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The Bank of England Open to Fintech
Remarks given by
Dave Ramsden, Deputy Governor for Markets and Banking, Bank of England
HMT's International
Fintech Conference, London
22 March 2018
Thank you for the opportunity to be here this afternoon at this important conference, speaking on behalf of
the Bank of England as Deputy Governor with responsibility for the UK's RTGS1 and the CHAPS high value
payment systems.
the latest stage in the evolution of the UK's financial services sector and London's role as
We are discussing
a global financial centre. Different infrastructures supported this evolution at different stages. My focus will
be on the technological infrastructure to support fintech, where both private and public sectors have a role to
play.
These are not new themes. At the time of the Big Bang, new technology was required to support electronic
trading. The Bank of England contributed to the infrastructure development, setting up the Central Gilts
Office in 1986 - which permitted delivery versus payment for Gilts2. In 1996 the same was enabled for
equities and corporate bonds via CREST, and later that year the launch of RTGS eliminated intraday
settlement risk between banks, delivering real time settlement finality of sterling transactions.
The need for the Bank of England to continue to play its part in contributing to the infrastructure of the
financial sector is more relevant today than ever.
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Access to payments and infrastructure has changed for consumers contactless payments are a daily reality
for many now, and smartphone payments are sharply on the rise. But the fundamental role of banks as
intermediaries, and the structure of the UK retail banking industry, has remained much the same. There are
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signs of evolution such as the entry of 36 new banks3 over the past 4 years. But arguably, finance has yet
to face its "Uber" moment.
It is important that the Bank of England is attuned to the needs and challenges of a changing financial sector
the infrastructure changes needed to support the UK's financial
so that it can translate that to facilitating
sector and fintech development.
But how to do this? In my view, by being open. More specifically, by the Bank of England being open
minded, keeping an open door, and being open to change.
Open minded
To react appropriately to an evolving financial sector, the Bank of England needs to make sure it is open
minded to the opportunities and potential for change that fintech offers.
1
The UK's
Real-Time Gross Settlement infrastructure, operated by the Bank.
2
George, E (1996)
3
36 legal entities have received deposit-taking permissions since April 2013 which includes overseas firms setting up subsidiaries.
As a member of the Monetary Policy Committee, I need to be open minded about the way fintech could
impact the economy of the UK. The defining trend of the last ten years has been the weakness of
productivity. Given the size of the financial sector in the UK, I can see fintech driving competition and a
pick-up in productivity in the medium term4.
And as a member of the Bank of England's Financial Policy Committee, in line with our remit5, I need to be
open minded about, not just the risks, but the opportunities fintech could pose to the financial system. The
FPC recently discussed the current risks posed by crypto-assets and judged that they do not pose a material
risk to UK financial stability6.
We judge that crypto-assets themselves may have limited utility, particularly as money. They are too volatile
to be a store of value, and with high transaction costs and slow settlement times, they are an inefficient
medium of exchange7. However, we also recognise the opportunities in the technologies that underpin
crypto-assets.
Adapting these technologies for the demands of the financial system poses significant challenges. Balancing
the resilience, performance and privacy features of distributed ledger technology is not an easy problem to
solve - and many developments are currently focusing on performance and privacy, at the potential cost of
resilience. But the distributed ledger and cryptographic technologies used by crypto-assets have the future
potential to deliver benefits both to the financial system and to the economy it serves, including increasing
efficiency and resilience and contributing to a more distributed and diverse payments system.
It is clear that the developments taking place in the financial sector now could impact how the Bank of
England meets our mission to promote the good of the people by maintaining monetary and financial
in isolation. We welcome the Government's Fintech
stability. But to assess this properly, we cannot operate
8
Sector Strategy, including the announcement of a Treasury/FCA/Bank of England taskforce - a key
element of this Strategy, which will explore further the risks of crypto-assets and the potential benefits of the
underlying distributed ledger technology. The Bank of England also needs to make sure its door remains
open to engagement with the experts and innovators in the private sector too.
Open doors
We have been doing this. Over the past two years the Bank of England's award-winning9 Fintech
Accelerator has worked with industry, experimenting with new technology and developing our understanding
4Ramsden, D (2018)
5
HM Treasury (2017)
6
Bank of England (2018)
7
Carney, M (2018)
8
HM Treasury (2018 )
9
's Initiative of the Year (2018)
Central Banking Magazine
in the process. We have carried out a number of proofs of concepts including those using distributed ledger
technology, RegTech, machine learning and cyber security10.
The Accelerator-run proofs of concepts allowed us to change our mind-set to be less bound by convention in
terms of how we run the Bank of England, as an infrastructure provider, a payment systems operator and a
regulator.
We are now looking to build on the success of the Accelerator by integrating its key approaches into our
business as usual activities. So today I can announce that we have set up a new Fintech Hub that will sit at
the heart of the Bank, to consider both how the Bank understands and how it applies fintech, relevant to its
mission.
It is important that we continue to do this with our doors firmly open. So the Hub will be a central point of
contact for the fintech sector to engage with the Bank, and will play an active role in the new HMT/FCA/Bank
taskforce. And it will engage with you to understand and apply these developments to support the next wave
of innovation in finance, and ensure that the UK has the right infrastructure to support that into the future.
