Organisational changes to address the challenge of financial innovation The role of regulators and supervisors is to contribute to harnessing in full the benefits of innovation while maintaining risks within reasonable and socially acceptable limits. As you can imagine, this is no easy task and requires the authorities themselves to undertake internal transformation processes so as to be able to appropriately meet these challenges. As a result of this need, the Banco de España has in recent years assigned growing resources to monitoring and analysing financial innovation. The first step was the creation, in February 2017, of an internal group with representatives from different business areas within our central bank to gain a cross-departmental view of the phenomenon and to promote coordination among these different areas. One year on, we have deemed it necessary to take a further step, assigning specific resources to the analysis of financial innovation. To do this, a new Associate Directorate General was created last March. This new area pursues three major aims: (i) to understand the dimension of the changes taking place, (ii) to analyse the consequences of the new developments, and (iii) to provide for coordination and contact with the market and the other authorities involved, including those from other jurisdictions since, in short, financial technological innovation is a global phenomenon. The ultimate aim is to develop an overview of the main features and challenges facing financial services-providers.
In this respect, cryptoassets or cryptotokens are one of the most striking developments in this area, going by the extensive media coverage some of them – such as the bitcoin – are receiving. But this does not mean that they are the most important or even the most promising innovation. Indeed, in my view, their current use poses more risks than benefits: they have a low level of acceptance as a means of payment, they are subject to extreme 3/6  volatility, they have numerous operating vulnerabilities and they have been related to fraudulent or illicit activities in many cases. I shall not, however, give an exhaustive list of the risks of crypto assets, since the position of the Banco de España in this connection is well-known. But I will draw attention to how important it is to disassociate cryptoassets or tokens from their underlying distributed ledger technology. Distributed ledger technology offers interesting possibilities insofar as it allows, in short, a ledger book to be shared securely among various agents. Although this technology is not yet sufficiently mature, it has the potential to generate efficiency gains and cost cuts in activities that require continuous reconciliations among various agents, either because such activities are relatively non-standardised, involve a high number of intermediaries or require complex processes. Areas such as securities trading and post-trading, international settlements, collateral management, trade finance and the management of digital identities might benefit from the use of this technology once it ultimately matures.