In the SupTech Loop #19

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Welcome to the 19^th issue of the Cambridge SupTech Lab bi-weekly LinkedIn newsletter, a source for updates on recent innovations, breakthroughs, opportunities, upcoming events in the suptech field, and news from the Cambridge SupTech Lab team.

If you like to flag any items for inclusion in the next newsletter, please email us at cambridgesuptechlab@jbs.cam.ac.uk. Occasionally, we email our global community of supervisors, data scientists, vendors, and suptech experts to share event invites, news, or new courses—subscribe here.

This edition includes news from the Bank for International Settlements – BIS, European Central Bank (ECB), European Commission, Toronto Centre, International Monetary Fund, Monetary Authority of Singapore (MAS), Central Bank of Ireland , Global Government Fintech, Reserve Bank of India (RBI), Regtech Africa, CGAP, FNA, International Organization of Securities Commissions (IOSCO), and others.

Suptech Innovations

FNA recognized for its suptech expertise in industry awards. For the second consecutive year, FNA has been recognized as the ‘Best Treasury Management Software Solution Provider UK 2024’ by Global Banking & Finance Review. This award recognizes the impact of FNA’s Intelligent Liquidity Optimization (ILO) solution suite, which revolutionizes liquidity management through patented optimization algorithms and network analytics.  Additionally, at a separate event, FNA scooped the RegTech Association’s “Chairman’s Award” for their efforts in combatting consumer scams and fraud through their National Fraud Portal Solution. FNA received the award at the  #ACCELERATERegTechGlobal UK + Europe event, which took place at Australia House in London on 25^th June 2024.  Read more here.

Central Banking & Technology

Federal Reserve launches ScamClassifier model. Due to the growing prevalence and severity of scams, the Federal Reserve and an industry workgroup have developed the ScamClassifier model (Off-site), a voluntary classification structure designed to identify, classify, and report fraudulent activities. It helps differentiate and categorize scams based on methods, categories, and types. It can be used as a standalone classification structure – or applied either before or after the FraudClassifierSM model is used more broadly to classify an incident as fraud. Read more here.

Project Nexus finalizes detailed plan to link domestic instant payment systems (IPS) globally and gears up for live implementation. The Bank for International Settlements (BIS) and partners have announced the completion of a comprehensive blueprint for phase three of Project Nexus, which will allow ready participants to work towards the next stage of seamlessly connecting their instant payment systems. BIS will facilitate central banks and IPS operators of India, Malaysia, the Philippines, Singapore and Thailand as they work towards live implementation in the next phase, with Bank of Indonesia as special observer. Read more here.

FinTracer: A privacy-preserving mechanism for tracing electronic money. Three researchers affiliated with AUSTRAC have introduced the FinTracer algorithm that allows financial intelligence analysts to trace the flow of funds in suspicious transactions across financial institutions without impinging on the privacy of uninvolved individuals and without breaching the tipping-off offence provisions between financial institutions. The authors prove the algorithm’s scalability by timing measurements done over a full-sized deployment. Read more here.

Central Bank of Ireland (CBI) to establish an Innovation Sandbox Programme in 2024. The programme will provide regulatory advice and support for innovative projects that promote better outcomes for society and the financial system. The announcement follows a three-month public consultation, and comes alongside a feedback statement to a consultation on the Central Bank’s approach to engagement with innovation in the financial sector. The programme will take a thematic approach, with themes and a call for potential participants to issue in the coming months, and the first programme to commence later this year (2024 4Q). Read more here.

Bank of Thailand (BOT) opens programmable payment pilot in sandbox. The BOT has introduced an enhanced regulatory sandbox to explore financial innovations that haven’t yet been authorised by the central bank. One of the key areas being tested is programmable payments. These payments use technology to automatically set transaction conditions for goods and services, offering a variety of applications with proper risk management processes. The testing project for programmable payments is open to financial service providers and other interested companies to apply until September 13, 2024. Read more here.

