Carney says BoE must keep pace with FinTech

The governor of the Bank of England (BoE) has promised that it and the Prudential Regulation Authority (PRA) will evolve to meet the demands of new forms of financial technology.

Speaking at the Innovate Finance Global Summit in London this morning, Mark Carney stated: “The UK’s FinTech companies are creating this new finance, but you cannot do it all on your own; your efforts will be even more effective if you have the right conditions in which to innovate and the level playing fields on which to compete.

“That’s why a new finance demands a new Bank of England,” he added.

In last year’s Mansion House speech, Carney announced that Huw van Steenis would lead a review of the future of the UK financial system.

In two months, his conclusions will be published and the BoE will announce a number of steps to create an environment for a more resilient, effective and efficient financial system.

Carney sought to preview the approach and highlight some recent measures the BoE has been taking, including work on the Real-Time Gross Settlement (RTGS) system and technological approaches to rules, regulations and standards.

He explained that as online commerce grows, increased demands are being placed on financial infrastructure, with consumers and businesses increasingly expecting transactions to be settled in real time, and payments across borders to be indistinguishable from those across the street.

“Search and social media data are supplementing traditional metrics to unlock finance for smaller enterprises whose assets are increasingly intangible – this new finance demands a Bank of England that is as open to new providers as it has been to traditional players,” he stated.

In response, the BoE is rebuilding RTGS, which processes over £600 billion of payments every day, giving access to not just commercial banks, but opening the rails up to alternative payment service providers (PSPs).

“Responding to demands from FinTech providers, the rebuild will provide API access to read and write payment data,” said Carney.

He also touched on the data trail created by people living more of their lives online, noting that more data was created in the past two years than in all the years that came before.

“This data is creating enormous opportunities for the new finance to serve customers better and to manage risks more effectively – to those ends, the financial sector is investing heavily in the cloud, machine learning and AI,” commented Carney, adding that banking is already the second biggest global spender on artificial intelligence systems (after retail) and is expected to invest a further $10 billion on AI by 2020.

Carney pointed out that at over 638,000 words, the PRA Rule Book is longer than War and Peace – and “is also somewhat less interesting and infinitely more complex” – making it ripe for the application of advanced analytics to simplify it and make it machine-readable.

“To explore ways to make reporting more efficient and effective, we are running a Digital Regulatory Reporting pilot, with the FCA, on machine readable reporting requirements that firms’ systems could interpret and ultimately automate regulatory data collection,” he added.

Carney concluded that with new technologies, the new economy and the new finance have the potential to unlock more sustainable and inclusive growth.

“Consumers can have greater choice and better-targeted services; small and medium sized businesses can access new credit to grow; banks themselves can become more productive, and the financial system overall can become more resilient,” he stated, adding: “The new finance must be inclusive, allowing everyone to be better connected, better informed and more empowered – by adapting our hard and soft infrastructure, the Bank of England will help create the conditions for such innovation to flourish to promote the good of all the people of the UK.”

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