Central Banks go Fintech – the BIS and the Hub

Tokenisation of green bonds, next generation FMI’s, regtech and open finance – what does these modern day phenomenon have to do with a 353 year old central bank? Everything, we learn when we acquire new insights of central banks pushing the borders of Fintech innovation. The Bank for International Settlements, BIS, in collaboration with the Riksbank, open an Innovation Hub Nordic Centre in Stockholm on June 16th. We speak to Dilan Ölcer, project manager at the Riksbank in relation to the new Hub Centre, who shares her thoughts on what affect the Hub Centre may have on the Fintech scene in the Nordics and beyond, what interplay one could expect with the industry going forward and of course, what’s on top of her and the centre’s agenda this very moment.

Background

In the last year’s FinTech-report we mentioned that the Swedish central bank, the Riksbank, had proposed to be a candidate for the BIS to establish an Innovation Hub Centre in Sweden. To realise the Swedish-based Hub Centre the Sveriges Riksbank Act (lagen [1988:1385] om Sveriges riksbank) needed to be amended and in June last year BIS announced that it will establish an innovation Hub Centre in Stockholm, the BIS Innovation Hub Nordic Centre. Together with the Riksbank, and the central banks of Denmark, Iceland and Norway, BIS will work to deepen the analysis of technological financial innovation of relevance for central banks. BIS, in collaboration with the central banks, will inaugurate the Nordic Hub Centre on June 16th 2021.

The Riksbank and BIS

The Swedish central bank is the oldest central bank in the world and in 2018 it celebrated its 350 year anniversary. The Riksbank is an authority under the Swedish parliament (the Riksdag) and its work entails issuing money and ensuring that they retain their value over time. The Riksbank is also assigned to ensure that payments in the economy can be made safely and efficiently.

There are a lot of “techy” things going on concerning payments and settlement for the Riksbank. Last year the Riksbank agreed to join the Eurosystem’s TIPS payment platform. The Riksbank, beginning spring 2022, will provide a new service, RIX-INST, which will enable banks to make instant payments, round-the-clock, all year round, in central bank money. The Riksbank has also been evaluating an “e-krona”, a digital version of the currency it has issued for a few hundred years.

The Bank for International Settlements could be described as “the central banks’ central bank”. BIS mission is “to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks.”
Recognizing that technology-driven innovation in financial services is accelerating, that the IT revolution has repercussions in multiple locations simultaneously and that central banks can achieve economies of scale by working together, BIS, together with central banks, has established an Innovation Hub.

The Innovation Hub

The mission of the Innovation Hub is to:

• Identify critical trends in technology affecting central banking, and develop insights into these technologies that can be shared with the central banking community.
• Develop public goods in the technology space geared towards improving the functioning of the global financial system.
• Serve as the focal point for a network of central bank experts on innovation, with regular events to promote exchange of views and knowledge-sharing.

Hub Centres have already opened  in Hong Kong SAR, Singapore and Switzerland, opened in London June 11th and will, besides Stockholm, also open in Toronto and Frankfurt/Paris. Thus, a mixture of locations, but they seem to share some similarities. Being financial centres, having vibrant fintech ecosystems, and places where innovation and technological development is in the forefront.

The Hub’s projects focus on six themes identified as being of critical importance to the Hub and to the central banking community: suptech and regtech, next-generation financial market infrastructures (FMIs), central bank digital currencies (CBDCs), open finance, cyber security and green finance. For instance, in Singapore there is a project aiming to demonstrate the functionalities and feasibility of an integrated regulatory data and analytics platform. The idea is that an integrated platform would enable supervisors to digitally extract, query and analyse large and diverse sources of structured and unstructured data that are relevant in real time and to current events. In Hong Kong, one project aims to develop a prototype for the introduction of tokenised green bonds, giving greater access to retail investors. This retail mobilisation, according to information from the BIS website, implies giving wider demand to a sustainable asset class with low risk characteristics as well as fostering ownership and support of green projects.

The Nordic Innovation Hub Centre

The BIS Innovation Hub Nordic Centre will serve as a focal point for a network of experts on innovation, for research on critical trends in financial technology of relevance to central banks, and for promoting international cooperation to enhance the functioning of the global financial system. Located in Stockholm, the Nordic Centre will keep Denmark, Iceland, Norway and Sweden in the forefront of research into digital solutions and analysis of fintech innovation according to information from the Riksbank’s website.
We speak with Dilan Ölcer who tells us more about the Hub Centre, what it will do, its current status and the future.

So Dilan, who are you?

