CEMLA – CPMI Outreach conference on innovation and regulation in Fintech, payments and digital currencies
Buenos Aires, Argentina, 3 and 4 October 2019
CEMLA, CPMI and Banco Central de la Republica Argentina
The CPMI-CEMLA Regional Outreach Conference took place in Buenos Aires, Argentina, October 3 and 4, 2019. It was attended by 62 participants of 40 institutions, including Latin American and Caribbean central banks, CPMI members, international organizations and industry representatives.
The Conference was aimed at discussing key international developments in payment systems and financial market infrastructures, between CEMLA and CPMI central bank members.
Opening speech on Stablecoins and Central Bank Digital Currencies (CBDC)
Benoît Coeuré, Chair of the CPMI
Chairman Coeuré briefed the Conference attendees on the ongoing work led by the G7 to address concerns about the emergence of stablecoins initiatives, including Libra, JPM Coin and USD, many of them sponsored by large technology or financial firms, bigtechs. It was presented the implications for the development of more efficient global payment arrangements, in special the challenges, risks and benefits that these global stablecoins (GSC) may pose.
It was noted that GSC represent a call for policymakers to take actions as overseers and regulators of payments and market infrastructures, public goods of the economy. Furthermore, it was warned that emerging economies may lose track of their national payments and money systems in many respects against GSC, if quickly adopted; in other words, that legal tender may be displaced by means that could result more appealing than regulated payment services.
Panel 1 – Stablecoins and central bank issued digital currencies
This session was devoted to discuss the design features, the public policy considerations of retail and wholesale arrangements, and related implications of central bank issued digital currencies (CBDC) and the so-called stablecoins.
The central banks from Bahamas and Uruguay showcased the motivations and current experimentation with CBDC systems, noting that financial inclusion and reducing cash are important aspects for emerging economies searching for leveraging new technologies to enhance payments and money systems. In both central banks, policy aspects such as privacy and data management raise as concerns, while operational challenges bring by a 24/7 payment system will also represent additional issues for CBDC.
The representatives from the European Central Bank and the Federal Reserve System surveyed some of the implications of GSC and the role that central banks can play in the current context of emerging technologies reshaping the payments landscape.
The session allowed to conclude that data protection considerations, both for CBDC and GSC represent a challenge going beyond central banks, because it could help to fight economic informality and tax evasion, but it could be also a burden for adoption. In that respect. credibility of central banks is critical to ensure the public on the confidence of handling transactional data of a CBDC system, but financial literacy, industry engagement and coordination with other relevant authorities is critical to delve an ecosystem that enables these developments as transactional channels.
Panel 2 - Developments in real-time gross settlement systems
This session was focused on reviewing the latest or planned improvements in real-time gross settlement systems (RTGS) operated by central banks. The discussion was focused on how the modernization efforts may underpin a more robust, resilient and versatile financial system.
The central banks of Australia, England and Jamaica discussed what has motivated the modernization of the RTGS, ranging from issues like providing 24/7 services, to deal with new products provided by non-regulated payment service providers and with the heavy dependence on inefficient legacy rails (including cards switches and POS). It was mentioned that fast payments schema enabled by RTGS is now possible given technological progress. Furthermore, it was also mentioned that central banks should work towards a better use of larger payments datasets to define its payments policy.
The session brought the topic of access of non-banks at the RTGS as a development that is under debate internationally given the emergence of new entrants, fintechs. Central banks stand on a challenging situation to open up the possibility for non-banks to RTGS accounts, on one hand it may have legal implications, and on the other hand, it will be important to consider that while promoting a level playing field with risks under control, same activity, same risks, same rules.
Keynote – Big tech in payments in Latin America
Paula Arregui, Senior Vice President, MercadoPago
This keynote presentation set the scene for the discussion on how new payment service providers are challenging traditional business models, and at the same time they are transforming the payments landscape. It was noted that MercadoPago, like Amazon, Google, Facebook and Alibaba, are disrupting the payments market by using its economies of scale and platforms to approach consumers with more appealing and convenient payment solutions.
In this scenario, central banks are called to define how these new entrants should be regulated and overseen given the fact that some of these players lack the experience of traditional players in terms of compliance and risk management.
Panel 3 - Addressing cyber and fraud risks in wholesale payments
This session was devoted to discuss experiences at CEMLA and CPMI central banks members on how the cyber and fraud risks in wholesale payments could be mitigated by adopting the endpoint security strategy.
The co-chairs of the CPMI working group in charge of developing the strategy presented the context, suggested practices and expected outcomes to enhance the security of wholesale payments systems at the global level.
CEMLA presented the findings of a monitoring exercise across the region on how the strategy is (or will be) implemented by central banks. It was noted during the presentation that a number of actions may take time to reach the expected outcome suggested in each element of the strategy, therefore monitoring whether the current policy toolkit and measures deployed by Latin American and Caribbean central banks will enable to reached a stage in which the expected outcomes are fulfilled by 2021, according with the expectations set by the CPMI and the FSB for the global adoption of the strategy.
The session concluded with a special call for the regional central banks to approach CEMLA and CPMI for further guidance on how the strategy should be implemented, in order to enhance the resilience and security of the wholesale payment systems’ endpoints.
Panel 4 – The intersection of fintech innovation and regulation
This session was focused on reviewing the intersection of innovation in payments and its regulation. The discussion of this session was focused on initiatives and efforts led by central banks to embrace innovative payment solutions enabled by new technologies, as part of the oversight and regulatory framework.
The central banks of Chile, Colombia, Hong Kong and Singapore presented the policy and institutional framework that is being developed or already in place to ensure that innovations bring efficiency gains without hampering safety and confidence in the payments system. The session allowed to see that there are multiple approaches to be chosen by authorities to guide the industry with fintech developments. To name one of them, using an informal and flexible approach, it could help to foster innovation, but may require strict compliance controls for consumer and data protection and financial stability. The regulatory sandbox was mentioned a mechanism gaining importance as a channel to facilitate innovative products and business models to be tested and better understood.
It was mentioned that despite the approach taken, the central banks all agreed that establishing a collaborative framework with other relevant authorities and the industry, is key to have entities onboard and allow business feasibility, and at the same time ensuring effective regulatory requirements.
The session allowed to conclude that to avoid that in light of the growing presence of financial technologies, new payment service providers and products should be closely monitored by the central banks given its implications for the payment ecosystem, either in terms of access, competition, risk management, etc.
The Center for Latin American Monetary Studies and the Committee on Payments and Market Infrastructures (CPMI) organize the Outreach Conference on a periodic basis to bring together their respective membership for discussing and exchanging experiences about the development of payment systems and financial market infrastructures. The first edition of the Outreach Conference was held in October 2015 at Mexico City.