Mark Carney on realising the potential of fintech

Regulatory support for the growth of fintech in London has certainly been evident in recent years.

Democratisation of financial services, greater consumer choice, lower costs and greater resilience of financial infrastructure are just some of the reasons why the Bank of England (BoE) is encouraging financial technology (fintech) development in the UK.

That’s according to Governor Mark Carney, who addressed an audience of fintech entrepreneurs, regulators, politicians and banks at the UK Treasury’s inaugural International Fintech Conference in London.

Regulatory support for the growth of fintech in London has certainly been evident in recent years. The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have changed their authorisation processes to support new business models, and the BoE also established a fintech accelerator last year.

To date, it has worked with a number of firms on proofs of concepts relating to cyber security, using artificial intelligence (AI) for regulatory data, and distributed ledger technology.

But what is interesting in this speech is the BoE’s focus on ensuring “the right hard and soft infrastructure are in place” – a central plank of the Governor’s vision of maintaining London’s role as the centre of fintech excellence.

“Over the centuries, we have learned that markets and innovation thrive with the right hard and soft infrastructure”, he said. “Hard infrastructure ranging from transport links to broadband and payments architecture; and soft infrastructure from the rule of law to market practices, codes of conduct, and regulatory frameworks.”

So how does this relate to fintech, one may wonder? Governor Carney continued: “With respect to soft infrastructure, the Bank is assessing how fintech could change risks and opportunities along the financial services value chain. We are then using our existing frameworks to respond where necessary.”

On developing the right “hard infrastructure”, Carney pointed to how the BoE is working to develop the financial system’s hard infrastructure to allow innovation to thrive while keeping the system safe. In particular, he highlighted how it is widening access to some of its systems to include Payment Service Providers (PSPs) in order to boost both competition and system resilience.

“The UK has led the world in innovation in the wider payments ecosystem. And we are committed to keeping pace with customer demands for payments that are seamless, reliable, cheap, and ubiquitous. Our challenge is how to satisfy these expectations while maintaining a resilient payment systems infrastructure.

“That’s important because the Bank operates the UK’s high-value payment system ‘RTGS’ (Real-Time Gross Settlement) which each day processes £1/2 trillion of payments on behalf of everyone from homeowners to global banks. Understandably, we have an extremely low tolerance for any threat to the integrity of the system’s “plumbing”.

“Currently, only 52 institutions have settlement accounts in RTGS. Indirect users of the system typically access settlement via one of four agent banks. These indirect users include 1,000 non-bank PSPs at the front-end of the financial services value chain. As they grow, some PSPs want to reduce their reliance on the systems, service levels, risk appetite and frankly goodwill of the very banks with whom they are competing.”

Interestingly, the BoE has decided to widen access to RTGS to include non-bank PSPs in order to help them compete on a level playing field with banks, and is working with the FCA and HM Treasury to make this a reality.

This ties in with Carney’s final example of the “soft and hard infrastructure” – coordinating advances in hard and soft infrastructure ensure the Bank can help the industry realise the true promise of fintech.

“New technologies could transform wholesale payments, clearing and settlement. In particular, distributed ledger technology could yield significant gains in the accuracy, efficiency and security of such processes, saving tens of billions of pounds of bank capital and significantly improving the resilience of the system.”

A full copy of Mark Carney’s speech is available here.

President of the ACI, Marshall Bailey responds to FEMR

Marshall Bailey, President, ACI Financial Markets Association:


“We welcome the recommendations set out in the Fair and Effective Markets Review (FEMR), which sets the foundation for positive change in the Fixed Income, Currency and Commodities (FICC) markets – particularly at a time when the issue of individual conduct and ethics in FICC markets is very much in the public eye.


