Bank of England governor Mark Carney promised on Monday to reinvent the central bank to make it fit for the “new economy” of the “Fourth Industrial Revolution.”
The governor said the central bank was opening up its payments infrastructure to fintech startups, making climate change a key priority, and embracing artificial intelligence to help the Bank adapt to changes in technology and the global economy.
“The second great wave of globalisation is cresting,” Carney said during a speech at the Innovate Finance Global Summit. “The Fourth Industrial Revolution is just beginning. And a new economy is emerging.
“That new economy requires a new finance. A new finance to serve the digital economy, a new finance to support the major transitions underway across the globe, and a new finance to increase the financial sector’s resilience.”
The governor said that “the very nature of commerce is changing” due to online shopping, and this was “placing new demands on finance.”
“Consumers and businesses increasingly expect transactions to be settled in real time, checkout to become an historical anomaly, and payments across borders to be indistinguishable from those across the street,” he said.
Carney said that this “new economy” requires a “new Bank of England.”
“Our strategy is to enable innovation and empower competition, while ensuring monetary and financial stability,” Carney said.
Carney highlighted changes already underway, such as the rebuilding of its real-time gross settlements system to allow smaller startups to use the Bank of England’s payment rails.
The Bank is also making the reporting of climate-based risk at the firms it supervises a key priority.
“The transition to a low-carbon economy, in particular, will require enormous re-allocations of capital and massive investments in infrastructure,” Carney said. “Firms that anticipate these developments will be rewarded handsomely; those that fail to adapt will cease to exist.
“By adapting our soft infrastructure in these ways, the Bank will help ensure that the financial system is not only resilient to climate-related risks but also can take full advantage of the enormous opportunities in a new low carbon economy.”
Last year the Bank of England launched a review of the future of the financial sector in the UK and how the central bank can adapt.
The report is due to be published in two months, and Carney said it would include “a number of concrete steps to create an environment for a more resilient, effective, and efficient financial system.”
One example of how things may change is the way the central bank supervises lenders. Carney said the huge investment by bank in AI would “likely to lead to changes to the way the Bank conducts supervision.”
He added that banking supervision could be “amenable to automation, machine learning or AI to some extent.”
“We want to identify ways to simplify our rules, and to make compliance with them easier for firms,” he said.
“Today, new technologies, the new economy and the new finance have the potential to unlock more sustainable and inclusive growth,” Carney said.
“The new finance will be more inclusive, allowing everyone to be better connected, better informed, and more empowered. We’re adapting our hard and soft infrastructure, to create the conditions for such innovation to flourish and promote the good of all the people of the United Kingdom.”
The governor made the comments during at keynote speech at the Innovate Finance Global Summit in London on Monday. Innovate Finance is the UK trade body for the UK fintech sector and its annual conference kicks-off UK fintech week.
Carney, who has been in charge of the UK’s central bank since 2013, has been a supporter of the fintech sector during his time at the Bank. In a speech in 2017 he said the sector had the potential to “make the financial system more efficient, effective and resilient.”
Fintech has emerged as one of the UK’s fastest growing sectors in the wake of the financial crisis and is now worth an estimated £7bn to the UK economy.
Carney is due to stand down as Bank of England governor in January 2020. UK Chancellor Philip Hammond recently announced that he has begun a search for the governor’s replacement.