The Bank for International Settlements (BIS) Innovation Hub has unveiled its 2022 work programme, with central bank digital currencies (CBDCs) and payments systems the most frequently occurring topics.
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 activities are closely watched therefore by public authorities eyeing the cutting-edge of fintech innovation worldwide.
Its agenda for 2022, the Innovation Hub’s second annual work programme, is unveiled today (25 January) and spans six focus areas: CBDCs; ‘next-generation’ financial market infrastructures (FMIs); SupTech and RegTech; open finance; cyber-security; and green finance.
In total, 13 out of 17 projects that were underway last year or will be launched during 2022 involve CBDCs (eight projects) or have a focus on payments. The six areas are the same as the BIS Innovation Hub’s 2021 work programme.
The months ahead will see the first projects led by the recently launched BIS Innovation Hub centres in London and the Nordics (in the Swedish capital Stockholm); the opening of the BIS Innovation Hub Eurosystem (Frankfurt and Paris) and Toronto (Canada) centres; and what BIS refers to as an ‘advancement’ of its partnership with the US Federal Reserve System in New York.
London and Nordic centres’ first projects
The London centre’s first projects will ‘consider how individuals and businesses can benefit from the development of’ CBDCs and next-generation FMIs. One will ‘enable the development of innovative payment solutions that can be settled quickly and cheaply with central bank money’ while a second will ‘develop a platform supporting applications that individuals and businesses can use to store, transfer and pay with retail CBDCs’.
The Nordic centre, meanwhile, kicks off with two projects. One ‘seeks to demonstrate how a holistic view of payments data’ could be used to detect illegal activities such as money laundering, tax evasion and financing of terrorism. The second will ‘investigate the security and resilience demands and solutions’ that enable CBDCs to be used offline.
Both centres’ first heads, whose appointments were announced last year, are due to start shortly. Francesca Hopwood Road is moving from the role of head of regulatory technology and advanced analytics at the UK’s Financial Conduct Authority to lead the London centre; and Beju Shah, presently special adviser for digital innovation at the Bank of England (BoE) is heading to Stockholm.
Among the projects being driven by other Innovation Hub centres, Singapore-led ‘Project Ellipse’, a proof-of-concept investigating the feasibility of an integrated regulatory data and analytics platform for SupTech purposes, is expected to be published ‘open source’ and enter a new phase (known as ‘Project Viridis’). During this phase the platform will be tested for supervision of climate-related financial risk and sustainability metrics.
The 2022 workplan is announced with BIS having recently begun what a spokesperson described to Global Government Fintech as an ‘international search’ for a new overall head for the Innovation Hub. This has been triggered by the recent resignation of Benoît Cœuré, who has left to become president of the Autorité de la concurrence, France’s competition watchdog.
Wholesale CBDC integration experiment completed
In the increasingly busy field of CBDC experimentation, BIS also earlier this month announced the completion of the second phase of ‘Project Helvetia’, testing the integration of wholesale CBDC settlement with commercial banks.
The project was a joint experiment involving the Swiss National Bank (SNB) and SIX (Switzerland’s main provider of financial infrastructure services), as well as five commercial banks: Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg (of Switzerland) and UBS.
The SNB and five private banks integrated wholesale CBDC into their back-office systems and processes, with tests covering a wide range of transactions – inter-bank and monetary policy, as well as cross-border – in Swiss francs. The experiment took place during the fourth quarter of 2021 and involved the Swiss real-time gross settlement system known as SIX Interbank Clearing (SIC).
Integrating a wholesale CBDC into existing core banking systems is ‘complex’ but the experimentation demonstrated that such integration is operationally possible, according to BIS, which added that those involved with Project Helvetia ‘look toward a future in which more financial assets are tokenised and financial infrastructures run on distributed-ledger technology (DLT)’.
The SNB said the project should not interpreted as an indication that it plans to issue a wholesale CBDC.
According to today’s announcement on the 2022 workplan, the BIS Innovation Hub’s Swiss centre and SNB are now compiling the lessons learned from Helvetia’s second phase and also the recently concluded ‘Project Jura’ and plan to ‘subsequently scope new CBDC-related projects using Arena, an in-house blockchain platform being built as a testing ground for central banks’. Potential areas of focus include decentralised finance (DeFi) applications, monetary policy implementation and privacy.
*** BIS’s second Innovation Summit will be titled ‘Money, Technology and Innovation’ and held on 22-23 March.
‘Auer appointed first head of BIS Innovation Hub Eurosystem centre’ – our news story (6 January 2022) on Raphael Auer, currently principal economist for innovation and digital economy in BIS’s monetary and economic department, being named inaugural head of the soon-to-open Eurosystem centre
‘BIS Innovation Hub Eurosystem centre focus to include cybersecurity and green finance’ – our news story (10 December 2021) on the ‘BIS Innovation Hub Eurosystem Centre: Setting the Stage’ event
‘New York fintech innovation centre director sets out priorities’ – our news story (1 December 2021) on the director of the New York Innovation Centre, Per von Zelowitz, setting out his priorities at a New York Fed-hosted virtual event
‘BIS Innovation Hub centres open in Sweden and UK’ – our news story (16 June 2021) on the opening of the Nordic centre and Bank of England-hosted centre
‘CBDCs and SupTech among priorities as BIS Innovation Hub maps out 2021 agenda’ – our news story (23 January 2021) on the BIS Innovation Hub’s last work programme