Swiss National Bank (SNB) conducts first tokenised monetary policy operation. The SNB has announced that it has become the world’s first central bank to ‘carry out a monetary policy operation in a live production environment’ using distributed-ledger technology (DLT). Token-based SNB bills worth Sfr64 million (USD 72 million) with a one-week term were issued on SDX for liquidity absorption earlier in June. SDX, or the Six Digital Exchange, is where the SNB has been providing wholesale central bank digital currency (CBDC) for the settlement of digital assets. Read more here.

European Central Bank (ECB) issues first progress report on digital euro preparation phase. The ECB has published its first progress report on the digital euro preparation phase, which was launched on 1^st November 2023 with the aim of laying the foundations for the potential issuance of a digital euro. The first two main sections of the report address the topics of privacy and offline functionality: two of the biggest challenges facing central bank digital currencies (CBDC) designers worldwide (and which also intermesh). Read more here.

Ethiopia takes first step toward central bank digital currency (CBDC) amid economic Reforms. Ethiopia’s cabinet has approved a legal framework for CBDC, at the same time as the government is pursuing policies to make the country a global bitcoin mining destination. The draft law, which is part of wider economic reforms, will now be reviewed in the lower chamber of parliament. Read more here.

European Commission seeks input from industry on the use of artificial intelligence (AI) in finance. The Commission has launched a targeted consultation and a workshop series to seek input from stakeholders on the use of artificial intelligence (AI) in finance. The initiatives cover use cases, benefits, barriers, risks and stakeholder needs. Financial stakeholders are invited to respond to the consultation by 13^th September 2024. Views are particularly welcomed from companies that already provide or develop AI systems. Read more here.

Blockchain and AI needed to tackle illicit financial flows (IFFs), says Nigeria’s Economic and Financial Crimes Commission (EFCC) chairman. Olanipekun Olukoyede, the Chairman of Nigeria’s EFCC, has underscored the potential of blockchain technology and AI in combatting IFFs across Africa. Speaking at the Pan-African Conference on Illicit Financial Flows and Taxation, Olukoyede highlighted the staggering $88.6 billion lost annually by African countries due to IFFs. He emphasised the importance of establishing robust legal frameworks and capacity building at national, regional, and international levels. Read more here.

Monetary Authority of Singapore (MAS) expands asset tokenisation initiatives. The MAS is intensifying efforts to support asset tokenisation within the financial sector. It has engaged three global industry associations to its ongoing asset tokenisation project and released a blueprint for establishing a “shared ledger infrastructure”. These associations are now part of an industry working group under Project Guardian, an asset tokenisation initiative launched by MAS in 2022. Read more here.

Three entities complete test phase in the fourth cohort of Reserve Bank of India’s (RBI’s) regulatory sandbox. The RBI has completed the “test phase” for 3 of the 6 products that were chosen as the fourth cohort of the regulatory sandbox for ‘Prevention and Mitigation of Financial Frauds’. Having exited the regulatory sandbox, the products can be used by regulated entities to prevent fraud. So far, the RBI has released products from three other cohorts which tackled the themes of retail payments, cross-border payments and MSME (Micro, Small, and Medium Enterprises) lending. Read more here.

Central banks need to anticipate AI’s effects across the economy and harness AI in their own operations, according to a BIS report. The BIS released its Annual Economic Report 2024 during its Annual General Meeting at the end of last month. This comprehensive report covers various aspects of the global economy, including strategies to strengthen the macro-financial foundation for the future, monetary policy insights from the 21^st Century and implications of AI. In the latter, the paper highlights that central banks play a dual role as stewards of the economy and as users of AI tools and that understanding these implications is crucial. Additionally, data availability and data governance are key enabling factors for central banks’ use of AI, and both rely on cooperation among several fronts. Read more here.

Promise (un)kept? Fintech and financial inclusion. This paper by the International Monetary Fund (IMF) uses a comprehensive dataset to investigate the relationship between fintech and financial inclusion in a panel of 84 countries over the period 2012–2020. The paper finds that the magnitude and statistical significance of fintech on financial inclusion varies according to the type of instrument. While digital lending has a significant negative effect on financial inclusion, digital capital raising is statistically insignificant. Policymakers must develop an adequate regulatory framework that balances fostering innovation and ensuring equitable treatment of individuals and groups. Read more here.

