Financial market infrastructures: Walking the line between stability and innovation
Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank
Sibos 2016, Geneva, 26.09.2016
Complete textPDF (113 KB)
Financial market infrastructures are vital for various Swiss National Bank (SNB) activities, including the implementation of monetary policy. This part of the financial sector also stands to be affected by the rapid changes currently taking place in financial technology. Technological innovations are thus highly relevant for the SNB. The SNB's task is to strike the right balance between maintaining stable conditions and promoting useful innovation.
Although the financial industry's core functions - funding new investments, offering investment and asset protection strategies, and executing payments - will remain largely unchanged, the technologies and channels by which it delivers these services are changing. The challenge for regulators and central banks is to make sure they fully understand the effects - and side-effects - of these new mechanisms at an early stage. Central banks and regulators have a duty to protect the safety of financial market infrastructures, but they also have a duty to ensure that they operate efficiently.
Until recently, financial market infrastructures had been moving towards centralisation. However, technological progress could reverse this trend, making decentralisation the new paradigm. The keywords here are 'distributed ledger' and 'blockchain'. There will nevertheless continue to be a role for centralised infrastructures, which already operate at low cost and meet high safety standards. It is, however, possible that we will see conventional and new technologies co-existing or even blending in the future. Such new technology is particularly relevant for central banks in the context of the ongoing debate about central bank money potentially being issued via a distributed ledger. This issue raises a host of central bank-specific questions that will need to be examined in more detail. The SNB is following and analysing developments in this arena closely and is actively involved in discussions with market participants, regulators and other central banks.
Certain other developments are already having a tangible effect on financial market infrastructures - for instance on cashless payment systems - and, this, in turn, has ramifications for the SNB. According to its mandate, the SNB is obliged to facilitate and secure the operation of such systems. In April of this year, the latest generation of the Swiss Interbank Clearing (SIC) system, which operates under the strategic guidance of the SNB, was launched. Support for emerging messaging standards and plans to extend SIC's operating hours next year will set the stage for cashless payment innovations which will ultimately benefit companies as well as private customers.
For financial market infrastructure innovations to be successful, market participants, regulators and central banks must all be convinced they are both safe and efficient. It is therefore essential that these parties maintain an active dialogue.