February saw a very crypto-centric month for the industry, with the UK Government publishing proposals for its regulation, along with warnings that many current stablecoins are unlikely to pass risk tests.
At Banking Circle, we launched our Agency Banking offering. Created for institutions seeking rapid access to the Euro area, we’re pleased to announce we can now provide Agency Banking and sponsorship using our clearing and settlement connection.
We also published a new whitepaper, The Perfect Payment Partner? What merchants are looking for from their PSPs, for which we surveyed over 900 European SME merchants to consider the opportunities for PSPs and marketplaces to deliver customer value and enhance their competitive edge.
For our latest Knowledge Circle podcast we were joined by payments and banking experts from Sifted, Rapyd and Mollie, to discuss how the barriers to financial inclusion can be broken down with interoperability. Listen again here.
Finally, our Chief Business Officer, Livia Benisty, shared her thoughts on Exceeding Merchants’ Payment Expectations for Treasury Management International, as well as how AI for AML can transform transaction analysis in this article for The Stack.
Here are some other important stories from the industry you may have missed in February.
Tech Nation to close as funding pulled
The UK’s growth hub for tech startups, Tech Nation, has announced it will cease operations at the end of March after the UK government terminated its funding.
Tech Nation was set up in 2014 and helped bring thousands of talented tech workers to the country, running the UK’s global tech talent visa. It also worked with almost a third of the nation’s 122 unicorns since 2011.
It was dependent on core grant funding from the Department for Digital, Culture, Media and Sport (DCMS), and this is now being awarded to Barclays Bank. Tech Nation said that without the funding, its activities “are not viable on a standalone basis.”
Read more on that here.
Government publishes proposals for crypto regulation
The Treasury says the measures it is proposing are designed to mitigate the most serious risks involved with crypto-assets, while still “harnessing their advantages.”
The proposals on which it is consulting will:
- Lay down rules on crypto-asset promotions which are fair, clear and not misleading,
- Enhance data-reporting requirements, including with regulators,
- Implement new regulations to prevent so-called pump and dump, where an individual artificially inflates the value of a crypto asset before selling it.
Learn more about that here.
Digital pound likely to be launched this decade
The Treasury and the Bank of England have said that a state-backed digital pound is likely to be launched later this decade, although not before 2025 at the earliest.
Both institutions want to ensure the public has access to safe money that is easy to use in the digital age, with the Chancellor describing a central bank digital currency (CBDC) as a new “trusted and accessible” method of payment.
The Treasury and the Bank of England formally began a consultation for the digital currency, on Tuesday 7th February.
Read more on that here.
Plans for an EU-wide digital wallet outlined
Members of the European Parliament (MEPs) have shared plans for an EU digital wallet that will provide EU Citizens with digital access to key public services across EU borders.
At the moment, EU citizens have to use commercial providers to authenticate themselves online, which the European Parliament believes “raises trust, security and privacy concerns.”
The new European digital identity framework (eID) will mitigate the need for this, allowing them to identify and authenticate themselves online via a European digital identity wallet. It also gives users “full control” of their data and lets them decide what information to share and with whom, the EP says.
They have also shared that the digital wallet will always be voluntary.
Find out more on that news here.
ECB to stress test 99 eurozone banks
The European Central Bank (ECB) will stress test 99 eurozone banks in 2023, including 57 of the eurozone area’s largest banks, as part of the 2023 EU-wide stress test coordinated by the European Banking Authority (EBA).
A further 42 medium-sized banks outside of the EBA test remit will also face similar tests by the ECB, but taking into account their smaller size and lower levels of complexity.
The EBA and ECB will work together with national supervisory authorities to apply its stress test methodology and templates, as well as the scenarios provided by the European Systemic Risk Board (ESRB).
The EBA will publish the results by the end of July 2023.
FSB warns that current stablecoins may not meet future regulatory standards
The Financial Stability Board (FSB) has said that many existing stablecoins would fail to pass new risk management rules currently being formulated.
