Enabling the FinTech transformation: Revolution, Restoration, or Reformation?
Speech that was to have been given by
Mark Carney, Governor of the Bank of England
At the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, London.
16 June 2016
The second way the Bank is enabling the FinTech transformation is by being open to providing access to central bank money for new forms of wholesale securities settlement.
Securities settlement is the lifeblood o
f modern wholesale financial markets – the associated payments account for fully half of RTGS’s daily settlement flows.
However, as with retail payments, securities settlement is now ripe for innovation. A typical settlement chain can involve many different intermediaries, meaning securities settlement is comparatively slow. Transactions that take nanoseconds to execute settle in days. This also means large costs and operational risk. And, like in payment systems, economies of scale introduce concentration and create single points of failure. All of that ties up potentially tens of billions of pounds worth of capital. With the economics of wholesale banking under pressure, cutting inefficiencies is a high priority for industry.
That is why it is welcome that FinTech innovators are exploring the potential of distributed ledger technology to simplify the settlement chain, reduce its cost, and raise its speed while increasing resilience. The instruments involved range from equities to bank loans. However, the challenges facing such projects are legion, including reliability, resilience, security and scale. And fundamentally, how to prove technologies that are still nascent?
One challenge an otherwise robust system of sufficient scale would not face is access to central bank money from the Bank of England. The Bank has for many years sought to ensure that, wherever possible, wholesale securities settlement occurs in central bank money.
We are already clear that we stand ready to act as settlement agent both for regulated systemically important schemes supervised by the Bank, and, on a case-by-case basis, for other new systems. The Bank will use this to enable innovation and competition, without compromising stability.
The full text is available at http://www.bankofengland.co.uk/publications/Documents/speeches/2016/speech914.pdf