Financial inclusion and disruptive innovation: Regulatory implications. Increasingly novel and complex innovations bring new risks and challenges for regulators and supervisors. This working paper by the CGAP explores the latest wave of disruptive financial services innovations across three dimensions: business model innovations; product and service innovations, and Innovative technologies that underpin these models and products. Choices on how to regulate and supervise these innovations have important implications for financial inclusion. CGAP’s initial research found three cross-cutting themes to be most relevant to frame a basic stocktaking exercise for regulators when thinking about a holistic approach to innovation. . Read more here.

^8th IOSCO/Program on International Financial Systems and Harvard Law School (PIFS-HLS) Global Certificate Program for regulators of securities markets. The first phase of the 8th edition of the IOSCO/PIFS-Harvard Law School Global Certificate Program for regulators of securities markets took place between 24^th and 28^th June 2024 in Madrid, Spain. The sessions, which were delivered by current and former securities regulators, covered the fundamentals and intricacies of securities regulation and compliance and related critical issues. Cambridge Suptech Lab’s Samir Kiuhan talked in the session “FinTech – RegTech, Big Data, Artificial Intelligence and Machine Learning”, providing insights on the state of suptech in capital markets supervision. The second phase of the program, which will take place at Harvard Law School between the 9th and 13th of December 2024, will examine current and future regulatory challenges and emerging issues and will be delivered by leading academics, securities regulators and leading public policymakers. Read more here.

Webinar: Risk management and business model sustainability. Toronto Centre will be hosting a third webinar of the series on the revised Core Principles for effective banking supervision on 17^th July 2024. The Basel Committee wants banks to institute a sound risk culture, to maintain strong risk management practices, and to adopt and implement sustainable business models.  The revised Core Principles make clear that the assessment of business model sustainability is a key component of effective supervision. The panel will discuss how supervisors can assess business models and determine if and how to intervene appropriately. Read more and register here.

Financial crisis management two-week in-person course in September 2024. The course, presented by the IMF’s Monetary and Capital Markets Department in collaboration with the Yale Program on Financial Stability and the JVI, provides a comprehensive overview of conceptual and operational issues related to the restructuring and resolution of weak banks. The course draws on lessons learned from past crisis management strategies in crisis countries. It has a strong applied focus, as reflected by numerous mini-case studies, workshops and a crisis simulation group assignment. Read more here.

FintechLAC: The future of digital financial inclusion in Latin America and the Caribbean. The Inter-American Development Bank’s 5^th annual FintechLAC meeting took place in Bogota, Colombia and virtually on 20^th and 21^st July 2024. The meeting delved into the evolution of the fintech ecosystem in Latin America and the Caribbean, covering topics such as immediate payments, open finance, artificial intelligence, crypto assets, and regulatory innovations for financial innovation, among others. Cambridge Suptech Lab’s suptech specialist, Jose Miguel, participated in a panel discussion on “Using regulatory innovations and technology to improve supervisory work: lessons and challenges.” He shared insights on the potential of innovation to transform financial regulation and supervision. Read more here.

BIS overview of 2024 programme for financial sector supervisors. Over the course of the year, the BIS will be hosting several events, including virtual seminars, webinars, conferences, high-level meetings, online courses and virtual meetings for financial sector supervisors. The programmes will touch on various themes including risk-based supervision, suptech, digital assets, financial inclusion, climate risks, cyber risks, crisis management, among others. Read more here.

IFRS 9 – A supervisory perspective course. This in-person training, hosted by the IMF between 26th and 30th August 2024, explains various aspects of and issues related to asset classification and provisioning, both from the prudential regulatory perspective and the perspective of accounting/IFRS. It also explores the supervisor’s role in reconciling differences between the two perspectives. Case studies, role-plays, and hands-on exercises are provided to enhance the effectiveness of the course. Read more here.

Fintech market development and policy implications. This in-person training, hosted by the IMF between the 14th and 18th of October 2024, is designed to give participants a foundation for understanding new financial technologies (fintech) and the associated policy implications. The course will focus on several areas that are rapidly developing in recent years. It will discuss risks arising from fintech developments in these areas and explore possible policy responses. Read more here.

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