Bank of England Publishes Report on the Future of the UK Financial System and the Bank's Priorities for the Future

Huw van Steenis, the Bank of England financier appointed by the BoE in 2018 to review the future of the U.K. financial system, has published his "Future of Finance" report, setting out a vision for the medium-term future of the U.K. financial system and the BoE's role in supporting that. The report was based on consultations with entrepreneurs, financiers, tech firms, global investors, consumer groups, charities, policymakers and business leaders across the U.K. and overseas. In response, the BoE has published a document which sets out the actions it intends to take to deal with the challenges and opportunities identified in the report.

The report describes the key forces shaping the global economy as: (i) technology; (ii) demographics; and (iii) the environment. These factors have triggered changes in the global financial system in recent years. There have been global shifts towards digital services (such as financial services providers that no longer have branches) and non-bank entities providing finance. Existing banks are struggling to make their cost of capital in the face of technological advances that are changing the way banks operate. The emergence of new technology also carries risks for the future, and major infrastructure is likely to be required to ensure consumers can keep up with technological developments.

The report sets out recommendations for how the BoE should respond to these, and other, developments. Recommended actions for the future are grouped into three key areas:

Helping finance to serve the digital economy

The report observes the impact that technological developments are having on the economy and sets out the following recommendations for how the BoE can support the interplay between finance and the emerging digital economy, including:

1. Shaping future payment systems;
2. Enabling innovation through modern financial infrastructure, such as payment systems, digital identification and cloud usage; and
3. Supporting the data economy by establishing standards for machine learning and artificial intelligence and making use of its knowledge to support better credit files for small and medium-size enterprises.

Helping finance to support major transitions in society

Demographic changes, such as the opening of emerging market economies and aging populations, and environmental changes triggering an increased focus on low-carbon economies, provide both challenges and opportunities. The BoE intends to help the financial system to cope with these changes within the U.K. by:

1. Championing global standards for finance, including through continuing engagement with global forums;
2. Promoting a smooth transition to a low-carbon economy; and
3. Adapting to the needs of an aging population that requires security in retirement.

Ensuring that finance increases resilience to new risks

Innovations in technology and data, as well as an increase in cyber-attacks, have given rise to new risks for the financial system. The BoE's intended actions to support the management of these risks include:

1. Safeguarding the financial system from evolving risks by developing regulation and financial infrastructure and contributing to an open banking policy framework;
2. Enhancing protection against cyber risks; and
3. Embracing digital regulation by consulting on a new digital data strategy and enhancing risk monitoring through digitalizing supervision.

The BoE has published a formal response to the report and has already begun to put in place some of the report's recommendations. In its response, the BoE sets out five priority areas for its work going forward, namely: (i) enhancing the payments system for the digital age; (ii) championing a platform to boost access to finance for small businesses; (iii) supporting the transition to a carbon-neutral economy, including conducting a climate stress test for financial institutions in 2021; (iv) developing a world-class RegTech and data strategy; and (v) facilitating firms' use of technology to increase their operational resilience, including by publishing this year a revised Supervisory Statement on the Prudential Regulation Authority's expectations on outsourcing arrangements, with a focus on the conditions for using cloud technology.

View the Future of Finance report.

View the BoE's response to the Future of Finance report.

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