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UK plans to boost open banking - Industry roundup: 7 June

Central banks prove viability of quantum-safe financial system

A secure communication channel designed to protect financial data against future threats from quantum computers has been successfully established by the BIS Innovation Hub Eurosystem Centre and its Eurosystem partners, Banque de France and Deutsche Bundesbank.

Once they reach sufficient size and power, quantum computers will be able to easily break the cryptographic encryption schemes currently used to ensure secure financial transactions and data. This is one of the most significant cybersecurity threats facing the financial system today, potentially exposing all transactions and much of our stored financial data to attack. Experts refer to that risk as ‘Q Day’. 

To prepare central banks and the global financial system for a transition towards quantum-resistant encryption, the BIS Innovation Hub Eurosystem's Project Leap is investigating how to update and replace the cryptographic security algorithms that the financial system is critically reliant on. 

“Project Leap makes an important contribution to mitigating the threat posed by quantum computers to the confidentiality of financial data and the stability and integrity of the global financial system,” said Raphael Auer, Head of the BIS Innovation Hub Eurosystem Centre. “While we do not know exactly when quantum computers will be strong enough to crack today's encryption, central banks need to prepare themselves. Project Leap is a blueprint for how they can do so.”


UK plans to boost open banking

The UK’s Joint Regulatory Oversight Committee (JROC), which is formed of HM Treasury, the Competition and Markets Authority, the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR), has set out a programme of work to take forward recommendations for the next phase of open banking in the UK.

This involves setting up dedicated workstreams for the six key themes and priorities outlined in the recommendations. The JROC has launched two new working groups on variable recurring payments (VRP) and a future open banking entity to support this. The JROC has also tasked Open Banking Limited (OBL) to lead and coordinate workstreams on four other key themes. 

The committee says that this work is crucial in realising the full potential of open banking in the UK. The co-chairs of the JROC, PSR’s Managing Director, Chris Hemsley, and FCA’s Executive Director, Consumers and Competition, Sheldon Mills said: “Now that we have a roadmap in place to deliver on the next phase of open banking, it’s vital that we work collaboratively and at pace to progress the key priorities we identified. These dedicated workstreams, including the two new working groups on VRP and future entity, will make sure the correct foundations are in place for open banking to grow in a safe and sustainable way.”

Expanding the use of VRP will allow consumers and businesses to make a broader range of payments more conveniently and efficiently. This could include utilities or charity donations, where the amounts paid can vary each time. Currently, VRP use is limited to when individuals want to move money between their accounts (aka sweeping). The working group will develop a blueprint for the phased roll-out of non-sweeping VRP by the end of September 2023.

There will be a transition from the Open Banking Implementation Entity (OBIE) to a future open banking entity, building on the significant progress made to date. 

The Future Entity Working Group will consider the design of the future entity, including its role, structure, and funding. It will also propose how the future entity can be implemented. The working group will report to the JROC by the end of September 2023, and the JROC will publish its views in an update towards the end of 2023.

Both working groups will be established by the end of June 2023. The PSR will chair the VRP working group, and the FCA will chair the Future Entity working group. Under the JROC’s oversight, the OBL will lead and coordinate these four key themes: 

  • Levelling up availability and performance. 
  • Mitigating the risks of financial crime.  
  • Developing proposals for dispute processes.  
  • Improving information flows to third-party providers (TPPs) and end users. 

The JROC has written to OBL, setting out specific activities to progress against these themes, which include working with Pay.UK, as the operator of Faster Payments, where necessary. OBL will provide a monthly update to the JROC on this work.


Enfuce and SEB Embedded bring BaaS to card programmes

Card issuing and processing firm Enfuce has teamed up with Swedish Banking-as-a-Service (BaaS) disruptor SEB Embedded to launch next-generation virtual and physical card programmes for SEB Embedded’s customers, supported by Enfuce’s cloud-based issuer processor platform.

Established in January 2023 as an offshoot of Nordic banking group SEB’s innovation lab SEBx, SEB Embedded has a full banking licence and a modern banking technology platform. Its mission is to bring banking to where it’s needed. By selecting Enfuce, SEB Embedded should be able to strengthen its existing BaaS capabilities with card services that offer full regulatory compliance and smooth onboarding. 

Enfuce’s compliant and customisable tech stack and APIs will be available through SEB Embedded’s platform. Through Enfuce, SEB Embedded can offer a range of value-added services, including its exchange rate API, authorisation controls, and the ability for users to set and view PINs. 

