François Villeroy de Galhau: Central banks and finance in the face of a triple revolution

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France and Chairman of the Autorité de contrôle prudentiel et de resolution (ACPR), at the Conference of ACPR, Paris, 25 November 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and Gentlemen,

I am delighted to be here with you today at the Palais Brongniart. In this historical venue of the Stock Exchange, I would like to talk to you this morning about the digital revolution underway in finance and payments. I would nevertheless like to start with a topical remark on traditional banking regulation: at the end of October, the European Commission presented its proposal for the transposition of Basel III. It was the first of the major jurisdictions to do so, and it is to be hoped that the others will soon follow suit. In substance, it is the delay in the implementation timetable that has drawn attention. I believe that this delay – guided by realism – is minor if (and only if) the temporary exemptions proposed by the Commission remain temporary, particularly for housing loans. This is key to Europe's credibility and compliance with the international agreement of December 2017. I would also like to welcome the application of the output floor at the consolidated level: it has already been contested, but it is in the spirit of the Banking Union and the 2017 agreement. The digitalisation of the financial sector has been accelerating ever since the Covid crisis; the words themselves reflect the questions we are asking ourselves: revolution, disruption, decentralisation or centrifugation. It is first necessary to understand these transformations (I), and then to map out the path for collective action (II) to safeguard the best of financial innovation, while ensuring the provision of secure financial services and payments for our businesses and citizens.

I. A revolution in finance and payments: players, assets, infrastructure

I won't go into detail about the obvious: the acceleration of distributed ledger and blockchain technologies, artificial intelligence, dematerialised payments, the cloud, big data, etc.  In this revolution, my purpose this morning is to try to shed some light on the disruptions they are bringing about in the banking and financial sector. I will summarise them through a triangle of disruptions: (i) First, the arrival of new players. There were – and still are – non-banks, and by this I mean the technology companies – Fintechs and Bigtechs – in the financial and payment services sector, many of which are, to date, subject to little or no regulation. (ii) Second, the emergence of new forms of financial or settlement assets: crypto-assets from the blockchain universe in the form of tokens. Bitcoin is emblematic of the first generation of highly volatile crypto-assets, whose use remains essentially speculative. The second generation, i.e. stablecoins – with mechanisms to stabilise their value against sovereign currencies – aims to provide a more comprehensive range of services with a global reach. (iii) Lastly, the emergence of decentralised market infrastructures: new technologies tend to reduce the use of financial intermediaries or centralised systems, often developed by central banks, such as TARGET2, the Real-Time Gross Settlement (RTGS) system for euro payments, or the TARGET2-Securities settlement platform, both of which were developed and are operated by the Eurosystem. Distributed ledger technologies aim to dispense with the need for a central register, as do smart contracts, computer programs that automatically execute transactions on the blockchain.