Fintech in International Capital Markets
FinTech in International Capital Markets by Gabriel Callsen and Rowan Varrall
FinTech Advisory Committee ICMA’s FinTech Advisory Committee (FinAC) held further meetings on 27 May, 15 July and 23 September 2021. The meeting in May focused on global regulatory developments, bond issuance based on blockchain, as well as artificial intelligence (AI) and machine learning (ML)related market developments in capital markets. The FSB provided an update on its FinTech priorities in 2021 and ongoing work in relation to regulatory and supervisory issues associated with the use of AI/ML, RegTech/SupTech and BigTech, as well as implications for international debt capital markets. The FSB published two reports in 2020: The Use of Supervisory and Regulatory Technology by Authorities and Regulated Institutions and BigTech Firms in Finance in Emerging Market and Developing Economies. Amongst other topics, the FSB is focusing in 2021 on digital currencies and digital identity in the context of cross-border payments. The EIB presented its recent issuance of a digital bond (FR0014003521, 0%, due 28 April 2023) on the Ethereum blockchain. The instrument was issued under French law, which enables the registration of securities on a distributed ledger (in French, Dispositif d’Enregistrement Electronique Partagé, or DEEP). The transaction involved three joint lead managers who transferred the issue amount in a representation of central bank digital currency provided by Banque de France in the context of the EIB project, while investors purchased security tokens using traditional fiat currency. The principal is expected to be repaid in commercial fiat currency at maturity. Furthermore, members exchanged views on AI/ML applications in bond markets and more broadly. In terms of price discovery, AI models for bond pricing analytics are technically feasible, but data quality remains a challenge which adversely impacts the accuracy of predictions. Other solutions focus on natural language processing to gauge potential demand in individual instruments. From a post-trade perspective, robotics applications are being explored to replace trade support functions, for instance, in relation to valuation or settlement. PAGE 50 | I SS U E 63 | FOURTH QUARTER 2021 | ICMAGROUP.ORG
In July, members of the FinAC discussed the CDM project for repo and bonds, how to promote adoption as well as strategic considerations going forward, amongst other topics. In September, the meeting agenda included latest developments in relation to digital currencies and implications for the international debt capital markets, as well as FinTech and sustainability. Further information on the FinAC is available on ICMA’s dedicated FinTech webpage. Contact: Gabriel Callsen gabriel.callsen@icmagroup.org
FinTech regulatory developments BIS Innovation Hub: executive summary and reports on CBDC On 30 September 2021, the BIS Innovation Hub, in collaboration with seven central banks (Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Federal Reserve, Sveriges Riksbank and Swiss National Bank) published an executive summary and three reports relating to CBDC: System Design and Interoperability, User Needs and Adoption, and Financial Stability Implications. The central banks contributing to the reports anticipate any CBDC ecosystem would involve the public and private sectors in a balance, in order to deliver the desired policy outcome and enable innovation that meets users’ evolving payment needs. For CBDC systems, domestic interoperability would need to be sufficient to achieve an easy flow of funds to and from other payment systems and arrangements. Regardless of the design, developing and running a CBDC system would be a major undertaking for a central bank. The group will continue to collaborate on exploring how CBDCs could enhance any future system.