“Creating new compelling financial services like BaaS and expanding into new customer segments is exciting but also challenging,” commented Christoffer Malmer, CEO of SEB Embedded. “SEB Embedded was looking for a provider to help us get new products to market quickly and efficiently, including the extension of Card as a Service within BaaS. Our must-haves for any potential partner included speed and responsiveness, cost efficiency, flexibility, proactivity and scalability.”

SEB Embedded is currently operating in the Swedish market, but with a view to expanding geographically into Europe and with an increased card offering alongside a broad range of banking products.


NatWest and the University of Edinburgh launch innovation centre

NatWest Group and the University of Edinburgh have announced a partnership based on challenge-led research and innovation that will improve how data is used to benefit bank customers, students, researchers and policymakers. The Centre for Purpose-Driven Innovation in Banking will combine business insights from NatWest with the University’s research, data and social science expertise to co-create data-driven, novel solutions for the future of banking.

The Centre builds on previous joint work between the University and the banking group around technological innovation in financial services provision, harnessing data for public good and climate education. The new strategic partnership, supported by Edinburgh Innovations, the University of Edinburgh’s commercialisation service, is planned for five years, with an initial commitment of £2m from NatWest Group for the first two years of activity.

The Centre, led by the Data-Driven Innovations hubs Edinburgh Futures Institute and the Bayes Centre, part of the Edinburgh and South East Scotland City Region Deal, will draw on expertise from more than 100 academics throughout the University.

Innovation activity will include skills and talent development for bank staff and university students and challenge-led research and development activities. The Centre will bring the latest academic developments and thinking in data science and AI, climate change, business, and the social sciences to tackling issues in the banking sector.

“The Centre for Purpose-Driven Innovation in Banking will bring together the University’s expertise with NatWest’s in-depth data and business understanding to co-create multidisciplinary research with business applications,” commented Professor Sir Peter Mathieson, Principal and Vice-Chancellor of the University of Edinburgh. “The insights generated will help us translate cutting edge research into real world solutions to benefit society.” 


SmartStream solution to onboard cash balances faster

SmartStream has announced the latest version of its Air solution, with new AI functionality to onboard cash balances faster and more accurately while further improving cash reconciliations. A new development team was set up to research and provide the new functionality in partnership with clients.

If cash balances and/or positions are not managed correctly, they will eventually lead to errors, financial losses, and even regulatory penalties. SmartStream Air will continue leveraging its AI-enabled technology and exception management capabilities to give users the confidence to instantly manage cash balances. 

“To ensure we had the right upgrade, we hired a team of UX researchers to make sure we are delivering what the market is currently demanding,” said Jethro MacDonald, Head of Product Management – AI and Machine Learning at SmartStream. “Having tested it with a few clients, the results have shown that the solution empowers them to be confident in their decision-making, in addition to providing an end-to-end solution, with a quick implementation time.”


Report - JPMorgan teams up with Indian banks for blockchain-based settlements

Bloomberg has reported that JPMorgan is to test the use of blockchain technology to provide dollar-based settlement services for Indian financial institutions.

Dollar payments in India are usually made through SWIFT via Nostro accounts held at US-based banks. However, such payments can only be processed during US office hours and are unavailable over the weekend.

Under the pilot, six Indian banks - HDFC, ICICI, Axis Bank, Yes Bank, and IndusInd Bank - will open on-chain Nostro accounts with JPMorgan's branch in the Gujarat International Finance Tec-City (GIFT City). The blockchain-based system will enable instantaneous 24x7 settlement between accounts held at the US bank, creating a private intra-correspondent banking network.


UBS expects to complete Credit Suisse acquisition as early as 12 June 2023

UBS expects to complete the acquisition of Credit Suisse as early as 12 June 2023. At that time, Credit Suisse Group AG will be merged into UBS Group AG. Completion is subject to the registration statement, which covers shares to be delivered, being declared effective by the US Securities and Exchange Commission, and to satisfaction, or waiver by UBS, of other remaining closing conditions.

Upon completion, Credit Suisse shares and American Depositary Shares (ADS) will be delisted from the SIX Swiss Exchange (SIX) and the New York Stock Exchange (NYSE). Credit Suisse shareholders will receive one UBS share for every 22.48 outstanding shares. The exchange of Credit Suisse ADS may be subject to specific fees.

Credit Suisse Group AG’s obligations under its outstanding debt securities will become obligations of UBS Group AG. Additional information on the specific securities issues will be contained in investor notices distributed in due course by the relevant stock exchanges, including the Official Notices page of SIX Swiss Exchange and, for certain notes, the Depository Trust Company (DTC).

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