“From our perspective, the most important takeaway from this is that the FEMR will lead to an increased emphasis on financial education on ethics and industry-wide training as well as the adoption of a single code of conduct for Foreign Exchange to raise standards and accountability. Regulators are rightly stepping up efforts to tackle trader misbehaviour and place conduct at the heart of their reforms. The importance of this cannot be over-emphasised. The financial services industry employs millions of people globally, and the sector has been tarnished by the actions of a small minority acting in an unethical manner. Where they are guilty of misbehaviour, we need to make individuals accountable, but let’s also assist and support those seeking to improve the industry to do so.


“Today’s report also makes clear that measuring and monitoring progress is central to behavioural change. It is clear that in some situations individuals receive little or no training or practical guidance, leading to uncertainty about what is and isn’t acceptable. Positive progress has already been made on the enforcement front, but to achieve sustainable change, we must go further and embed high standards of conduct and practices within organisations. This can be done through education, and by monitoring individual behaviour to ensure individuals at all levels – from the most junior ranks up to senior management at board level – acknowledge and abide by an enforceable code of conduct.


“Initiatives like the ACI’s Code of Conduct and e-learning and certification (ELAC) Portal provide this critical service to organisations and individuals alike. The Model Code articulates in great detail how ethical conduct should be taught and monitored, and together with our ELAC portal, can help to reduce conduct risk, monitor behaviour and ensure any knowledge gaps are swiftly addressed by supervisors. This proactive approach to self-regulation is exactly the type of cultural shift regulators are seeking to achieve with these reforms. We are working closely with the many entities focused on ethical conduct and codes, and believe that a common solution can be found and most easily adhered to.


“In addition, ensuring the universal application of a code of conduct across borders will be vital to changing behaviour and ensuring all participants and institutions are clear on what is and isn’t acceptable behaviour. If necessary, it must be backed up by law and embedded within national financial regulations to guarantee strong enforcement. I believe we need to look to bodies likes the Financial Stability Board, chaired by Bank of England Governor Mark Carney, or the Bank for International Settlements in Basel, which has already begun excellent work to harmonise international codes, to drive this further.


“Levelling the playing field internationally in this way will provide much needed clarity and reduce opportunities for ethical arbitrage. It is also beneficial for regulators, as they can measure the behaviour, ethics and conduct of all participants by the same criteria – regardless of geographical location – and any misdemeanours can be immediately identified and addressed.”


Comments on last look


“The reality is that customer preferences vary – and ‘last look’ can, at times, be an acceptable and effective form of execution. For example, some might prefer as tight a price as possible, accepting a potentially higher rejection rate through ‘last look,’ whilst others might prefer certainty of execution at a different price.


“However, participants should take steps to ensure that provision of ‘last look’ liquidity does not create a false impression of market levels or depth. Under no circumstances should orders with ‘last look’ be placed for the purpose of price discovery and with no intention to trade, and use of electronic algorithms solely to accept trades that are favourable, and reject non-favourable deals when the criteria for assessing are equal, should be avoided completely.


“The onus is on dealers employing ‘last look’ to be fully transparent and ensure customers are made aware that the practice is in use, the subsequent consequences are explained and that accurate records are kept on fill-and-reject ratios to demonstrate compliance. Having been fully apprised of the pros and cons of ‘last look’, customers should be in a position to decide to trade or not using “last look” pricing, in line with their own requirements and execution style.


“The ACI’s Model Code provides clear guidance on how ’last look’ practices should be used by liquidity providers and the information that must be provided to customers in order to maintain a transparent and fair operation.”



About ACI – Financial Markets Association


ACI – Financial Markets Association is a leading non-profit, non-political association of wholesale financial market professionals. Members of ACI are in a large part engaged in professional trading, broking, operations, regulatory and compliance activities in foreign exchange, money fixed income and derivatives markets.


ACI was founded in Paris in 1955 as Association Cambiste Internationale and has a proud and illustrious history of involvement in helping its membership through various market iterations/interactions.


ACI currently counts some 13,000 international members from more than 60 countries, with growing interest globally.