Depending on where you stand, these are either challenging or exciting times for banks with the emergence of blockchain technologies. For the Bank of England, a more than 300-year-old institution, it can certainly be seen as the latter.
Mark Carney, governor of the Bank of England, gave a speech (pdf) on the theme of ‘new economy, new finance, new bank’ at the Mansion House dinner in June. Carney spoke of the potentially ‘immense’ future of the new UK economy, with ever-increasing amounts of data, the continued moves away from bricks and mortar retailers, and truly global scale.
“The Bank of England is in the midst of an ambitious rebuild of the Real Time Gross Settlement (RTGS) system – the backbone of every payment in the UK,” Carney told the audience. “RTGS is being rebuilt so that new private payment systems, including those using distributed ledger, can simply plug into our system. Our new, hard infrastructure will be future-proofed to your imaginations, opening up a range of potential innovations in wholesale markets, and corporate banking and retail services.
“We have just opened up direct access to RTGS to a new generation of non-bank payment service providers,” Carney added. “No longer will access to central bank money be the exclusive preserve of banks.”
William Lovell (left), head of future technology at the Bank of England, naturally sits at the heart of these emerging initiatives. Lovell will be speaking at the Blockchain Expo Global in London on 25-26 April exploring the Bank’s journey through various fintech states and what will be happening next. The Block caught up with Lovell to discuss these initiatives, how distributed ledger technologies (DLT) are being incorporated into banking, and more.
The Block: What are your specific responsibilities in your role and what is your day to day routine (if you have one)?
WL: I look over the horizon at the technologies that the Bank will be implementing beyond the current round of change. Much of my time is spent on payment systems, but we also have a heavy focus on data analytics as well as artificial intelligence (AI) and machine learning (ML). It’s easy to get distracted by the urgent, so I set aside time every day for reading about emerging tech – today it’s software-defined perimeters!
TB: What role do you have in the Bank of England’s project in rebuilding its real time gross settlement system (RTGS) to interface using DLTs? How would you summarise the Bank of England’s position on DLTs and blockchain technologies more generally?
WL: I’ve been part of the RTGS renewal team from the start, and had hands-on involvement in the proofs of concept that we have done. Like every innovation, DLT and blockchain have the potential to create a more efficient, diverse and resilient financial system. At the same time, new risks may emerge and existing risks could be amplified.
We recognise the potential for both benefits and risks to materialise, which is why we take a keen interest in fintech.
TB: What benefits and challenges do you see on the road ahead for incorporating DLTs into the banking sector?
WL: The benefits could be huge. If you look at all of the costs that are associated with common activities such as bond issuance or trade finance, then even small efficiencies could reap enormous dividends in cost savings as well as reduced risk. It’s also true that the last three years have shown us that implementation is more challenging than almost all of us thought. I think the real benefits will be found in areas where complex data sharing is needed but privacy is important.
TB: What other emerging technologies are you exploring as part of your role (The Block notes on your bio machine learning and high performance computing (HPC) are mentioned) and which ones do you feel could have the biggest impact in banking and finance?
WL: A senior economist at the Bank once said to me “a faster computer makes me happy for about a week, and then I think of all the problems that I need an even-faster computer for”. I think this need-for-speed will be never ending.
I am currently reading much on quantum computing to help me separate fact from fiction. The potential for quantum computers to solve previously unsolved problems is enormous. The possible impact on encryption algorithms has implications for all of us as well.
TB: How do you assess the moves other banking and finance firms are making in the DLT space?
WL: My first question is always “what problem are they solving?” followed by “…and why?”. Some projects are more focused on publicity, others are experiments conducted in safe spaces where the risks are under control. It’s too early to predict which of these will turn into market leaders, and we may not have seen those products yet.
TB: What do you hope the audience comes away with from your discussion session at Blockchain Expo?
WL: A better understanding of how the Bank of England has approached DLT in the payments space, how it supports the Bank’s objectives and what we are going to do next.
Interested in hearing more in person? Find out more at the Blockchain Expo World Series, Global, Europe and North America.