How the Bank of England is modernising its systems for the future

The Bank of England's outgoing governor Mark Carney is looking to leave behind a more modern bank from a technology perspective, setting it up to leverage AI, automation and open APIs

Credit: Lucian Constantin/IDGNS

The Bank of England is looking to modernise its technology platform to open up its payments infrastructure to smaller fintech players, better manage the proliferation of data, and leverage advanced automation and AI techniques.

Outgoing governor of the bank Mark Carney laid out the vision in a speech Tuesday titled 'A Platform for Innovation' during the Innovate Finance Global Summit at London's Guildhall.

In rather typical fashion, the Canadian economist opened the speech by quoting John Maynard Keynes: “The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth… [or] adventure his wealth in the natural resources and new enterprises of any quarter of the world that fancy or information might recommend.”

"Replace 'telephone' with 'tablet' and 'tea' with 'turmeric latte' and you have not the start of the 20th century but of the 21st" he quipped. "The second great wave of globalisation is cresting. The Fourth Industrial Revolution is just beginning. And a new economy is emerging driven by immense changes in technology, the reordering of global economic power, and the growing pressures of climate change."

Carney puts the onus on fintech companies to create this new financial world, but recognises the central bank's role in creating the "right conditions in which to innovate and the level playing fields on which to compete."

"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 added.

Hard and soft infrastructure

The bank is currently conducting a review of the future of the UK's financial system, helmed by senior advisor Huw van Steenis, which is due to be published in two months.

As a teaser for that report, Carney said "the bank will announce a number of concrete steps to create an environment for a more resilient, effective and efficient financial system." This boils down to what he calls the bank's hard and soft infrastructure.

Hard infrastructure is technology and systems like the Real-Time Gross Settlement (RTGS) system that underpins UK payments. Soft infrastructure is rules, regulations and standards.

IT modernisation

On the hard infrastructure side, "big data is opening up new opportunities for more competitive, platform-based finance of SMEs," he said. "Search and social media data are supplementing traditional metrics to unlock finance for smaller enterprises whose assets are increasingly intangible. This new finance demands a Bank of England that is as open to new providers as it has been to traditional players."

Carney spoke about how the bank has been rebuilding RTGS1 over the last few years to open up direct access to the payments infrastructure for smaller fintech players.

"Until recently only commercial banks had direct access to it, and alternative payment service providers (or PSPs) had to route through them," he explained. "That made sense in the old financial world arranged around a series of hubs and spokes, but it is increasingly anachronistic in the new, distributed finance that is emerging.

"So we are now making it easier for a broad set of firms to plug in and compete with more traditional providers. Responding to demands from fintech providers, the rebuild will provide API access to read and write payment data."

The bank is also currently in the middle of a second major rebuild of its massive central data hub after some teething issues rendered the first iteration unfit for purpose.

The bank is preparing to launch a second iteration of this data hub next year, working closely with enterprise Hadoop specialist Cloudera (now that it has merged with Hortonworks). 

Adrian Waddy, technical lead for the bank's big data platform, had previously explained the importance of automation, dynamic provisioning and virtualisation in Data Hub Two, during a speech the Dataworks Summit in Barcelona in March.

"One of the key differences in terms of the live environment is we are going from effectively a single cluster to three separate production clusters," he said. "This largely reflects the cloud offering on Azure and means we will be able to tune these clusters to workload."

What will this achieve?

Giving three examples, Carney went on to explain how this new 'platform for innovation' will benefit the UK.

One of these focuses on investigating the application of AI on the sector, by "building a platform for fintech innovation, considers how general purpose technologies, including advanced analytics such as AI, can increase the resilience of the financial system," he said.

"AI-enabled solutions are increasingly important in fraud detection as well as automated threat intelligence and prevention. As some in the audience are exploring, there is also significant potential in credit assessments, wholesale loan underwriting and trading."

For the Bank of England specifically, AI could profoundly change the way it conducts supervision of the sector through the Prudential Regulation Authority (PRA).

"Each of these aspects of supervision is amenable to automation, machine learning or AI to some extent," Carney said.

The PRA Rule Book currently clocks in at 638,000 words of complex financial regulation. "We are currently using advanced analytics to understand the complexity and interconnectedness of the PRA rulebook, to identify ways to simplify our rules, and to make compliance with them easier for firms," Carney said.

The bank is also running a Digital Regulatory Reporting pilot with the Financial Conduct Authority, to investigate how firms’ systems could "interpret and ultimately automate regulatory data collection."

Lastly, he spoke about the impact climate change will have on financial systems and the need for the bank to respond and prepare the UK accordingly.

"Recognising the need for adequate reporting of climate-related risks and opportunities, four years ago the bank helped catalyse the private sector-led Task Force on Climate-Related Financial Disclosures (TCFD)," he said. "The TCFD has now led to a step change in the demand and supply of climate reporting. With over $100 trillion in assets now demanding TCFD quality disclosures, a market in transition is now being built."

The full speech can be read here.

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