This week in the tech weekly update, we will talk about the new Open Banking Regulatory Committee in the UK, Danske Bank’s Trade AI App, FCA’s papers on crypto regulations, International Security’s Regulators’ new task force that will be examining the threats and opportunities of DeFi, first Australian Dollar stablecoin being minted, central banks around the globe testing the cross-border transactions with CBDC, EU’s Digital Markets Act, content delivery networks sector expected to double because of the metaverse, and President Biden warning of Russian cyberattacks and calling for an urgent increase of cyber defenses.
The Competition and Markets Authority (CMA) has revealed it would be forming a new committee – the Joint Regulatory Oversight Committee (JROC). The new committee will be responsible for overseeing the regulatory framework in terms of Open Banking technology as well as making its own recommendations for permanent future regulations, funding, and governance.
Andrea Coscelli, Chief Executive of the CMA, states: “Open Banking has been a major success in the UK, bringing innovative new services to retail banking and benefiting consumers, businesses, and the UK economy. The CMA has carefully considered the appropriate future arrangements to boost open Banking so that its significant benefits can be realized even more widely.”
Commenting on the announcements, the OBIE’s trustee and chair, Charlotte Crosswell, says: “We welcome the announcements by the government and regulators and the endorsement it gives for the future of Open Banking to our thriving ecosystem. There has been significant collaboration in developing the infrastructure, standards, and ecosystem that we have in place today. We now need to drive forward competition and adoption and realize the benefits of innovation for consumers and businesses across the UK.”
While some appear enthusiastic about the announcement of the new committee, others believe that it does not answer any significant questions that have been posted for months now regarding the rollout of Open Banking.
Maria Palmieri, head of public policy, Yapily, adds: “Whilst it is encouraging to see further clarity from the CMA on the rollout of a JROC, many questions remain around the future of Open Banking in the UK. With the current mesh of regulators, it is almost impossible for fintechs, banks and Open Banking providers to plan for the future. We need to see the creation of a formal pen finance framework and further guidance on the future role of OBIE.”
Charlie Mercer, head of economic policy, Coalition for a Digital Economy (Coadec), claimed that today’s announcement, “brings us no closer to open finance. For months, the industry has looked to this moment as setting the path to the opening up of new datasets, but the elephant in the room is the lack of any concrete mandate to do so.”
Danske Bank will digitise the trade finance process using the Trade AI app developed by one of its partners, Conpend. The app’s capabilities will allow to streamline the current process while at the same time increasing transparency and efficiency and ensuring an easy transaction audit trail.
Conpend developed its app aiming at automatizing and digitalizing the value chain. Having said that, the app can also be used with “traditional”, paper documents that can be scanned and entered into the system. The AI and ML-powered app is checking against AML, KYC, and other regulations while scanning the document, ensuring the highest level of compliance.
“By converting physical documents into digital data, you create the opportunity to utilize that data for trade and compliance-related processes,” explained Erik Punt, product owner of the trade finance portfolio in Danske Bank. “We expect to see significant efficiency gains after initial investment into teaching the system to capture and qualify data. With this, data from the large range of complex customer documents will – together with our financial crime compliance specialists – allow us to perform different kinds of analyses.”
Together with the Bank of England and the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA) has released a set of papers on crypto regulations, targeting financial institutions. The aim of the paper was not only to warn the institutions about the scope of their responsibilities but also to guide them in terms of the probable directions of the regulations.
One of the key takeaways from the papers is that while FPC (The Bank of England’s Financial Policy Committee) believes there are no significant direct threats to the financial stability from crypto’s side, such a threat will grow as the interconnection with the broad system grows. The FPC highlighted that we need to enhance the regulatory framework on a local and global level as the crypto assets sector expands. PRA’s deputy governor, Sam Woods. called for banks, insurances companies, and designated investment firms to review their current exposure to the sector and stressed the need to comply with the existing regulations.
“While the regulatory framework provides a structure to consider such risks, the methodologies and calibrations will likely need to be adjusted, in some cases substantially, to ensure that firms are appropriately and prudently considering and capitalizing the risks,” read his letter.
The documents come only a couple of weeks after FCA started a full-fledged investigation into many of the UK crypto firms that were operating while unregistered. Only a handful of companies are currently on the FCA’s temporary register and by the end of March, those must gain full authorization if they want to continue operating.
International Securities Regulator Iosco created a task form to explore the challenges, threats, and opportunities connected to decentralized finance (DeFi), after its in-depth report on the state of DeFi in 2021. Ashley Alder, Iosco chair and chief executive officer of the Securities and Futures Commission (SFC) of Hong Kong, says: “DeFi is a novel and fast-growing area of financial services, and this report outlines key areas of concern for Iosco.”
One of the things that Iosco highlighted in its report was that while the DeFi enthusiasts keep repeating the phrase of DeFi being a marketplace with no centralized people in control, Iosco claimed that there are, in fact, central actors that do retain the majority of control through actions such as the distribution of the governance tokens. In correspondence with the report, Iosco announced it would be forming its new task force to inspect those inconsistencies closer.
Tuang Lee Lim, assistant managing director of the Monetary Authority of Singapore (MAS) and chair of this new task force says: “Iosco’s decision to establish the task force signifies our members’ resolve to take timely and coordinated policy action to appropriately address the risks arising from this fast-growing area. I look forward to working closely with experts and colleagues on the task force in charting its work ahead.”
