Enabling the FinTech Transformation  We are actively exploring how new financial technologies could support our policy objectives. There are five ways the Bank is enabling the FinTech transformation. The first is widening access to central bank money to non-bank Payments Service Providers, known as PSPs. 3 As the internet revolutionised commerce, making trade faster and markets more competitive, payments technology lagged in many countries, although it is worth remembering that the UK has been a global leader on real-time retail payments. Faster Payments (FPS) was one of the earliest real-time retail systems introduced, in 2008. Now, new entrants and established players are seeking to provide payment services that are instantaneous, secure, reliable and accessible anytime from anywhere. 4 Retail consumers and firms are increasingly demanding payments completed in seconds, not hours or days. They expect payments to be seamless, reliable and cheap whether to recipients overseas or just up the street. And they expect to make payments without visits to a bank branch or even logging onto a desktop computer. Similarly, companies, financial intermediaries and governments want to process ever larger and more complex bulk payments covering multiple systems, countries and currencies. Central banks lie at the hearts of payment systems, giving households and firms the assurance that transactions have settled in the most secure form of payment: central bank money. To fulfil that role, our payments infrastructure needs to remain fit for purpose: reliable, resilient and robust. But we must also be responsive to changing payments demands.

Of course, this changing environment requires significant investment in technologies and human resources with added pressure on banks’ bottom line. Also it may potentially encourage more risk aversion, despite the ultra-accommodative monetary policy stance. It is critical, therefore, that regulators ensure a level playing field to avoid regulatory arbitrage and push banks to retrench, thus creating market gaps that can be exploited by  Page | 3  less regulated, or more importantly, by totally unregulated players. Today’s increasingly digitalised world enables these gaps to be filled with relative ease. Institutions must embrace innovation while exploiting more effectively and smartly the prevailing benign economic conditions, to discover new investment opportunities and niche markets. It is also an opportune time for banks to keep sight of their longer-term sustainability and maintain their efforts to repair their balance sheet, reduce concentrations and improve asset quality. This is what ultimately strengthens prospective future cash flows and what supports profitability. Banks are also, of course, entitled to set their own risk appetite. In well-functioning markets, business opportunities shunned by one bank will be taken up by a competitor, if the latter feels more confident that it can manage the underlying risks more effectively. There will always be a residual sort of non-bankable business, and we must accept this fact. If, however, a business in search of a bank is especially risky but legitimate, there is no reason why we should not welcome specialist legitimate players capable of withstanding the most rigorous standards of supervisor scrutiny.