Being open in our minds and approach are important steps in embracing and supporting new technology.
But we also need to be open to change to fulfil our mission and keep pace with an evolving financial sector.
Open to change
Change is already afoot. The Open Banking standard and PSD211 introduce changes to access of account
information and initiation of payments, requiring banks to make customer data available to authorised third
parties if customers so choose. This may change the way that customers access and operate their bank
accounts, such as by making them accessible via a single smartphone app developed by a third party12. As
the prudential regulator of UK financial services firms, the Bank of England needs to be open in how it
considers and responds to changes arising in retail banking from this reform. In fact, increasing competitive
pressures in retail banking, enabled in part by an increase in the use of fintech, formed part of the biennial
exploratory scenario in our 2017 stress test13.
As well as looking at these infrastructure changes impacting the firms we regulate, we are also opening
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ourselves to change by experimenting with new technologies when we think about enhancing how we work
including for the infrastructure we are responsible for.
10
Hauser, A (2017)
11Europe's second Payment Services Directive
12Cunliffe, J (2018)
13Bank of England (2017a)
The Bank of England is currently investing in its RTGS service14, a critical piece of national infrastructure,
renewing the heart of the UK's overall payment system to meet the challenges posed by a rapidly changing
landscape. The Bank has already established arrangements under which non-bank payment service
the Fintech Accelerator's
providers could access RTGS directly. We are now using proof-of-concept
approach when considering how new technologies can plug into the renewed RTGS. We recognise the
potential for new technologies to create a more distributed and diverse payments system. So we are doing a
proof-of-concept with a small cohort of firms to consider how our renewed service could interface with
innovative settlement systems15, such as those built on distributed ledger technology.
The proof of concept is designed to assess the demands that would be placed on central RTGS
settlement models, rather than assessing the specific offering
infrastructure by a range of fintech firms'
provided by a particular firm. By allowing a range of system structures to access the new RTGS system, the
Bank can support innovation in the private sector.
And the Bank of England is continuing to investigate ways in which fintech could help to improve regulation,
building on existing work internally and in collaboration with the FCA. We have initiated work to understand
how machine readable technology could be applied to the next iteration of the PRA rulebook, and will
continue to work closely with the FCA to understand the potential for machine readable regulation. We are
also investigating if machine learning could be deployed to support judgement based supervision, via its
application to both structured and unstructured data.
Investment in the UK's financial technology is going to be an important factor in sustaining the UK's global
position. With its open approach of considering, adapting to, and applying fintech across the breadth of its
mission, including through its own investments, the Bank will play its part.
14
Bank of England (2017b)
15
The proof of concept connects firms to a specifically built, offline version of RTGS so that the live RTGS system is protected.
References
Bank of England (2018), Financial Policy Committee statement from tis meeting, 12 March 2018, available
at: https://www.bankofengland.co.uk/statement/fpc/2018/financial-policy-committee-statement-march-2018
Bank of England (2017a), Stress testing the UK banking system: 2017 results, 28 November 2017,
available at: https://www.bankofengland.co.uk/stress-testing/2017/stress-testing-the-uk-banking-system-
2017-results
Bank of England (2017b), A blueprint for a new RTGS service for the United Kingdom, 9 May 2017,
available at: https://www.bankofengland.co.uk/paper/2017/a-blueprint-for-a-new-rtgs-service-for-the-uk
Carney, M (2018), The Future of Money, 02 March 2018, available at:
https://www.bankofengland.co.uk/speech/2018/mark-carney-speech-to-the-inaugural-scottish-economics-
conference
Central Banking (2018), Initiative of the Year, 23 Jan 2018, available at:
https://www.centralbanking.com/awards/3333176/initiative-of-the-year-bank-of-englands-fintech-accelerator
Cunliffe, J (2018), Looking After our Money, 26 February 2018, available at
https://www.bankofengland.co.uk/-/media/boe/files/news/2018/february/looking-after-our-money-speech-by-
jon-cunliffe.pdf
Reduction in Payment and Settlement Systems' a
George, E (1996), Risk Bank of England Quarterly Bulletin
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-
article, 9 December 1996, available at:
bulletin/1996/risk-reduction-in-the-payment-and-settlement-systems.pdf
The Bank of England's FinTech Accelerator: what have we done and what have we
Hauser, A (2017)
https://www.bankofengland.co.uk/speech/2017/the-boes-fintech-
learned?, 6 October 2017, available at
accelerator-what-have-we-done-and-what-have-we-learned
HM Treasury (2018), Fintech Sector Strategy, 22 March 2018, available at:
https://www.gov.uk/government/publications/fintech-sector-strategy
HM Treasury (2017), Remit and recommendations for the Financial Policy Committee, 8 March 2017,
available at: https://www.bankofengland.co.uk/-/media/boe/files/letter/2017/chancellor-letter-080317-
fpc.pdf?la=en&hash=7B99B9B412E160F79FB2411F26A10F282FDC7BB6
'The UK's productivity growth challenge',
Ramsden, D (2018), 23 February 2018, available at:
https://www.bankofengland.co.uk/speech/2018/dave-ramsden-panel-remarks-cbi-event