Fed’s digital dollar research study deemed successful

The Federal Reserve Bank of New York's New York Innovation Center (NYIC), in collaboration with members of the US financial services sector, has published the findings of a proof of concept (PoC) that explored the feasibility of an interoperable network for wholesale payments operating on a shared multi-entity distributed ledger. The research project, undertaken jointly with banks including Citi, HSBC and Wells Fargo - as well as Swift and SETL, experimented with the concept of a regulated liability network (RLN), a theoretical payment infrastructure designed to support the exchange and settlement of regulated digital assets. This proof of concept explored the feasibility of distributed ledger technology for safe and efficient payments.

The study was spearheaded by a collaborative working group leading three workstreams that analysed the technical feasibility, business applicability, and legal viability of using shared ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank money. The experiment was conducted in a test environment and used only simulated data. All simulated liabilities were denominated in US dollars (USD). The PoC experimented with use cases for domestic interbank and cross-border payments in USD. The experiment successfully simulated domestic and cross-border scenarios, identifying shared ledger technology as a potential solution to support payment innovation.

The technical workstream validated that the proposed architecture could deliver the benefits of settlement finality, a common source of truth, standard transaction data, and privacy for all participants on the network. The system demonstrated programmability through smart contracts that could enable efficient liquidity management. Including a theoretical wCBDC and commercial bank deposit tokens on the same platform enabled a shared ledger to settle payment transactions simultaneously and in near real-time.

The business workstream concluded that the network has the potential to deliver improvements in the processing of wholesale payments due to its ability to synchronise USD-denominated payments and facilitate settlement on a near-real-time, 24-hour-a-day, seven-days-a-week basis. The working group recommended exploring the design space, including alternative models and technologies that were out of the scope of the PoC but could offer similar improvements for wholesale payments and settlements.

The legal workstream considered the application of specific US rules and regulations to the RLN system as contemplated in the PoC. It found that using shared ledger technology, including tokens, to record and update the ownership of central and commercial bank deposits should not alter the legal treatment of such deposits. Although further analysis, research, and engagement with regulators would be required before conclusions can be reached, the legal workstream did not identify any insuperable legal impediments under existing US legal frameworks that would prevent establishing an RLN system as contemplated in the PoC.

 

Basel Committee consults on revisions to core principles for effective banking supervision

The Basel Committee on Banking Supervision has issued a public consultation on revisions to the core principles for effective banking supervision. These are the de facto minimum standards for the sound prudential regulation and supervision of banks and banking systems. They are universally applicable and accommodate a range of banking systems and a broad spectrum of banks. Supervisors use the core principles to assess the effectiveness of their regulatory and supervisory frameworks. They are also used by the International Monetary Fund (IMF) and World Bank as part of the Financial Sector Assessment Program (FSAP) to evaluate the effectiveness of countries' banking supervisory systems and practices.

The core principles were last substantively updated in 2012. The Committee commenced a review in April 2022 to reflect supervisory and regulatory developments, structural changes affecting the banking system, and lessons learnt from FSAPs since the last update. The current review has been informed by several thematic topics reflecting developments in (i) financial risks; (ii) operational resilience; (iii) systemic risk and macroprudential aspects of supervision; (iv) new risks, including climate-related financial risks and the digitalisation of finance; (v) non-bank financial intermediation; and (vi) risk management practices.

The proposals were developed by a task force comprised of both Committee and non-Committee member jurisdictions, as well as the IMF and World Bank.

 

Santander platform to support companies’ cross-border operations

Santander is launching One Trade Multinacionales, a money management platform that offers Spanish multinationals a condensed overview of their subsidiaries’ accounts worldwide. Managed by Grupo Santander’s payments arm PagoNxt, the platform will be available through Santander online banking without additional passwords.

The platform will provide centralised user authorisation and designation. A parent company can use it to see their accounts and other financial information in real-time for subsidiaries in Brazil, Mexico, Poland, Portugal and the UK that bank with Santander. Roll-out to other Santander markets is expected soon. The platform’s dashboard can also add other bank accounts worldwide.

One Trade Multinacionales is already available to Santander España customers and will arrive in Chile, the US and other Santander markets in 2023 and 2024. Santander has been operating Cash Nexus, a similar service for large corporates, for some years.

 

RTGS.global to streamline cross-border payments in Georgia and Tajikistan

Financial market infrastructure RTGS.global has signed pilot agreements with MDO Humo in Tajikistan and Credo Bank in Georgia. The two institutions will run pilots with RTGS.global to improve cross-border payments and settlements. Through RTGS.global’s network, banks should realise liquidity benefits and streamline traditionally cumbersome cross-border settlement processes.

RTGS.global says its solution is generating interest among rapidly-developing markets across Central Asia and the wider Asia, Middle East, and Africa regions. Meanwhile, several multinational banks have formed a Banks Working Group with RTGS.global to collaborate in leveraging its network to advance cross-border payments. Launched earlier this year, the Banks Working Group already comprises over a dozen banks across the Americas, EMEA, and APAC regions.

“What we are seeing in countries such as Georgia and Tajikistan is a recognition that they can provide a far superior experience for customers by offering efficient and seamless services based around frictionless cross-border payments and settlements,” commented Marcus Treacher, Executive Chair at RTGS.global. 

 

Generative AI driving up fraud attempts

Sift has released its Q2 2023 Digital Trust & Safety Index, which revealed that more than two-thirds (68%) of US consumers have reported an increase in spam and scams since November, as generative AI tools have entered the consumer sphere and become popular among fraudsters. Likewise, nearly half (49%) of consumers admit it’s become more difficult to identify scams during the same period, and nearly one-in-five (19%) say they’ve been successfully phished.

The rash of AI-enhanced scams creates downstream abuse that affects both businesses and consumers. Specifically, Sift has observed a surge of account takeover attacks, with the rate of account takeover fraud ballooning 427% during the first quarter of 2023 compared to all of 2022.

The increasing availability and marketability of fraud tools, including AI, has accelerated the democratisation of fraud, effectively enabling anyone to defraud someone using stolen credentials or payment information. Sift researchers have been tracking the growth of one of these tools: automated social engineering scripts known as one-time password (OTP) bots, which have increased on openly available groups in the Telegram messaging app.

OTP bots spoof a company or financial institution’s caller ID to trick victims into providing their OTPs for anything from bank logins to payment service apps. Fraudsters can pay for the use of the bot daily, weekly, monthly, or yearly. And while many consumers won’t fall for these scams, the scalability of these bots creates a profitable numbers game for fraudsters.

“Though still in its infancy, generative AI has already been a boon for fraudsters,” said Brittany Allen, Trust and Safety Architect at Sift. “Combined with the scale and availability of automated tools, online scams will soon be ubiquitous and frighteningly convincing, leading to incalculable losses for consumers and companies alike. Businesses, however, can both protect their customers and grow revenue by embracing AI and automation themselves to prevent fraud before it happens and reduce friction for legitimate users.”