How FinTech could impact the central€¦ · The importance of harmonisation . 4 . and the oversight perspective . ECB-Unrestricted . Should a central bank issue 3 . digital central

How FinTech could impact the central bank roles in market infrastructures

36th ESCB/SSM Social Dialogue meeting (in ESCB composition) Frankfurt am Main 16-17 March 2017

Michael Diemer Chief Services Officer Dirk Bullmann Adviser Directorate General Market Infrastructure and Payments

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The FinTech challenge: focus on blockchain 1

Can FinTech and blockchain impact the central bank operator role? 2

The importance of harmonisation and the oversight perspective 4

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Should a central bank issue digital central bank currency? 3

Conclusions 5

How FinTech could impact the central

bank roles in market

infrastructures

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The FinTech challenge: focus on blockchain

Life on the fast lane: technological innovation as constant game changer

What is FinTech?: innovation that could result in new business models or products with disruptive potential in the financial sector

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Source: Fintech Control Tower, Expand, November 2016

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Source: Fintech Control Tower, Expand, November 2016

The FinTech challenge: focus on blockchain ECB-UNRESTRICTED

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www.ecb.europa.eu ©

What is blockchain / DLT? • A distributed ledger is a shared database to record either transactions or

account balances for a given set of assets and users • DLT users can modify accounts in the distributed ledger and consider it

as authoritative even without central management system

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DLTs BLOCKCHAINS

BITCOIN

CONSENSUS

LEDGERS

SMART

CONTRACTS

Focal point: Blockchain and distributed ledger technologies (DLT)


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Source: World Economic Forum, 2016

6

The DLT race: rapid growth of awareness and investments

Focal point: Blockchain and distributed ledger technologies


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Operations Oversight Catalyst

Cash

Securities Collateral Financial integration

Impact of FinTech / DLT on central bank roles?

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Conclusions 5



infrastructures

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Could DLT become an integral part of the future Eurosystem market infrastructure?

DLT impact depends on how market players decide to

embrace it

In-house solutions of individual

market player

Group of core market players

adopt DLT based service

P2P solution based on DLT

Can FinTech and DLT impact the central bank operator role?

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What potential use cases to be studied?

Potential areas of application (according to market players)?

• Cross-border payments / faster payments

• Securities issuance/ clearing/ settlement

• Collateral management

Implications on efficiency

Implications on safety

• Reduced reconciliation costs • Automation (smart contracts) • Credit / liquidity needs

• Legal and regulatory aspects • Operational aspects (e.g. cyber resilience) • Governance (e.g. crisis management)

ECB-Unrestricted Can FinTech and DLT impact the central bank operator role?

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General analysis: • Could current Eurosystem services (TARGET2 / T2S) safely and

efficiently run on DLT? • Joint assessment with Bank of Japan has been launched

Concrete feasibility study: • Could potential new services be based on DLT (e.g. offering issuance

service to CSDs)?

Holistic perspective: • Should central banks support DLT-based market solutions (for efficiency

of ecosystem) and would this maybe even alter the central bank role?

What potential use cases to be studied?


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• Eurosystem market infrastructure services are currently

being rolled out (TARGET2-Securities) and further review is

ongoing (“Vision 2020”).

• Distributed ledger technologies (DLT) cannot be the solution

at this stage of development but benefit of possible future

use is being explored.

Hammer (DLT) looking for a nail (Eurosystem market infrastructures)?


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Conclusions 5



infrastructures

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ECB-RESTRICTED Should a central bank issue digital central bank currency?

Central bank digital currency (CBDC)

Granting central bank money access to non-banks

Should a central bank issue digital central bank money?

= CBDC definition (“what”)

CBDC objectives (“why”)

CBDC implementation (“how”)

The journey

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Non-banks holding balances with central bank

(similar to TARGET2 accounts)

Dematerialised (tokenised) cash

Due to low volumes, no current material risk for the central bank’s tasks pertaining to monetary policy, price stability and financial stability



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Considerations around CBDC (examples):

• Ongoing market-led initiatives around issuance of digital coins

• Restricted or unrestricted convertibility of digital central bank money into commercial bank deposits and cash (if conversion was unrestricted, bank runs may evolve faster and impact funding base of banks)

• Possible impact on banknotes (e.g. production costs)

• Possible impact on monetary policy transmission and (unconventional) monetary policy measures



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Conclusions 5



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The importance of harmonisation and the oversight perspective

Standardisation and harmonisation

Two dimensions: • Different DLT solutions need to smoothly interact • DLT world needs to interoperate with legacy systems

Financial market integration efforts must not be jeopardised by new technologies (Eurosystem market infrastructures facilitate financial market integration in Europe and supports Capital Markets Union [CMU])

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Coordinated efforts are necessary to harmonise potentially DLT-enabled business processes at the industry level and with public authorities

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DLT and regulatory aspects: not stifle innovation

Impact on regulation (e.g. oversight frameworks)? For example:

Assess how FinTech could help cover data requirements (“RegTech”)

Regulation agnostic to underlying technology? Need for dedicated regulation or adapting existing regulation?

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Conclusions 5



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• FinTech bears disruptive potential

• FinTech/DLT could impact and potentially even alter the central bank roles in market infrastructures

• Current DLT cannot be the solution in the ongoing review on the future of Eurosystem market infrastructures but potential future role and impact is being explored

Conclusions

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ECB has established an internal organisational structure around FinTech

ECB FinTech Steering / Coordination • Market participants • Academia • Standard-setting

bodies (e.g. CPMI)

Study of the impact of technological innovation on Eurosystem market infrastructures

Monitoring of market developments in the field of FinTech

ECB-internal Fin-Tech network (internal communication and talent management)

Analysis of aspects surrounding the issuance of digital central bank money

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Operator / Catalyst Overseer Research

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Thank you for the attention! Questions?



infrastructures

Documents

How FinTech could impact the central€¦ · The importance of harmonisation . 4 . and the oversight perspective . ECB-Unrestricted . Should a central bank issue 3 . digital central