A stablecoin milestone occurred in Australia last week when ANZ become the first Australian bank to complete a stablecoin transaction using the public blockchain platform. The stablecoin was delivered to the private wealth management company, Victor Smorgon Group.
ANZ banking services lead Nigel Dobson says: “An ANZ issued Australian dollar stablecoin is a first and important step in enabling our customers to find a safe and secure gateway to the digital economy. We’re excited to continue to trial our capability and explore how this use case can be applied in other industries and customers in the future.”
In order to create the stablecoin smart contract, ANZ was cooperating with Fireblocks, Chainalysism, and OpenZeppelin.
Fireblocks CEO Michael Shaulov says: “The financial sector is undergoing rapid transformation and we are enabling institutions with end-to-end technology for plugging into tokenization, DeFi, staking, and crypto trading. By being the first bank to mint a stablecoin, ANZ has established itself as a leader when it comes to innovation and we look forward to welcoming other institutions who are on the same path.”
The Central Banks of Australia, Singapore, South Africa, and Malaysia have worked together with the Bank for International Settlements on developing prototypes for a platform that could support CBDC cross-border transactions. The so-called “Project Dunbar” showed that it is possible to use various CBDCs issued by different central banks to make direct transactions with other banks using the shared platform. In the course of the project, it became apparent that the platform could limit the need for intermediaries which, in turn, makes it cheaper and quicker to process cross-border transactions.
Andrew McCormack, head of the BIS Innovation Hub Centre in Singapore, says: “A common platform is the most efficient model for payments connectivity but is also the most challenging to achieve. Project Dunbar demonstrated that key concerns of trust and shared control can be addressed through governance mechanisms enforced by robust technological means, laying the foundation for the development of future global and regional platforms.”
Michele Bullock, the assistant governor, Reserve Bank of Australia, adds: “Allowing entities to directly hold and transact in CBDCs from different jurisdictions could reduce the need for intermediaries in cross-border payments, but it would need to be done in a way that preserves the security and resilience of these payments. While there is clearly more work to be done in thinking about the feasibility and design of multi-CBDC platforms, the findings from Project Dunbar provide a good platform for future work in this area.”
EU’s latest initiative focused on limiting the power of the US tech giants is the Digital Markets Act. While the European Commission has announced it was working on the DMA a while ago, they have now published the provisional agreements of the bill.
“The agreement ushers in a new era of tech regulation worldwide,” said German MEP Andreas Schwab. “The Digital Markets Act puts an end to the ever-increasing dominance of Big Tech companies. From now on, they must show that they also allow for fair competition on the internet. The new rules will help enforce that basic principle. Europe is thus ensuring more competition, more innovation, and more choice for users.
“As the European Parliament, we have made sure that the DMA will deliver tangible results immediately: consumers will get the choice to use the core services of Big Tech companies such as browsers, search engines or messaging, and all that without losing control over their data. Above all, the law avoids any form of overregulation for small businesses. App developers will get completely new opportunities, small businesses will get more access to business-relevant data and the online advertising market will become fairer,” he added.
Gatekeepers are companies that have either reached an annual turnover of at least €7.5 billion in the EU during the past three years or have a market valuation that surpasses €75 billion. A gatekeeper must also have a minimum of 45 million monthly end-users and 10 000 business users that are established in the EU.
According to ABI Research, the content delivery networks (CDN) sector is evolving and is forecasted to double in value by 2030, hitting $23.9 billion. The majority of new opportunities come from the overlap between CDN with multi-access edge computing (MEC) and the cloud.
“In some regards calling the collection of companies covered in this report, CDN companies, is a misnomer,” said Michael Inouye, principal analyst, metaverse markets and technologies, at ABI Research. “Companies that offer CDN services represent a diverse group, with large incumbents with extensive product portfolios like Akamai, to smaller companies focused on agility and innovation like Cloudflare, who have already brushed off the CDN moniker and are already offering some services more akin to the cloud platforms like AWS, Google, Microsoft Azure, Tencent, Alibaba, Huawei Cloud, etc. who also offer CDN services.”
There is also the metaverse angle that is expected to bring loads of new opportunities for the CDN sector.
“The metaverse has received quite a lot of attention recently, and while this longer-term vision is certainly exciting, even with the uncertainties, more attention needs to be devoted to the build-up towards this future,” said Inouye. “One critical milestone in the build-up to the metaverse will be the arrival of consumer-friendly smart glasses, which will push more user applications and content closer to the edge, fuelling growth opportunities for CDN providers.”
The President of the United States, Joe Biden, published a statement in which he warns about the likely cyber attacks by Russia. Biden also urged companies to improve their current cyber defenses as soon as possible.
“Most of America’s critical infrastructure is owned and operated by the private sector and critical infrastructure owners and operators must accelerate efforts to lock their digital doors,” the statement reads “We need everyone to do their part to meet one of the defining threats of our time — your vigilance and urgency today can prevent or mitigate attacks tomorrow.”
While Biden’s statement was meant for American companies, other NATO countries are in a similar situation and face the same threats of cyber attacks as the US.
Some of the actions that Biden recommended all companies take are:
- Mandate the use of multi-factor authentication
- Deploy modern security tools on your computers and devices
- Check with your cybersecurity professionals to make sure that your systems are patched and protected against all known vulnerabilities
- Run exercises and drill your emergency plans
- Encrypt your data
- Engage proactively with your local FBI field office or CISA Regional Office to establish relationships in advance of any cyber incidents.