How Will Technological Developments Affect the Financial Sector?
The Bank of England is best known as the central bank which issues banknotes and maintains the financial stability of the UK including the integrity of the pound sterling.
Despite its somewhat staid reputation and the fact that it’s affectionately referred to as the ‘Old Lady of Threadneedle Street’ (after its location in London), it has been in the forefront of researching new technologies, and how they will affect both the UK and global banking systems.
Changes in Loan Provision
The internet has already led to a global revolution in the way consumers apply to borrow money. The best short term loans can now be found online. Borrowers can fill in the application in a matter of minutes, receive fast approval from the direct lender and have the money transferred into the account on the same day subject to them passing affordability checks. This promises to be only the start of more wide-reaching changes to the financial sector.
How Does the Bank of England Support Fintech Companies?
The Bank of England has played – and continues to play – a leading role in helping Fintech companies. This role has been in terms of research to examine how innovations and developments will make the banking system more efficient and resilient. In addition, their concern is how Fintech businesses will change the way that both consumers and businesses make use of financial services.
Apart from research, the Bank of England also plays an advisory role. Any business offering financial services in the UK is regulated to protect both shareholders and consumers. Therefore, they provide support for companies in their dealings with such governmental organisations as the FCA (Financial Conduct Authority) and the PSR (Payment Systems Regulator).
What Does the Bank of England Think of Digital Currencies?
The Bank of England carried out its first research into the implications of digital currencies in 2015. Their conclusions were that although it didn’t present a risk for UK’s financial stability, it was a potential risk for investors. The fact that cryptocurrencies aren’t issued and backed up by a central bank means that they have no intrinsic value apart from investors’ beliefs about their future supply and demand. Factors like their extreme volatility means they show classic signs of an investment ‘bubble’.
In a speech in March 2018 entitled ‘The Future of Money’, Mark Carney (the Governor of the Bank of England) pointed out a number of problems regarding digital currencies. These included:
- the continued lack of recognition by major retailers
- the slow transaction times
- the high transaction fees
- the risks of criminals using them for illegal activities
- the energy demands of block-chain mining
Mr Carney also said that the underlying technology of DLT (distribution ledger technology) had exciting possibilities and a number of benefits. One was how decentralised block-chain technology could aid peer-to-peer lending. However, he believed that more research had to be carried out to rectify its limitations before the Bank of England would give its official approval to the adoption and regulation of digital currencies.