The strengthening of the capital position will improve the resilience of existing institutions while encouraging only the more financially efficient and effective companies to remain in the sector. Improved capital positions are also essential for the smooth consolidation of the sector in the near-term through market driven acquisitions or mergers. There are also ongoing discussions on the encouragement of LFCs and SLCs to obtain credit ratings and list themselves on the Colombo Stock Exchange (CSE). This will, in turn, ensure financial stability and operational excellence while creating healthy competition. We also consider imposing directions that LFCs and SLCs achieve a capital adequacy ratio of 12 per cent with the intention of improving sensitivity to risks, while focusing on credit risk based on borrowers’ risk profiles, and operation and market risk in the trading book. With the view of ensuring a stable and stronger non-bank financial sector, market driven acquisitions and mergers will be encouraged among LFCs/SLCs to sustain strong financial institutions, while minimising unstable small scale finance companies in the sector. 20  The Finance Business Act is also being currently revamped to strengthen the regulatory framework with due consideration to the evolving characteristics of the sector. Accordingly, it is being revised to incorporate provisions related to the resolution of LFCs and SLCs and unauthorised establishments. It will also focus on an improved litigation mechanism for fraudulent activities, while ensuring rapid prosecution of those who have misappropriated public funds.
We are, as I have said, also seeking feedback on the technical approaches for such a model of the digital pound. The Technology Working Paper accompanying the Consultation Paper sets out an illustrative and complementary conceptual model consisting of a core ledger, API layer, analytics and alias service. The core ledger operated by the Bank might be centralised, running as a traditional database, or it might use Distributed Ledger Technology (whether a blockchain or another form of the technology). The paper includes key questions which will be further explored in the next phase of work, including for example which privacy-enhancing technologies might support our policy objectives and what features of an API for the digital pound would best enable innovative use cases. The digital pound within a digital payments landscape Finally, I want to cover briefly how a retail digital pound, designed for use by firms and households in everyday transactions, might sit alongside a wholesale central bank digital currency, privately issued digital money, and also alongside central bank digital currencies issued by other jurisdictions. On the question of a ‘wholesale CBDC’ the first point to emphasise is that for the Bank this is not a question of either one or the other of ‘retail or wholesale’. We are working extensively on both areas, including through the renewal of the digital infrastructure we currently use to provide money to commercial banks in the form of Bank of England reserves.