A report has been issued under the name Future of Finance – Review on the Outlook for the UK Financial System: What It Means for the Bank of England. The review was chaired by a Huw van Steenis, appointed as a Senior Adviser at the BoE in May 2018 on long-term financial issues, and previously a banker at Morgan Stanley and Schroders.
The report is definitive in guiding the future strategy and actions of the BoE: the BoE issued their response on the same day and confirmed they were already actioning it
The only trouble is that the Future of Finance report is ludicrous, elitist, sycophantic and vague, writes Bob Lyddon, Founder, Lyddon Consulting.
It is ludicrous in proposing the creation of a National Payment Strategy Council, when the BoE’s own secondee – Robert Stansbury – was the central figure in the acceptance, by New Payment System Operator/Pay.uk (of which he was also sole guarantor), of the recommendations and blueprint for New Payments Architecture just last year.
That came from the Payment Strategy Forum (which differs in what way from the National Payment Strategy Council?)
The report is elitist in drawing extensively on evidence sourced from McKinseys and Boston Consulting, secondary evidence from the Financial Times and Wall Street Journal, evidence on examples from far and wide supplied by their sponsoring authorities – like the Riksbank in Sweden, Den Nederlandsche Bank in the Netherlands, and the Digital Transformation Agency in Australia – and opinions sought from Very Senior Persons in the finance industry, which have a tendency to be self-serving.
Hard evidence of what is happening on the ground, in the UK, amongst the huddled masses of people and businesses, is somewhat harder to discern.
This leads on to the three aspects of sycophancy. Firstly, the eulogising of the BoE’s RTGS renewal project on p47 (see more below).
Secondly, the swallowing whole of the “big bank” spin on access to cash: that UK payment service users are digitizing, that the cost of letting them get cash is too high, and that banks are not hitting their revenue targets (what a shame!). There is no hint that the fall in cash usage may be due to banks’ branch and ATM closures, which serve their profitability. Instead we have the patronising, elitist, “Blue Badge” espousal of actions to help cash users not “get left behind”, the poor old dears, and even a ludicrous suggestion that access to cash may need to be subsidised from public funds.
Thirdly we have the sycophantic airbrushing-out of any hint that the future might be about dealing with problems in the present caused by mistakes in the past. So we have no mention of housing market distortions caused by low interest rates set by the BoE, by the BoE’s Funding-for-Lending Scheme and by Help-to-Buy. Nor is there mention of Authorised Push Payment fraud (other than in nano-sized type in a chart on p46) or the contribution to this type of fraud of the BoE’s repeated non-objections to the raising of the Faster Payments system limit.
The report is also vague. Its content is repeated three times, in slightly greater detail each time, but not to a level that illuminates.
Non-bank Payment Service Providers will have initially been encouraged by the summary on p13 that “The Bank should review who can access its infrastructure, including reserves accounts, to support greater innovation, focusing also on the “regulatory package” for access”. This might have meant that PSPs could obtain safeguarding accounts at the BoE rather than having to open them in Cyprus, Malta or the Baltics.
The detail on p47 gives the caveats: “Any review should be based on a thorough understanding of the business model of these companies and their implications for financial stability and monetary policy….thorough exploration of whether there is a substantive case for access, and, crucially, what safeguards would need to be in place”.
But one has to guess what this actually means in practice. Will access still be rationed? Will there still be an entry barrier determined by cost of regulatory compliance and IT infrastructure and resilience? Will having a Reserve Account even be the PSP’s own choice? The “implications for…monetary policy” could mean that the BoE can demand that a PSP open a Reserve Account. If the PSP is large enough in terms of numbers of accounts, then it would frustrate the BoE’s transmission of its Base Rate changes (if it ever made any) into the wider economy if a significant player did not have a Reserve Account and was not part of the Sterling Monetary Framework.
So this could all just be a way of saying that PSPs, if they are successful, might have to be brought within the Sterling Monetary Framework.
Then, also on p47, the report makes lazy and challengeable assertions within its sycophantic and fulsome praise of the BoE’s project to re-vamp CHAPS (which suffered a major outage in 2014). The RTGS renewal programme is cited as “embracing global data standards through ….the ISO20022 payments messaging standard, which standardises transactions information”.
ISO20022 XML is being used in various places around the world but that does not make it global. It is a data format, an adaptation of XML, not a standard. It does not standardise transaction information but rather, thanks to its extensibility, enables greater divergence: whilst all implementations of the Single Euro Payments Area schemes are based on the single sets of guidelines issued by the European Payments Council (which in turn are based on the ISO20022 XML base definitions), each country has its own versions.
The same list on p47 lays claim to two other benefits of the RTGS renewal:
- “Exploring “plug and play” functionality with distributed ledger technology-based business models and synchronisation with other payment ledgers”;
- “Enabling members to apply data analytics to transaction data through an Application Programming Interface (API)”.
What does this mean? “Exploring” plug-and-play (a cliché in its own right) does not mean delivering it. “Enabling members to apply data analytics” may simply mean that data will be available online in camt via an API, rather than through Enquiry Link: big deal. In fact camt/API may count as a “plug-and-play” approach, so could the two points be fused into “simplifying interface techniques between CHAPS and its members so as to enable wider data transfer and by extension wider and easier usage of data on both sides”?
Is the fusion justifiable? The Future of Finance report leaves this, as so much else, up in the air, and subject to further work to be carried out – no doubt over many years and by Senior Advisers.