Home Policy & Governance BIS and Bank of Canada open ‘Innovation Hub’ in city of Toronto

BIS and Bank of Canada open ‘Innovation Hub’ in city of Toronto

Toronto: after a two-year delay, the city is now officially host to the BIS Innovation Hub’s seventh office; (inset) the opening ceremony featured (L-R) Miguel Díaz, Agustín Carstens, Cecilia Skingsley and Tiff Macklem | Credit: VizualisKultura (Pixabay) with Global Government Fintech screenshot from the office opening ceremony’s broadcast (YouTube)

The first Bank for International Settlements (BIS) Innovation Hub centre in the Americas has officially opened in Toronto, the most populous city in Canada, with three priority work areas.

The Innovation Hub was established by Switzerland-headquartered BIS in 2019 to identify and develop insights into fintech trends, explore the development of tools to improve the functioning of the global financial system and become a focal point for central bank experts. Its growing number of projects are closely watched by financial authorities eyeing the cutting-edge of fintech innovation globally.

The Toronto centre – which adds a seventh location to the Innovation Hub network – will ‘explore the development of new technologies to make the financial system more efficient and inclusive, both in Canada and throughout Latin America and the Caribbean’, the BIS said in an announcement.

Its focus will be on projects to explore next-generation financial market infrastructures; innovation for regulatory, supervisory and oversight purposes (SupTech); and open finance. These are three of the Innovation Hub’s six priority global themes. The other priorities – cybersecurity, green finance and central bank digital currencies (CBDCs) – are the focus of other Hub centres around the world.

The six pre-existing Innovation Hub centres, all run in collaboration with partner (national) central banks, are located in: Frankfurt/Paris (Eurosystem centre), Hong Kong, London, Singapore, Stockholm (Nordic centre) and Basel (in the BIS’s ‘home’ nation Switzerland). The Hub has also had a strategic partnership with the Federal Reserve Bank of New York in the form of the New York Innovation Centre since 2021.

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Four years-plus in the making

The BIS and Bank of Canada announced plans for the Toronto centre in June 2020, saying at the time that it would open ‘within two years’. The appointment of Miguel Díaz, previously general director of payment systems and market infrastructures at the Bank of Mexico, as its head was then announced in November 2021.

However, the opening date was knocked back for a similar reason to that which also delayed the opening of the Eurosystem centre: the need to comply with national laws related to incorporating a BIS presence ‘locally’.

The Eurosystem centre – co-hosted by Germany’s Bundesbank, the Bank of France and the European Central Bank (ECB) – was scheduled to open during the first half of 2022. But this centre eventually opened the following year. A BIS spokesperson explained to Global Government Fintech in February 2023 that an Innovation Hub centre’s opening ‘requires the relevant jurisdiction to incorporate the BIS’ status as an international organisation into local law’

Diaz spoke at the Toronto centre’s opening ceremony on 13 June, an event that also featured BIS general manager Agustín Carstens, BIS Innovation Hub head Cecilia Skingsley and Bank of Canada governor Tiff Macklem. In addition, panel discussions were held on the ‘future of finance’ and ‘open finance and innovation’, with participants including representatives from authorities including Banco Central do Brasil, International Monetary Fund and the UK’s Financial Conduct Authority.

“Fostering innovation has never been more crucial – that’s as true for central bankers as it is for business leaders,” Macklem said in a press release. “As the financial sector continues to evolve, we need to innovate in different areas and apply skills that aren’t traditionally associated with central banking. By doing so, Canadians can share in the benefits of innovation. That’s why this hub and our partnership with the BIS are so important.”

Bank of Canada is headquartered in the country’s capital, Ottawa, which has a population of about one million people. Toronto, which was already home to a Bank of Canada regional office, is a private-sector fintech hotspot and about three times larger by population.

BIS details AI implications

Separately, a special chapter of the forthcoming BIS Annual Economic Report 2024 was published this week (25 June) focused on the hot topic of artificial intelligence (AI).

Titled ‘Artificial intelligence and the economy: implications for central banks’ (part of the full Annual Economic Report 2024, which will be released on 30 June), the chapter describes how AI is ‘poised to impact the financial system, labour markets, productivity and economic growth’ and that ‘with widespread adoption, it could enhance firms’ ability to adjust prices faster in response to macro-economic changes with repercussions for inflation dynamics’.

‘The job of central banks as stewards of the economy will also be directly affected as frontline users of AI tools,’ the BIS notes, stating that the ‘rapid adoption of AI requires central banks to embrace the new technology’ and encouraging policymakers ‘to anticipate the transformative effects of AI on the economy and to use it to sharpen their own analytical tools in pursuit of financial and price stability.’

“New generation AI models have captured our collective imagination through their uncanny abilities, but they also have a direct bearing on how central banks do their jobs,” said BIS head of research and economic adviser Hyun Song Shin in a press release accompanying the release of the 37-page chapter (which concludes with a section titled ‘Toward an action plan for central banks’). “Vast amounts of data could provide us with faster and richer information to detect patterns and latent risks in the economy and financial system. All this could help central banks predict and steer the economy better.

The BIS Innovation Hub is testing AI’s capabilities in various areas alongside central bank partners. “Central banks were early adopters of machine learning and are therefore well positioned to make the most of AI’s ability to impose structure on vast troves of unstructured data,” Skingsley said, mentioning two initiatives being led by the Nordic centre: ‘Project Aurora’, which is exploring how to detect money laundering activities from payments data; and ‘Project Raven’, which is using AI to boost cyber resilience.

CBDC global survey results

The BIS earlier this month published a paper presenting the results of a survey undertaken between October 2023 and January 2024 on central bank digital currencies (CBDCs) and crypto.

A total of 86 central banks participated and shared updates into their involvement in CBDC activity, as well as their motivations and intentions for potentially issuing a CBDC.

The 39-page paper, titled ‘Embracing diversity, advancing together – results of the 2023 BIS survey on central bank digital currencies and crypto’, found that 94 per cent of surveyed central banks are exploring a CBDC.

The paper reports that 2023 saw a ‘sharp uptick’ in experiments and pilots with wholesale CBDCs (CBDCs for interbank payments and securities transactions), mainly in advanced economies; and that, overall, the likelihood that central banks will issue a wholesale CBDC within the next six years now exceeds the likelihood that they will issue a retail CBDC (CBDC for general population use).

To date, more than half of the central banks are working on proofs-of-concept, with one out of three running a pilot CBDC initiative, according to the findings.