The G20 has charged The FSB with coordinating the delivery of a comprehensive regulatory framework for crypto-assets. It is expected to complete this later in the year.
Recommendations for stablecoins include guidance to strengthen governance frameworks, clarify and strengthen the redemption rights, as well as the need to maintain effective stabilisation mechanisms, among other revisions.
In a letter to G20 finance ministers, FSB chair Klaas Knot said: “The FSB’s work concludes that many existing stablecoins would not currently meet these high-level recommendations, nor would they meet the international standards and supplementary, more detailed BIS Committee on Payments and Market Infrastructures-International Organization of Securities Commissions guidance.”
FSB heightens investigation into DeFi risks
The FSB is also stepping up investigations into decentralised finance (DeFi) due to the potential for spill over risks to traditional finance.
In a report to the G20, The FSB noted that “the extent to which these vulnerabilities can lead to financial stability concerns largely depends on the interlinkages and transmission channels between DeFi, traditional finance and the real economy. To date, these interlinkages are limited. However, if the DeFi ecosystem were to grow significantly, then the scope for spillovers would increase.”
The Board has stated its intention to undertake additional analysis of the growth and implications of the tokenisation of assets, as it could increase linkages between crypto-asset markets/DeFi, traditional finance and the real economy.
Read more on that here.
FCA sets up new Innovation Advisory Group
The Financial Conduct Authority (FCA) has appointed seven new FinTech and RegTech advisers to help drive innovation in the sector.
The Innovation Advisory Group (IAG) will be tasked with identifying areas of innovation in the financial services sector, speeding up initiatives, and alerting the FCA on key issues with technology.
See the full list of appointments here.
BoE publishes RTGS Consultation Response Paper
The Bank of England (BoE) has published its Consultation Response Paper on the Roadmap for the Real-Time Gross Settlement (RTGS) service beyond 2024.
In April 2022, it issued the consultation to understand the industry’s views on what innovative features it would like to see the BoE focus on following the introduction of the new core RTGS settlement engine in 2024.
The BoE received 34 formal responses from the consultation. Respondents expressed their desire for the Bank to continue to work collaboratively with the industry to create detailed propositions to enhance RTGS.
Read the paper here.
Consultation on BNPL begins
Following months of calls for regulation on the Buy Now Pay Later (BNPL) sector, the UK government has launched a consultation. The consultation will propose that BNPL firms be regulated by the Financial Conduct Authority (FCA), and consumers will be able to report complaints to the Financial Ombudsman.
The Treasury believes such new rules would protect up to 10 million borrowers from being “exposed to financial harm.” It also means that BNPL companies will be required to do better affordability checks on customers, as well as provide clearer information on loans.
Find out more.
UK FinTech investment dropped by 56% in 2022
The UK saw FinTech investment drop to $17.4bn compared with $39bn in 2021, according to KPMG, however, it remains a world leader in the sector. There were 593 private equity and venture capital FinTech deals in the UK last year, compared to 724 the year before.
In its latest ‘Pulse of fintech’ report, KPMG said investments in the second half of 2022 were much lower than the first half due to “higher interest rates and inflation alongside downward pressure on valuations dampened investor appetite.” However, KPMG described 2022 as still being a strong year for UK FinTech. Investment with UK FinTechs attracted more funding than those in the rest of Europe combined.
Get the report here.
FCA welcomes new open banking report
The Financial Conduct Authority (FCA) has welcomed a new report on the future of open banking development in the UK. In March 2022, the Treasury, the FCA, the Competition and Markets Authority (CMA) and the Payment Systems Regulator (PSR) announced a new committee to build on the success of open banking.
This committee assembled a non-decision-making consultative forum, the Strategic Working Group (SWG) which in turn conducted the research to produce the report. The report looks at gaps in the open banking system and the reliability of the ecosystem.
Read more on that here.