In a speech prepared for the Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House, Mark Carney, governor of the Bank of England (BoE), revealed that the BoE is launching a fintech accelerator.
“I am announcing tonight that the Bank is launching a fintech accelerator to work in partnership with fintech firms on challenges that we, as a central bank, uniquely face,” Carney says in his prepared remarks. “The accelerator will work with new technology firms to help us harness fintech innovations for central banking. In return, it will offer firms the chance to demonstrate their solutions for real issues facing us as policymakers, together with the valuable ‘first client’ reference that comes with it. With time, the accelerator will build a network of firms working in this space for the benefit of us and them alike.”
Distributed ledger technology is an important aspect of emerging fintech. “[If] distributed ledger technology could provide a more efficient way for private sector firms to deliver payments and settle securities, why not apply it to the core of the payments system itself?” Carney says. “The great promise of distributed ledgers for central banks is their potential to enhance resilience. Distributing the ledger means multiple copies of the system. It can continue to operate if parts get knocked out. That removes the single point of failure risk inherent in a centralized system.”
However, the BoE is not prepared to risk the stability of the financial system by introducing still unproven emerging technologies too early in the payment system. Rather, the BoE intends to thoroughly study the opportunities offered by distributed ledger technologies (DL) as well as the challenges that need to be met before it could be used in central banking. “To help distinguish DL’s potential from its hype, the Bank has set up our own as a proof of concept,” said Carney.
“The distributed ledger is a genuine technological innovation that demonstrates that digital records can be held securely without any central authority,” reads the conclusion of a BoE a research paper titled “Innovations in Payment Technologies and the Emergence of Digital Currencies,” published in 2014. The “One Bank Research Agenda” discussion paper, issued by the BoE in February 2015, noted that blockchain fintech could reshape the financial industry and called for further research to devise a system that could use distributed ledger technology without compromising a central bank’s ability to control its currency. In September, Bitcoin Magazine reported that Andrew G. Haldane, chief economist at the Bank of England (BoE), hinted at the possibility that the U.K. government might issue a digital currency.
The announcement of the BoE’s fintech accelerator can be seen as one more step toward mainstreaming distributed ledger technology and planning for its introduction in the overall economy. The BoE notes that it is the first central bank to establish a dedicated fintech initiative that works directly with fintech firms on a potentially wide range of topics.
In particular, the accelerator will appoint fintech firms to run short proof of concept (POC) projects in a number of priority areas. Each POC will have clearly defined requirements and success indicators.
“The selection process will be competitive and transparent,” states the BoE. “We will make clear our priorities, so that relevant firms can register their interest. The selected firms will have the opportunity to test and demonstrate their products in a live environment, working closely with Bank experts.”
PwC is one of the first firms to partner with the BoE’s fintech accelerator. The company announced that a team of PwC engineers and specialists in testing worked with the BoE to design and carry out a proof of concept built to explore the potential opportunities and challenges of using distributed ledger technology (DLT) for payments settlement.
“This proof of concept brought to life the core features of distributed ledgers, greatly enhancing the bank’s understanding of DLT,” said BoE’s Chief Information Officer Rob Elsey. “With PwC’s support, the bank’s developers used the latest techniques and software to deliver this POC and have gained further skills that will enable additional rapid proof of concepts in the future.”
“This is a significant piece of work and PwC are very excited to have been able to support the bank in developing their first DLT proof of concept, which will enable the Bank to gain a better awareness of DL from both a technology and policy perspective,” added Nick Bouch, financial services data leader and partner at PwC.