Barefoot Innovation Podcast

The landscape in finance and financial regulation is an active one, with many organizations  busily inventing new things and reinventing old ones. Few entities, however, have the impact of the Bank for International Settlements. By virtue of its positioning — it ensures that the global payment system works accurately every single day — BIS has a uniquely broad perspective and plays a uniquely critical role. While other organizations deal with one or another corner of the vast financial services world, BIS affects it all.

It’s fortunate, then, that it has set a high priority on technology modernization. It has created a network of innovation labs throughout the world — more on this in a moment. It has also undertaken the hard work of setting the standards and connecting the pieces needed to move the whole ecosystem forward, as financial markets are transformed by mold-breaking inventions like stablecoins.

My guest today is leading part of that work. She is Tara Rice, Head of the BIS Secretariat of the Committee on Payments and Market Infrastructures. The CPMI is a sister organization to IOSCO, the International Organization of Securities Commissions, which is the global standard setter for securities markets. As Tara explains, both organizations work with the G20 and the FSB — the Financial Stability Board. To some, these entities with their complex names may sound arcane and distant from day-to-day financial services, but in reality, they are just the opposite. Their work is embedded in nearly every financial action we take, every day. From a financial perspective, they make the world go round.

Tara joined me to share major steps by CPMI (note that this episode was recorded last fall, and we are just catching up to it).

In our conversation, Tara describes the guidance that CPMI and IOSCO issued last year to make it clear that international standards — known as the Principles for Financial Market Infrastructures, or PFMI — apply to stablecoins, when the stablecoins are used for payment functions, clearing, and settlement systems, and if these functions are for systemically important arrangements that transfer the coins. The international bodies are aligned in embracing a key principle: even with novel, high-tech financial instruments, the regulatory logic needs to be, “same risk, same regulation.” 

Tara also covers a lot of other ground. She discusses the fallout from the FTX and Terra Luna disruptions of last year. She talks about concerns that stablecoin users may not fully understand their risks, and more deeply, that speculative assets simply are not meant to be means of payment. She talks about the potential for other use cases for these powerful technologies, such as for KYC — Know-Your-Customer — compliance, as well as the potential that blockchain technology may be able to foster a global ID system, enabling more people to get access to the financial system. And she talks about how all this intersects with CBDCs — central bank digital currencies. BIS has conducted a CBDC survey with central banks for the past five years, and she shares what they are learning. 

More broadly, Tara makes the case for international standards, which are going to have to keep pace with today’s head-spinning market innovation. She talks about the need to discourage the “race-to-the bottom” phenomenon in which countries, in effect, compete to attract businesses through regulatory laxity. She also warns that we need shared standards to contain the risk of contagion, which can spread rapidly through financial systems when people lose confidence in payments and money. 

Again, BIS has also launched a global network of innovation hubs, under the leadership of Cecilia Skingley. I’m excited to say that I will be in Basel this month for the BIS Innovation Summit, and will be doing a podcast there with Cecilia — coming soon!

We’re posting this episode a few days after the failure of Silicon Valley Bank. That event hit the system with breathtaking speed, unlike anything ever seen before. We need to keep our eyes on the fact that our financial regulatory and risk management systems are in a race against time. Technology change is leaping ahead, exponentially. The system’s watchdogs have to keep up. At AIR, we worry that too many people think regulatory processes and infrastructure — standards, monitoring systems, risk data and modeling — are what we might call regulatory plumbing and that people think these concepts are boring. In reality, these are the indispensable tools that are needed for building healthy, stable economies. We need to keep upgrading them with better technology. It’s actually urgent, and believe me, it’s anything but boring.

More about Tara Rice

Tara Rice is the Head of Secretariat of the Committee on Payments and Market Infrastructures at the Bank for International Settlements, The CPMI is the international standard setter for payment, clearing, settlement and related arrangements. Previously, she served as the Deputy Assistant Secretary for International Financial Stability and Regulation at the US Department of the Treasury. She also worked for nearly 15 years in the Federal Reserve System, most recently as Chief of the Global Financial Institutions section and as a visiting member of the Financial Stability Board in Basel. In 2012, she received the Fed’s Special Achievement Award for outstanding contributions towards the objectives and mission of the Fed. She holds a PhD in finance from Boston College.

More for Our Listeners

We have great shows coming up. Again, we’ll have a show with the innovation leader at BIS, Cecilia Skingsley. We’ll have a fascinating conversation with Tomicah Tilleman from Haun Ventures. Also, we’re coming up on both AIR’s fourth anniversary and Barefoot Innovation’s 200th episode, so we’re going to have some special shows to mark those special occasions!

And guess what. I’m going to interview Chat GPT, to find out what it thinks about AI and financial regulation. Can’t wait for that one.

I have a lot of events coming up. Again, I’ll be in Basel for the BIS Innovation Summit. I’ll be speaking at the Women in Payments Symposium in Washington, and also in Washington at the Just Economy Conference of the National Community Reinvestment Coalition. In April, I’ll be speaking at Fintech Nexus in New York, and then in June I’ll speak at the ABA compliance conference (we are planning a Chat GPT surprise for you there, as well!). I also have a speech coming up for the Blockchain Foundation.

Speaking of the ABA, we’re writing an article for their Bank Compliance magazine. We also have an article coming out shortly in the Journal of Financial Transformation. 

My colleagues and I are working on several TechSprints. One is with the Federal Housing Finance Agency, on improving the mortgage process. Another is a second event with the U.S. Department of State on combating corruption. We have several projects underway on consumer financial protection in emerging markets, with the Gates Foundation. And we held a TechSprint in January on how to use crypto technologies to encourage greater capture of carbon from the atmosphere. That’s a challenging one, and we’ll have a white paper coming out on it this spring. So, watch this space.

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