These innovations bring benefits, but also risks. I will then explore how financial regulation can adapt, to ensure that investors and markets can thrive in this new environment. In short, how do we keep on track in an evolving digital world?
Today I will reflect on how the growth
of digital technology is radically altering the financial sector, mirroring
changes in broader society. These innovations bring benefits, but also
risks. I will then explore how financial regulation can adapt, to ensure that
investors and markets can thrive in this new environment. In short, how do
we keep on track in an evolving digital world?
Digitalisation brings radical changes
Digital technologies continue to reshape financial services and the wider
economy. It is easy to forget how fast digital technology changes. But
consider the world of fifteen years ago, for instance. It was not possible to
trade stocks on your mobile phone – let alone to trade crypto-assets, which
were some years away. Large-scale remote working, on which we have
been so dependent in the last two years, was not an option. The major
social media platforms, so prominent today, were just getting started (e.g.
Facebook in 2004).
While the overall pace of technological change is rapid, the digital world
does not always evolve uniformly. Some inventions of a new technology
represent a step change and we can’t imagine life without them. Others
are popular for a short period, such as suddenly hyped apps, but then
disappear.
As regulators the challenge is to be timely in considering the implications
of new technology. We need to identify those innovations that are here to
stay and will have a real impact on the markets and/or investors. Take for
example the creation of blockchain just over a decade ago. There was a
big question at the time how impactful this new technology would be. By
now we know a bit more. Several tokenised securities have been
successfully issued and transacted on blockchain.
Elsewhere in the value chain, market participants are experimenting with the technology to
enhance post-trade processes.
And more recently we saw the growth of so-called stablecoins, designed to be used as a means of payment and a store of value. But the story is still unfolding. One of the most prominent stablecoin initiatives so far, the Facebook-led Diem project, was recently put to an end. Meanwhile, new applications of the technology are
emerging, including Decentralised Finance or ‘DeFI’ ...
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