UK fintech and financial services sectors’ expertise. Representatives from the BIS were equally optimistic of the opportunities that would come from the London Centre.
“We are very proud to be opening this London Centre as part of the expansion of the Hub,” said Agustín Carstens, general manager of BIS. “It will enable us to benefit from the Bank of England’s significant expertise in innovation, and from the vibrant Fintech ecosystems that exists in the City of London.”
The UK accounts for 10 percent of the fintechs globally with over £11bn in revenue. £4.1bn were invested into UK fintechs in 2020 alone. As the UK fintech sector continues to grow, regulators see the need to both collaborate and develop a dialogue with the private sector.
“This [hub] has multiple benefits, not just a more direct understanding of the needs and potential risks of financial innovation as it is actually developing, but also an easier exchange of the public and private sector’s different cultures and experiences,” said Dave Ramsden, deputy governor of the BoE.
“This can help regulators and the regulated understand each other’s perspectives better.”
London marks the fourth BIS innovation hub, following relations with the Hong Kong Monetary Authority, the Monetary Authority of Singapore and the Swiss National Bank to open innovation hubs in each respective region.
Over the next few months, BIS will similarly open innovation centres in Toronto, with the Bank of Canada, two with the European Central Bank in Frankfurt and Paris and one in Stockholm in collaboration with four Nordic central banks (Iceland, Norway, Denmark and Sweden). BIS has also developed a strategic partnership with the Federal Reserve Bank of New York. These partnerships seek to address the challenges brought about by new technology and trends in finance.
“The world is changing fast around us. Technology threatens to disrupt central banking across several dimensions,” said Benoît Cœuré, head of the BIS innovation hub.
“Big data, AI and machine learning are changing the way banks are assessing risks and providing credit to firms and households. Big tech has entered payments and credit markets, either directly or in partnership with financial institutions. This in turn presents new and complex trade offs between financial stability, competition and data protection.”
One issue that is a major priority for central banks is the development of stable coins and central bank digital currencies (CBDC). Bailey said there is “intense international public sector cooperation” to understand how digital currencies would affect financial stability. According to Cœuré, half of the BIS innovation hubs’ projects were currently related to CBDCs.
The BoE has yet to make a decision about developing a digital pound but Bailey said a CBDC would be ground-breaking.
“If this comes to pass, it will be one of the most fundamental innovations in the history of central banking.”
There has been increased interest in the use of digital currencies with China launching its digital RMB earlier this year and with El Salvador became the first country to adopt Bitcoin as legal tender this week.
Both the BoE and BIS were dismissive of the crypto asset as a payment medium.
“Bitcoin is a speculative asset and should be regulated as such,” said Cœuré.
Ramsden reinforced that message and added, “It should be seen as [a speculative asset] by anyone who chooses to use it.”
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