Money 20/20 Europe: A new era for a digital pound sterling

What will the UK’s first digital Sterling pilot look like? Project New Era, slated to launch in September, is a pilot project assessing the future digital currency ecosystem in the UK with a focus on a retail central bank digital currency (CBDC), with the aim of foster public-private collaboration and real-world testing. .

Panelists discussed what Britain’s first Digital Sterling pilot will look like – dSterling –

The project is led by fintech infrastructure “” and supported by industry body The Payments Association. The project’s global advisors include Boston Consulting Group as consulting partner, Rosa & Roubini Associates as macroeconomic advisors, and Simmons & Simmons as legal advisor.

Speakers Amit Sharma, Founder and CEO of FinClusive; Kaj Burchardi, managing director of the Boston Consulting Group Platinion; Oliver Irons, partner at Simmons & Simmons; and Anders Olofsson, Head of Payments at Finastra; joined Ruth Wandhöfer, Chair of the UK Payment Systems Regulator PSR Panel at Money 20/20 Europe to discuss the upcoming pilot.

Burchardi of Boston Consulting kicked off the discussion, explaining how New Era is backed by a consortium of different companies, including fintech and pure tech companies.

“We’re putting the infrastructure in place for the digital sterling, which is a quasi-CBDC,” Burchardi said, with a platform-focused approach that’s regulator-friendly and able to demonstrate use cases. for dSterling.

“We want to make sure that through use cases we can demonstrate the benefits of a dSterling,” Burchardi added, providing regulators with actual private sector data.

Leveraging a consortium of “best in class” companies, “we have defined the key requirements and key capabilities that such a platform for a CBDC will require, including scalability and confidentiality,” Burchardi said.

Burchardi described the three design or evaluation criteria for selecting use cases on the platform. First, does it present the benefits of a dSterling to the public? For example, cash on delivery, where a customer only pays for an item upon receipt, a process orchestrated by smart contracts. Second, is it really testing the limits of the platform? And finally, will it provide data for feedback to the regulator?

Regarding use cases for a dSterling, PSR’s Wandhöfer noted that “we’ve come a long way since the early days of Bitcoin,” adding that a number of countries are experimenting with or deploying CBDCs. “But what we’ve been thinking about here is so much more,” she added.

“It’s not about payments anymore,” Wandhöfer said, but about bringing people into the digital financial ecosystem through a digital identity, getting access to credit and loans, and other business issues. financial inclusion.

“This initiative is different from what we have seen in other markets, whether private cryptos, central bank money or variant central bank money,” Wandhöfer said.

Burchardi said New Era takes a partnership approach with different specialized fintechs and with incumbents such as banks, as well as integration with different regulators. “As a public-private partnership, I think it’s quite different from a lot of other initiatives.”

Wandhöfer added: “Sometimes central banks and regulators take a long time when industry can do it much faster than – and we need to act now.”

Finastra’s head of payments, Olofsson, believes that the capabilities of a distributed ledger technology (DLT)-based currency, stablecoin or crypto, “combines everything we talk about in open banking, that’s a service that combines a capability for cross-border payments, it addresses many topics around security”.

“We are investing heavily in what is called payment orchestration. So with the existing legacy infrastructure for real-time specified clearing, we are seeing how the need for orchestration is growing for banks to monetize their payments,” Olofsson said.

One of the key benefits of a dSterling is that it will spearhead the shift to a digitized world where the physical supply chain is represented in a digital format. “This gives banks a great opportunity to start monetizing their solutions in a new, more digital way,” Olofsson said.

Amit Sharma from FinClusive went on to describe the significant benefits of something like a dSterling when it comes to financial inclusion.

“Our True North, our mission is financial inclusion. And so, we’re taking a unique approach, because one of the things that’s common to use cases is interoperability and compliance,” Sharma said.

These ensure that there are fair conditions for individuals, households, small businesses and large corporations to access financial services, Sharma said.

“Our goal is to provide what we call ‘Compliance-as-a-Service’, which is actually a global ecosystem and a comprehensive approach to compliance and KYC,” added Sharma.

Finastra also strives to assign digital identity credentials backed by this compliance to ensure that there is “usefulness in the ecosystem”, to enable equitable access for an individual, household or small business. which can check and validate in an automated way.

“Our role in the pilot is to provide that layer of compliance,” Sharma said, so that there’s a common framework from a policy and technology perspective.

Regarding the importance of interoperability, Wandhöfer said “it’s really important to straddle the old financial world and the new”, and many players have struggled with that.

Although still commercial bank money, as a digital currency, dSterling will require identity and wallet verification capabilities, for example, “which is very different from the £10 in my purse today,” reflected Wandhöfer.

Sharma said that given the fundamentally different technology and operational infrastructure, “we have to have that bridge.”

To do this, digital identity, AML and KYC solutions need to be integrated into this infrastructure, rather than bolted on, Sharma said.

As for regulatory concerns, Simmons & Simmons partner Irons highlighted some of the gaps that remain to be filled in the pilot.

He reiterated the distinction between cryptocurrencies, “which are in fact unregulated investments”, and digital currencies like dSterling which will be backed by commercial banks.

Irons said the regulatory framework in the UK already effectively exists for a fiat-backed stablecoin, as an e-money token.

In this context, there may be issues as to how it will work in practice, adds Irons, pointing to the response to the UK Treasury consultation released earlier this year, “which basically said they were going to take the e-money regulatory framework and amend it to allow the operation of specific stablecoin-specific payments”.

Most concerns revolve around how such a stablecoin will be supported, Irons says. With e-money, you need to protect the funds if you are not a bank issuer. “There has been a distinction between how banks are treated and how EMI is treated in space.”

There are also liability issues, Irons believes. “I think the major regulatory elements that people think are missing is really how you strengthen the peg of the stablecoin.”

“Most of the stablecoins we have seen so far are not really stable, with fluctuations even in the USDC. The reason for the fluctuation, the volatility, is because they are exchange traded and subject to speculation,” Irons said.

“If you have a stablecoin that’s fundamentally not stable, and you sold it to someone on the basis that it’s pegged and you’ll get your pound or dollar back, that ceases to be a mode reliable payment”, he added.

“I think that’s one of the main issues that the pilot will hopefully help solve.”

Mary I. Bruner