Fraud experts, compliance leads, and payments company founders were among the speakers at the global gathering in London. The event opened with a panel discussion on the potential of digital currencies and how they would be differentiated from existing bank offerings.

The European Central Bank (ECB) announcement in October that it is entering the preparation phase for a digital Euro was a big step in the evolution of CBDCs.

Speaking on the purpose of a CBDC, Heike Winter, Director of Retail Payments Policy, Deutsche Bundesbank, said: “There is a political and policy project behind currency being digitalized. It’s a geopolitical idea to make Europe more independent from payment infrastructure outside the eurozone.”

“While regulation provides some good solid foundations, it’s slow to move and not reactive enough if we want to build a resilient, vibrant, and forward-thinking ecosystem.”

James Hickman, CCO, Ecospend

Consumers understandably have concerns about privacy and how much overreach and control central banks would have. Several US states have banned CBDCs, namely Florida, Texas, and North Carolina. Speakers agreed that the fulfilment of AML and countering-the-financing-of-terrorism (CFT) functions was key, and that consumers’ fundamental right to privacy must be preserved. This issue could be addressed through zero-knowledge proofs.

It was also acknowledged that consumers lack understanding of the utility of CBDCs, the division between central and commercial bank money, and their respective involvement in these projects. “We did a 2020 survey on aspects of how to make money digital. It was more complex than we thought. What is the role of banks? Because we need them involved. The narrative shouldn’t be to say we will have stabler money. It’s difficult to describe to consumers the difference between central and commercial bank money. In more turbulent times this difference is notable,” said Winter.

Education is a key factor in adoption, panelists said, particularly with the public concept of public versus private money being so muddied. The Digital Pound should be positioned as a platform for innovation that can be built on, and reward mechanisms such as cash awards could be a strong predictor of the success of CBDCs. Central banks aren’t aware of these approaches so that’s where collaboration between central and commercial banks is useful.

“We did a 2020 survey on aspects of how to make money digital. It was more complex than we thought.”

Heike Winter, Director of Retail Payments Policy, Deutsche Bundesbank

“Initially we were skeptical about what the opportunity was, but now we believe we need to be part of the discussion because a digital euro is needed for Europe. It’s important to have a good conversation with the ECB and the co-legislator. The European Commission published a regulatory proposal and within this regulatory framework there are a lot of aspects to be analyzed,” Gianluca D’Imperio, Compliance VP, UniCredit, said.

Panelists said that while there has been adoption in a few countries, uptake has been slower than anticipated. But there was reason for optimism. Innovative payments products often take a while to be adopted, as in the case of credit cards.

“We are concerned with stablecoins and tokenized deposits. What are the value propositions? In the face of a bustling ecosystem, what are the opportunities and risks? Upskilling is required to accept a digital euro and we are asking how, from infrastructure perspective, this will compete,” said Conrad Klaft, Executive Director, Digital Euro Association.

Several years into the implementation of open banking following PSD2, panelists asked how things were progressing. They agreed that banks have a foundation, having conformed to regulation for years.

“While regulation provides some good solid foundations, it’s slow to move and not reactive enough if we want to build a resilient, vibrant, and forward-thinking ecosystem. That has to be built on a contractual bases. Law and regulation takes years and by the time it comes in it’s out of date. So we need a more dynamic framework,” said James Hickman, CCO of Ecospend.

“We want to use existing frameworks, but these need to be adapted. We use the principle of same risk, same regulatory outcome.”

Matthew Osborne, Senior Manager, Innovation & Payments Policy Team, Bank of England

The Bank of England issued a framework for regulating stablecoins last week. Wrapping up the morning session, Matthew Osborne, Senior Manager, Innovation & Payments Policy Team at the Bank of England, gave a deeper dive into the Bank’s activities.

Defining stablecoins, Osborne said they are “quicker, cheaper payments with more functionality but more risks. We need regulation that is sustainable and we need to maintain confidence in money”.

While the FCA focuses on non-systemic stablecoins, the BoE is focused on systemic stablecoin payment systems and service providers. There are no stablecoins that are considered systemic today because today they are largely used for crypto transactions and not seen as a risk to the financial system, but frameworks need to be put in place in anticipation of their expansion.

“We want to use existing frameworks, but these need to be adapted. We use the principle of same risk, same regulatory outcome. There are two principles – systemic payments systems using stablecoins should be regulated to the same standard as traditional payments systems, and stablecoins should meet commercial bank money standards,” Osborne said.