– I work as an advisor at the Riksbank and I am project manager at the Riksbank to lead the work of establishing the Hub Centre from the Riksbank’s side. I was also responsible for the Riksbank’s candidacy for the Hub Centre. 

Dilan points out that it is not the Riksbank that is ultimately responsible for the new Hub Centre, it is BIS that is in charge of the establishment and the future work of the Centre.

Focus areas

Dilan explains that none of the Centres are confined to work on just one or a few of the focus themes described above. Each Centre can work on any of the focus themes. It is not however likely that a Centre will do work on all themes at the same time.
BIS and the central banks concerned are currently discussing initial focus areas, or projects, for the Nordic Hub Centre, but Dilan is not able to share any details regarding such discussions.

The objective of the Nordic Hub Centre

Dilan tells us that the main objective of all Hub Centres is to come up with solutions and developments which primarily will enhance central bank activities. Yet, as evident to us from the focus themes, what the Hub Centres are concerned with is not very different from what the private industry is up to.

Dilan also makes it very clear that the Centres’ work are not taking place in a “central bank vacuum”. Quite the contrary. The idea is to work closely with the private sector and the academia. On this theme, it is evident from the BIS website that Hub Centre projects not only involve the central banking community. Regarding one project we read about for instance, on international settlements using multi-CBDC:s, the financial industry and the blockchain ecosystem is contributing to collaborative work. Another example involving the private industry is the G20 TechSprint, a global long-form hackathon series, that the BIS Innovation Hub annually co-hosts with the G20 Presidencies.

Stockholm and the Nordics – an ecosystem that fosters innovation

According to Dilan, Stockholm and the Nordics provide an ecosystem that fosters innovation. Since the Hub Centres engage the private sector, the Nordic Hub Centre can benefit from being located in a surrounding where relevant ideas in the field are born and developed. The decision to establish a Hub Centre in Stockholm, according to Dilan, shows that the Nordic countries are far ahead as it comes to digitalization and innovation. The Nordic societies, says Dilan, are also keen to adapt to new technological innovations.

Dilan also points to the interest of the Swedish parliament and government to promote the sector. For the Riksbank, it is important to develop and keep pace with what is happening in the society to provide the best services expected of it and to remain a relevant central bank.

Even though the Nordic region itself provides its own “ecosystem”, the Nordic Hub Centre will not be confined to work in relation to actors in the region. The Nordic Centre will work in close collaboration with the other Hub Centres and can come to collaborate with private actors from other parts of the world. Dilan also call on Swedish companies who are interested in the work of the Hub Centre not only to focus on the Nordic Centre, there is reason to look for what’s happening in the other Hub Centres and engage in their work where possible.

Laws and regulations

Dilan points out that legal aspects are not the main focus for the Hub Centres. It is not a strategic goal in itself to push regulation. The Hub Centres focus on technology and its practical applications. Yet, Dilan says, the legal aspect is very important in the development of technology in general. With 63 central banks as members, the BIS is very well placed for leading global discussions that can shape the financial system.

Over one year of work from the “home office” for many of us, tech companies closing down offices and a high tech Hub pushing digital frontiers, with a physical establishment – is it needed in this day and age?

Dilan tells us that employees of the Nordic Hub Centre, around 10 people, will potentially come from anywhere in the world. They all however need to move to, and actually live in, Stockholm during their time working for the Centre. Dilan says she sees added value with a physical focal point. To become a part of the Swedish society she says, the Centre’s representatives need to be here in person. Even though innovation has made physical meetings less necessary, Dilan believes that actually meeting other actors and partners (private companies and authorities etc.) is vital for the work of the Centre in the region. Of course, at the same time a lot of the Centre’s work and meetings, especially with other Hub Centres, will be purely digital.

Dilan, finally, it sounds like you have a very interesting job?

– This is incredibly exciting work! We hope for great solutions and results, beneficial for the Swedish society, but also for other societies around the globe.

Closing remarks

Setterwalls has been providing advice to the Fintech sector for many years. This has given us deep insights in the buzzing ecosystem of Nordic Fintech. It does not come as a surprise to us that Stockholm was chosen to host the BIS Innovation Hub Nordic Centre. Stockholm attracts and foster talent, and talents have a place to grow and develop in Stockholm. In Sweden and the Nordics we have a world-class and affordable digital infrastructure and stable pro-business environment. We truly believe that the Hub Centre will add on yet another layer to Stockholm’s, and the Nordic region’s, already multifaceted and dynamic tech-scene. For us, this is the centre of gravity, the place to be, and where to look for what’s hot and what’s not.

Lastly, of course, we wish Dilan and her colleagues working with the BIS Innovation Hub Nordic Centre the best of luck going forward!