Weekly Research Highlights – 25 October 2022

For this week’s research article, we dive into new insights on fintech overview, digital payments and crypto. Enjoy researching!

Supervisory Authorities publish discussion paper on artificial intelligence (The paypers)
In a discussion paper, the UK financial supervisory authorities have assessed the benefits, risks, and harms related to the current legal framework that applies to AI in financial services. The UK financial services regulators, the Bank of England (BoE), the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA) – together Supervisory Authorities – jointly published a discussion paper (DP5/22) on artificial intelligence (AI) and machine learning on 11 October 2022. The purpose of the discussion paper was to facilitate a public debate on the safe and responsible adoption of AI in UK financial services. Principally, the discussion paper examines: the potential merits of providing a regulatory definition for AI; the benefits, risks, and harms related to the use of AI and machine learning that could significantly affect or even transform how financial services and markets operate;  how the current regulatory framework could apply to AI. Read more

CBDCs can work with private stablecoins – research (Finextra)
A wholesale CBDC could successfully work with private stablecoins, shows research from the Hong Kong Monetary Authority and BIS Innovation Hub. Project Aurum – the Latin word for gold – saw the partners create a technology stack comprised of a wholesale interbank system in which the wholesale CBDC is issued to banks for distribution to retail users. Then they investigated a retail e-wallet system in which the retail CBDC circulates among users – but with two types of tokens: an intermediated CBDC, or CBDC-tokens; and CBDC-backed stablecoins. The researchers used UTXO (Unspent Transaction Output) to enable the traceability of the tokens to the backing assets, providing safety to end-users even if a commercial bank goes bust. Read more

New Research From Pathward Illustrates the Role of Purpose for Fintech Companies (Business Wire)
financial empowerment company, today announced the results of research on The Role of Purpose in the Fintech Industry, at Money20/20 USA. The survey of senior fintech executives indicates that most fintechs have a defined purpose, but they grapple with remaining focused on company purpose in volatile market conditions. Pathward led the research to better define the link between business practices and corporate purpose among fintech providers. While 100% of senior fintech executives surveyed said their businesses have a stated purpose, a majority (60%) have only defined that purpose in the last few years. As a result, staying steady in that pursuit is still a new company behavior. The survey also indicates that fintech executives recognize the business value of purpose-led organizations. According to the survey’s findings, when evaluating what drives a partner’s trust, commitment to purpose is the No. 1 consideration for fintech executives. Read more

How technology is helping the UK government combat fraud (Fintech Global)
Combating fraud continues to be a major challenge in the UK. Last year, over £1.3bn was stolen by fraudsters in the UK in 2021, according to Feedzai. However, technology is still making a change. Quantexa, a data and analytics software company, has released a report that explores how technology is helping the UK government crackdown on fraud. The UK parliament recently introduced the Economic Crime and Corporate Transparency Bill. This aims to reform how the Companies House and UK Law Enforcement Agencies operate in the future, with the aim of combating fraud. Quantexa stated that Companies House has provided frictionless company formation to support a dynamic and growing economy. However, this has allowed anyone to register a company. It highlighted that at the end of March 2021 the total register size was 4.7 million, which is an increase of 8.4% compared with the end of March 2020. Additionally, in 2020/2021 there were 810,316 company incorporations, which was an increase of 21.8% on the previous year. Last year was also the largest number of incorporations to date. Read more

The Future of Digital Banking in North America 2023 (Finextra)
2022 in North America saw a continuation of economic recovery from the Covid-19 pandemic, fuelled by the rapid rollout of vaccinations particularly across the US and Canada. Although the US was the fastest of the G7 economies to recover from the crisis, an enduring impact of the Russia-Ukraine conflict resulted in high inflation and the subsequent cost-of-living crisis is set to continue into 2023. These macrotrends are a catalyst for digital transformation within the financial services industry as banks attempt to grapple with new payments trends, the evolution of digital identity and innovative uses of data to enhance customer experience across retail, wholesale and commercial relationships. In 2022, digital banking for the consumer is far more advanced than the products and services that are available for merchants or large corporations. In 2023, open banking must be utilised to remedy this issue. Read more

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