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Cybersecurity and green finance to fore for Eurosystem innovation hub

Weidmann: "cyber attacks are becoming a major threat to stability" | Global Government Fintech screenshot

Cybersecurity and green finance are among the topics to be prioritised in the work of a centre due to open in Frankfurt and Paris as part of the Bank for International Settlements (BIS) Innovation Hub network.

SupTech and RegTech, central bank digital currencies (CBDCs) and ‘next-generation’ financial market infrastructures will also be initial focus areas for the BIS Innovation Hub Eurosystem centre, which will open in early 2022. The Eurosystem comprises the European Central Bank (ECB) and the central banks of the 19 European Union (EU) member states that use the euro.

The turf was rolled today (10 December) for the dual-location centre during a live-streamed virtual event entitled ‘BIS Innovation Hub Eurosystem Centre: Setting the Stage’ featuring Europe’s most influential central bankers: ECB president Christine Lagarde, Deutsche Bundesbank president Jens Weidmann and Banque de France (BdF) governor François Villeroy de Galhau.

The BIS Innovation Hub was established two years ago 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 on innovation.

Its Frankfurt-Paris centre will collaborate with five existing BIS Innovation Hub offices. These are located in the Swiss city Basel (home city of BIS), Singapore, Hong Kong, London and Swedish capital Stockholm (covering the Nordics), as well as the US, home to the recently launched New York Innovation Centre – a partnership between the BIS Innovation Hub network and the Federal Reserve Bank of New York. A centre in Toronto is also scheduled to open next year in collaboration with the Bank of Canada to ‘serve as a key platform for central bank innovation in the Western Hemisphere’, according to BIS.

‘Cyber attacks becoming major threat to stability’

“Cybersecurity is undoubtedly a top priority for central banks and the financial sector as a whole,” Weidmann said during the event, explaining that “as the global financial system is being transformed by digitalisation, cyber attacks are becoming a major threat to stability.”

“Threats are continuously evolving and becoming ever-more-sophisticated,” he said. “One factor they all have in common is their potential to disrupt the financial sector, leading to losses of money, data and often most importantly the public’s trust in the financial system.”

“Since cyberspace is virtually borderless, international collaboration can create essential value-added in terms of monitoring cyber-risks and enhancing the security and resilience of financial market architectures,” he explained, in the context of the Innovation Hub.  

But digital technologies can also improve monitoring of risks in the financial sector, Weidmann pointed out. “Digitalisation gives supervisors access to a plethora of data at a touch of a button,” he said. “The fascinating prospect of real-time monitoring also poses the challenge of separating signals from noise, of analysing huge quantities of data at high frequencies. Big Data and AI [artificial intelligence] can be the answer if applied appropriately, using the right tools.”

The Bundesbank announced last year that it would ‘open up’ its own innovation lab in Frankfurt to ‘international partner institutions’.

“The Bundesbank partners with start-ups to develop innovative solutions,” Weidmann, who is leaving the Bundesbank at the end of this month, said, adding that the German central bank was “currently working on a prototype tool based on machine learning and natural language processing to analyse company reports for banking supervision and risk-control purposes”.

Green finance’s innovative potential

Weidmann also said that the Eurosystem had “identified a multitude of project proposals that could serve as a starting point for exchange with the BIS Innovation Hub on how to shape the work programme of the Eurosystem centre.”

As examples of pre-existing innovation within the Eurosystem he cited real-time gross settlement (RTGS) system TARGET2, as well as the TARGET Instant Payment Settlement (TIPS) platform launched by the Eurosystem in 2018.

“It has always been our aim to exploit technical possibilities to the maximum, to the benefit of users,” Weidmann said. “Projects involving the tokenisation of central bank digital currencies and ‘trigger solutions’ to link the TARGET services to private blockchain structures are therefore the next logical step.”

He also mentioned opportunities around data management and analytics. “Analysing granular data at the firm, security or loan level can help us [central banks] to better understand the monetary transmission process or the build-up of financial stability risks,” he said, adding that “we are also heavily involved in developing new analytical tools, for example new methods of machine learning.” 

Villeroy de Galhau, meanwhile, described Europe as facing “at least two disruptions” over the next decade: ecological transformation and digital transformation.

“Green finance will be the key element of financial innovation in the years to come,” he said. “But it cannot solve the climate crisis alone. We will do everything that we can do and must do.”

He said that expertise gained through the BdF’s status as secretariat of the Network for Greening the Financial System (NGFS), which launched four years ago, would be helpful for the new centre.

New York centre’s similar priorities

The New York Innovation Centre’s priorities were set out by its first director during a similar online event held only last week.

Per Von Zelowitz said the New York centre’s activity would initially be focused on five ‘opportunity areas’: SupTech and RegTech; financial market infrastructures; the ‘future of money’, including digital currencies, as well as crypto-currencies and stablecoins; open finance; and climate risk.

The BIS Innovation Hub’s overall work programme for 2021-2022 was published in January.

BIS general manager Agustín Carstens and BIS Innovation Hub head Benoît Cœuré also took part in the ‘BIS Innovation Hub Eurosystem Centre: Setting the Stage’ event.

Cœuré said last week that the BIS Innovation Hub was now was running 11 projects in total across its first five centres (excluding NYC) and it was ‘populating them with projects’.

WATCH THE EVENT (42min38sec)

Source: You Tube (Bank for International Settlements)


‘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 to formally launch the centre in the Big Apple

‘BIS Innovation Hub centres open in Sweden and UK’ – our news story (16 June 2021) on the opening of the Nordic centre (in Stockholm) 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 current work programme (2021-2022)

‘Bank of England to host fintech “Innovation Hub”‘our news story (3 July 2020) on BIS’s announcement of its plans to expand its Innovation Hub network to “create a global force for fintech innovation”