Benoît Cœuré of ECB Speaks on Future of FMIs

Mr. Cœuré noted that the central banking community, CPMI, and the Markets Committee are monitoring how technologies, such as DLT, may serve the wider public. With bitcoin and other crypto assets, large and unpredictable price swings and outright cyber heists have been seen, which may expose people to the risk of losing their savings. This demands that central banks take these risks seriously. However, the possible adverse financial stability implications of introducing central bank digital currencies call for the greatest caution, while the underlying DLT that would enable these digital tokens to be introduced are still immature, costly to maintain, and possibly prone to vulnerabilities. Given the prevailing flaws, central banks should pursue a two-track strategy. First, they should continue to study new technologies closely and experiment and engage with the industry. In case of ECB, a DLT infrastructure within the EU central bank community has already been established, which currently serves as a learning tool. ECB has also teamed up with the Bank of Japan on the Stella project—a series of studies on the potential use of DLT for financial market infrastructures. The second part of the strategy should draw on less-disruptive existing technologies to make the payment systems more efficient and safer. 

To make retail payments systems instant and available 24/7, instant payment solutions have been implemented, or are in the process of being developed, in many countries worldwide. Later this year, ECB will launch the TARGET Instant Payment Settlement (TIPS) service. To counter the fragmentation risk arising from the development of national or closed-loop solutions that are not interoperable, the European payments industry is launching a truly pan-European instant payments scheme. Improvements here are the best way of rising to the challenges arising from the currently unsafe crypto assets. Next, he mentioned that a key element of many RTGS system modernization projects is implementing a messaging standard that works across the globe. Of course, migrating from a legacy payment standard incurs costs. So, as with any other technological upgrade, it is important that a critical mass moves toward the new standard. He gave the example of implementation of the ISO 20022 standard and offering multi-currency functionalities in infrastructures. In the near future, both payment and securities settlement services will also undergo a technical and functional consolidation. The new service is scheduled to go live in November 2021.

Moreover, Mr. Cœuré mentioned that modernization of systems must go hand-in-hand with increasing their cyber resilience. To this end, CPMI and IOSCO had published guidance on cyber resilience for financial market infrastructures back in June 2016. Then, last month, CPMI issued a strategy for reducing the risk of wholesale payments fraud. The strategy aims to galvanize wholesale payment systems, network messaging providers, banks, overseers, and supervisors to work together in strengthening the security of the financial ecosystem and its endpoints, all of which are being increasingly exploited by adversaries. At ECB, steps have been taken to put these initiatives into practice and to strengthen cyber resilience more broadly. ECB introduced the cyber resilience oversight expectations, established the Euro Cyber Resilience Board for pan-European Financial Infrastructures, introduced a European Framework for Threat Intelligence-Based Ethical Red Teaming (TIBER-EU), and adopted the aforementioned CPMI wholesale payments security strategy as the competent authority for two wholesale payment systems in the euro area—TARGET2 and EURO1. All of these efforts are multilateral and predicated on strong cross-country collaboration. To deal with the emerging challenges and risks in this area, "we need strong multilateral cooperation more than ever," concluded Mr. Cœuré.

Related Link: Speech

Keywords: Europe, EU, FMI, PMI, DLT, Cyber Resilience, Payment Systems, Fintech, Regtech, ECB