The future of everyday banking services is digital with new financial technologies, collectively known as fintech, already transforming the way UK banks and their customers do business
The UK currently offers one of the best environments for developing fintech for retail and wholesale use, while also benefiting from one of the strongest regulatory frameworks in the world.
As an industry, UK banking is now well placed to leverage this model and lead initiatives towards what we believe to be the ultimate goal of global harmonisation of regulation that evolves alongside technological developments, encouraging further innovation, while still ensuring the protection of business objectives and customers.
For this goal to be achieved, it’s critical that regulation is able to keep pace with these fast-changing technologies. Great regulation, however, only exists by design, so a collaborative approach by policymakers, regulators and the banking industry will be necessary to support a seamless evolution of banking services.
So what could a future banking landscape look like? One of the buzzwords in the digital space is blockchain and its potential to be a disrupter. Looking beyond the hype, many in “traditional” banks are not threatened by the growth in this technology, but excited at its potential.
Blockchain, based on distributed ledger technology (DLT), the system behind bitcoin, could dramatically speed up the process of securing trade finance, for example. It allows information about people and transactions to be shared securely across a wide range of counterparties, with real-time updates that could make it quicker and simpler to exchange assets without the need for centralised bodies to check and verify the paperwork. Technology replaces paper, saving time and money, while improving accuracy.
Another potential benefit from the use of blockchain is enhanced cyber security. While the security of DLTs has not yet been subject to significant, broad-based testing in the financial services industry, the benefit of distributing data across a network of connected servers, as opposed to a centralised entity, arguably makes a cyber-security breach both less likely and less effective, primarily as there is no single point of attack.
Great regulation only exists by design, so a collaborative approach by policymakers, regulators and the banking industry will be necessary
As we prepare to leave the European Union, government and businesses are firmly focused on building strong global trade links. Technology such as blockchain could be an essential component of these relationships as it enables improved trade processes and outcomes.
The industry is not working alone in developing these products. The UK’s banking conduct regulator, the Financial Conduct Authority, already offers banks and technology companies an opportunity to test new ideas through its regulatory sandbox, a model that has been emulated from Singapore to Sydney. Closer to home, the Bank of England has a similar initiative in the form of its Fintech Accelerator programme.
Traditionally, we’ve adopted a “wait and legislate” model, with rules drafted following the development of new technologies and products. But now we need an agile model, one that evolves alongside the technology and works towards a more harmonised international regulatory framework, including regulatory support for globally accepted standards, demonstrating best practice and regulatory compliance for emerging technologies.
For example, existing public blockchain networks can be seen operating across many jurisdictions, as the technology is not limited by geographic boundaries or enforcement jurisdictions by a single legal and regulatory regime. To provide an effective regulatory framework in response to DLT developments, that framework should be based on harmonised international standards rather than local or regional requirements.
The jurisdiction that best allows its companies to export their services by harmonising its regulatory approach will have an advantage over others. UK regulators should, therefore, now look to ensure their regimes do not present undue hurdles to companies trying to employ technologies such as cloud computing or DLT. Success here will benefit large and small firms alike.
The banking sector’s single biggest ask is for early clarity and collaboration with policymakers, regulators and supervisors to develop standards that keep pace with the way technology is developed and used, while maintaining an even regulatory landscape and consumer confidence.