On 25 October, the Bank of England’s Fintech Director, Tom Mutton, set out the Bank’s approach to fintech during the Covid crisis and beyond in a virtual speech to the 2nd Bund Summit on digital currency, fintech and inclusive finance.

The Bank’s approach

Mr Mutton restated the importance the Bank attaches to fintech, noting that “fintech touches on almost everything we do”, from the Bank’s primary mission of monetary and financial stability to its own capabilities and capacity as a central bank and regulator. The Bank’s particular focus will continue to be on:

  • Payments for a digital age (including central bank digital currencies (CBDC));
  • Safe adoption of new technologies in finance, with a focus on AI; and
  • Influencing the interaction between the digital economy and finance, including open data and digital identity.

The Bank’s key initiatives

In the context of the economic disruption caused by the Covid-19 pandemic, Mr Mutton explained that the Bank’s ambition is to “play a supportive role in helping fintech and innovators drive the recovery”. The Bank’s key initiatives in this area include:

  • Further exploring the idea of a platform for exchange of open data, to address the financing gap for small fintech business;
  • Investigating safe, efficient and convenient payment options, including CBDC and ‘bank to bank’ payments; and
  • Researching the possible applications of a digital identity framework in the financial sector.

Balancing innovation with the Bank’s wider objectives

Mr Mutton also set out his thoughts on how the Bank of England can achieve the right regulatory balance between encouraging responsible innovation, protecting consumers and promoting stability. Three areas received particular attention:

  • Systemic payment chains
    • Innovation in systemic payment chains must deliver the same protection to existing forms of money and payments.
    • The Bank is working with other UK authorities to deliver its objective of ‘end to end’ oversight of activities in systemic payment chains.
  • Profitability
    • Mr Mutton noted that 80% of UK fintechs are loss-making, with the viability of some threatened by Covid-19
    • The Bank will take a particularly close interest in the strategy and business model of fintechs that are UK deposit takers, authorised and regulated by the PRA. This follows the PRA’s recent consultation paper on new and growing banks, which included similar themes.
  • Operational resilience and outsourcing
    • The Bank and FCA have recently issued consultations setting out the requirements for good risk management.
    • The AI Public Private Forum will issue recommendations for how regulation can support the safe adoption of AI by the end of next year.

CBDC

The speech closed with an update on the Bank of England’s work on CBDC. Mr Mutton stressed that the Bank of England has yet to make a decision on whether or not to launch a retail CBDC, but went on to set out a number of characteristics that it would be helpful for a retail CBDC to display and note some of the challenges that could be involved in pursuing a CBDC.

Few of the comments made by Mr Mutton will come as a surprise but they highlight, in particular, continuing regulatory concerns about the growing systemic impact of fintechs in the payments space, and the sustainability of business models that prioritise growth over profitability.

Clive Cunningham

Clive Cunningham
Partner
+44 20 7466 2278

Mark Staley

Mark Staley
Senior Associate
+44 20 7466 7621

Harry Millerchip

Harry Millerchip
Associate
+44 20 7466 6447