The Bank of England has gone on record saying it will allow FinTech companies to store funds overnight in interest-bearing accounts at the central bank, allowing them to bank at Threadneedle Street and offer payments systems on a level playing field with commercial banks.
Allowing all payment providers to store funds overnight in interest-bearing accounts at the central bank would help achieve the goal that “similar activities should be regulated consistently”, according to BoE governor Mark Carney speaking at the annual Mansion House dinner, which was interrupted at one stage by climate protesters.
Allowing all payment providers to store funds overnight in interest-bearing accounts will be seen as a threat to banks, which have exclusive access to BoE payments operations and can make money from acting as intermediaries to other payment providers.
The policy is in line with Mark Carney’, the BoE governor’s, “open mind but no open door” approach to Facebook and its proposed digital currency, Libra. The sterling funds underpinning Facebook’s token would be offered a safe interest-bearing account, relieving the tech company of banking charges and the risk that its commercial banking partners could go bust.
Only companies that meet strict standards would gain access to the BoE’s banking services insists Carney. “Unlike social media, for which standards and regulations are being debated well after it has been adopted by billions of users, the terms of engagement for innovations such as Libra must be adopted in advance of any launch.”
At present only commercial banks can store money — usually overnight — at the BoE, which is guaranteed to be safe as it is backed by the central bank’s ability to create money. Mr Carney said that offering the BoE’s services to others, which would come only after a period of consultation, would help increase competition in payments systems and reassure the public of their safety.
By giving access to ultra-safe and cheap banking services to new payment providers, the BoE hopes it can support financial stability, allowing payment systems to continue to operate even if big banks go bust and at a lower cost for potential users such as Facebook.