New Objective for the Bank of England Aims to Foster Payment Innovation
The Bank of England has introduced a new objective aimed at ensuring that the regulation of payments in the UK evolves in tandem with technological advancements. This secondary objective, focused on fostering innovation, will complement the Bank’s primary mandate of maintaining financial stability, forming part of broader reforms designed to enhance the UK’s prominent financial services sector.
As digital technologies continue to revolutionise the payment landscape for individuals and businesses alike, the Bank’s initiative seeks to establish a regulatory environment conducive to safe innovation. By doing so, it aims to promote sustainable growth across the UK, ensuring that advancements benefit communities nationwide. The Bank plans to provide annual reports to monitor progress in keeping pace with technological changes.
Government Support for Digital Payment Transformation
City Minister Lucy Rigby has emphasised the transformative potential of emerging digital payment technologies such as tokenisation and distributed ledger technology (DLT), which could significantly reshape financial markets worldwide. While the Bank’s primary goal remains financial stability, this additional objective is expected to enhance the Bank’s ability to stimulate innovation in payments and digital finance, thereby reinforcing the UK’s status as a global leader in financial services.
Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, welcomed the announcement, highlighting that it would bolster ongoing efforts to support innovation in the financial sector without compromising stability. The Bank, in collaboration with the government and other regulatory authorities, is committed to maintaining trust and fostering innovation within the UK’s payment systems, and this new objective will further these aims.
Modernisation of the UK Payments Landscape
The UK government, in partnership with the Bank of England and various regulatory bodies, is already implementing an extensive programme to modernise the payments landscape. This initiative supports the development of new technologies and business models, ensuring that the UK continues to be an attractive location for innovative financial services to flourish.
Currently, the Bank of England has a secondary objective to facilitate innovation in the regulation of central counterparties (CCPs) and central securities depositories (CSDs). This approach is now being expanded to encompass the regulation of payment systems, including those that utilise digital settlement assets like stablecoins.
Commitment to Safe and Responsible Innovation
This initiative aligns with the Chancellor’s pledge to instil greater confidence in investment and innovation within British enterprises. The Bank’s commitment to financial stability will remain paramount, ensuring that any support for innovation is conducted in a safe and responsible manner.
Looking Ahead: Annual Reporting and Legislative Changes
The Bank of England supervises critical components of financial market infrastructure, which encompasses systemic payment systems, CCPs, and CSDs. Its primary objective is to safeguard and enhance financial stability in the UK. The newly introduced secondary innovation objective will remain subordinate to this core aim, meaning the Bank will not endorse innovation if it jeopardises financial stability.
Following the enactment of the Financial Services and Markets Act 2023, which introduced a similar secondary innovation objective for CCPs and CSDs, this reform will extend the same principles to systemic payment systems, including those employing digital settlement assets.
The government anticipates implementing these changes through amendments to the Financial Services and Markets Bill, with discussions scheduled in the House of Lords on 7 and 9 September. The Bank will be accountable to Parliament, providing annual updates on progress towards achieving the innovation objective.