By working together the full potential of FinTech can be unlocked ensuring a smooth evolution to tomorrow’s financial system, a senior Bank of Canada said on Friday.
Bank of Canada senior deputy governor Carolyn Wilkins said in a speech to Payments Canada in Calgary, Alberta, that blockchain technology could help to reduce the time it takes to clear and settle syndicated loans, which could free up capital leading to savings for global banks of up to $20 billion a year in back-office expenses.
However, while Wilkins is keen to help companies develop new technologies, such as cryptocurrencies, several issues need to be addressed first, such as regulatory acceptance, before blockchain is able to deliver results for the financial services sector.
Authorities must assess innovations in light of their impact on consumer protection, financial inclusion, market integrity, competition policy, and financial stability, she said.
Authorities should support innovation, but the bar will be high, especially for core financial services.
The Bank of Canada is already studying the idea of cryptocurrency and is running an experiment using the so-called distributed ledger system. By working with FinTech companies such as Payments Canada, Canadian banks, and the R3 consortium, a group of over 50 banks including Barclays Plc., and JPMorgan Chase and Co., the Bank of Canada can better understand the mechanics of blockchain.
Our only goal at this stage is to understand the mechanics, limits and possibilities of this technology. The plan is to build a rudimentary wholesale payment system to run experiments in a lab environment. This is an experiment in the true sense of the word.
Before any new system can be put into place, though, Wilkins addressed the fact that there are hurdles that need to be cleared first. Regulators need to ensure that financial markets and consumers are protected whilst data security, cybersecurity, and terrorist financing issues are tackled. She stated further that she expects FinTech to lead to an evolution across a broad range of financial services, rather than the revolution that some believe.
Incumbent financial institutions will adapt to the changing technology while new players will join the financial network, and those with strong business models will survive, she said.
While it is important to filter out the hype surrounding FinTech, I am convinced that it could have a net positive impact on the financial system.
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