Central bank digital currencies (CBDCs), SupTech and RegTech, and open finance are among six priorities set out by the Bank for International Settlements’ (BIS) Innovation Hub in its work programme for 2021-2022.
BIS, whose membership comprises 63 central banks and monetary authorities, set up its Innovation Hub in 2019. Its work programme, which reflects the topics perceived as most significant for fintech governance and innovation in the coming year, references four CBDC projects, two of which are new initiatives.
‘Next-generation’ financial market infrastructures (FMIs), green finance and cyber-security are the further three areas identified as being of ‘critical importance’ this year as the Innovation Hub looks to drive international collaboration.
“This work programme shows our commitment to exploring in the most practical ways how best to harness technological change for the benefit of central banks and create public goods to support the global financial system,” said Innovation Hub head Benoît Cœuré, who is based at BIS’s headquarters in the Swiss city of Basel.
CBDC projects on the rise
CDBCs are being explored by most central banks, with particularly notable examples including China’s digital yuan, which seems to register almost daily progress, and the European Central Bank’s (ECB) digital euro explorations.
The newly announced Innovation Hub CBDC projects will be: a proof-of-concept platform using multiple wholesale CBDCs to explore the feasibility of faster and cheaper cross-border payments; and a technological research project and associated prototype(s) for tiered retail CBDC distribution architectures.
The 11-page work programme notes that other Innovation Hub pre-existing CBDC-related activities remain ongoing, specifically ‘Project Helvetia’, an experiment showing the feasibility of integrating tokenised assets and central bank money on which it is working with the Swiss National Bank (SNB) and financial infrastructure operator SIX; and building on the experience of ‘Project Inthanon–LionRock’, a joint-initiative between the Bank of Thailand and the Hong Kong Monetary Authority (HKMA).
SupTech and Regtech, open finance… and more
SupTech is shorthand for the use of innovative technology by supervisory agencies, while RegTech is the application of technology to improve regulatory compliance – again, both are growing in prominence. Global Government Fintech reported just last week that the ECB is currently running its first ‘SupTech’-specific procurement with a planned spend of €227.5m (about £202.25m).
In this area, the Innovation Hub is exploring a proof-of-concept for a regulatory reporting platform using data analytics and data visualisation to provide supervisors with better insights to address risks.
The work focus for open finance – which describes the extension of open banking data-sharing principles to enable third-party providers such as fintech companies to access customers’ data across a broader range of financial sectors and products – is digitising trade finance.
In respect of FMIs – networks of systems that make payments possible – the Innovation Hub is exploring how the hot topics of how digital identity, payments and data-sharing can be made open, interconnected and available across borders.
For green finance, and with the profile of ‘environmental, social and governance’ (ESG) investing on the rise, the Innovation Hub is exploring a distributed ledger technology solution for the distribution of tokenised green bonds to retail investors.
Cyber-security is a mounting concern across the financial sector. BIS published research earlier this month that set out how the financial sector has been hit by hackers relatively more often than other sectors during the Covid-19 pandemic. The European Union (EU) last month unveiled a new cybersecurity strategy as the bloc steps up its efforts to combat a growing number and increasing severity of threats.
Working group chairs appointed
The work programme will be driven by BIS’s first three Innovation Hub centres in Hong Kong, Singapore and Switzerland. Further initiatives will be undertaken by new Innovation Hub centres that are due to begin operations ‘in the coming months’.
Global Government Fintech reported last summer last summer that the Innovation Hub’s geographic footprint was to grow significantly via the establishment of four further centres with the Bank of England, Bank of Canada, European Central Bank/Eurosystem and four Nordic central banks (Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank). BIS also announced a ‘strategic partnership’ with the US Federal Reserve.
As well as announcing its new work programme, the Innovation Hub has also launched the ‘BIS Innovation Network’ to ‘support Innovation Hub priorities, share knowledge about tech projects and discuss innovative answers to problem statements relevant to central banks’.
Six working groups have been set up by the Innovation Network mirroring the Innovation Hub’s six thematic priorities. Picking up the baton as group chairs are: Bank of Lithuania’s Marius Jurgilas (CBDC); Reserve Bank of Australia’s Susan Slocum (Suptech and Regtech); Central Bank of Brazil’s Aristides Andrade Cavalcante Neto (open finance); Bank of Thailand’s Siritida Ayudhya (next-generation FMIs); Central Bank of Ireland’s Sharon Donnery (green finance); and Bank of Israel’s Tomer Mizrahi (cyber-security).