Although the Bank of England (BoE) is traditionally associated with preserving economic stability, its 15 October report reveals its aims to be at the centre of emerging technology within the UK's financial sector. Although the BoE's approach to regulation is technology-agnostic, the paper focuses on AI, distributed ledger technology (DLT) and quantum computing, which it believes will have the greatest impact. Creating an environment for responsible adoption will allow the BoE to combine its primary and secondary objectives of financial stability and economic growth, and it plans to be proactive in this area.
- AI: here, the BoE's chief concerns relate to cyber-attacks, over-reliance on third party providers, correlated outcomes across markets, and data- and model-related risks. "Soft infrastructure" – that is, regulatory frameworks and policies – will be instrumental in shaping how the technology is being adopted. The BoE recognises the importance of working with firms that are already using AI and monitoring its impact in the sector. Other plans include co-chairing the AI Consortium with the FCA; collaborating with the AI Security Institute; and examining how wider AI adoption might fit with its monetary policy objectives.
- DLT: the BoE sees DLT as key to the UK's future financial infrastructure. It is actively tackling the current lack of interoperability between central bank money and DLT-based platforms which is blocking progress. Key initiatives include the DLT Innovation Challenge; pushing ahead with the renewed Real-Time Gross Settlement Service RT2; the DIGIT pilot; and work with the FCA on the Digital Securities Sandbox. These align with the UK government's broader push to create a world-leading global payments ecosystem.
- Quantum computing: here, the speed of change is difficult to predict. However, the BoE warns that the cryptography technology which underpins the entire financial system could become obsolete owing to quantum. In the wrong hands, quantum could also supercharge the risks from existing technology, and the threat of "harvest now, decrypt later" is already a live issue. Acknowledging the uncertainties, the BoE commits to deepening its understanding of the potential benefits and risks. Work is taking place now to build post-quantum risk scenarios and assess firms' quantum readiness. The BoE already co-chairs the G7 Cyber Expert group and sees ongoing global collaboration as essential.
Where emerging tech meets the financial sector, the future is upon us, and the BoE has shown its intentions to stay ahead of the curve. Firms already understand the need to review of their ICT strategy and governance frameworks on an ongoing basis. Going forward, engaging with the BoE's thinking will help to put them on the front foot to comply with emerging regulation.
Other Authors: Prithivi Venkatesh, Junior Associate
