Greg Kilminster
Head of Product - Content
Bank of Japan Governor on benefits and risks of CBDC
The Governor of the Bank of Japan (the Bank), Kazuo Ueda, has recently given a speech at the FIN/SUM 2024 conference regarding the possibility of introducing a Central Bank Digital Currency (CBDC) in Japan. Ueda explained that CBDC would have the same roles and functions as cash and would be a direct liability of the central bank. This means that the existing two-tiered system, where the central bank provides base money and commercial banks provide deposits to individuals and firms based on central bank money, would also continue.
Benefits of CBDC over conventional payment methods
Ueda first emphasised the benefits of CBDC over conventional payment methods. He noted that CBDC transactions would be faster than digital payments and would not have the delay associated with bank transfers or other means. Furthermore, Ueda mentioned that CBDC, compared to cash, is intangible, with information about the amount and holder provided as electronic data. The digital nature of CBDC removes the need for physical space, making it usable in a wider range of settings. It also creates opportunities for enhanced convenience for consumers and growth through the creation of new values.
Risks associated with CBDC
However, CBDCs have certain downsides, and several countries, including Japan, are considering preemptive measures to address them. One concern is that removing the space constraint could generate a sudden and large-scale flow of funds from deposits to CBDC. As a preemptive measure, many countries are considering putting safeguards in place, such as imposing a ceiling on users’ CBDC holdings. Privacy-related concerns are also significant. Therefore, designing a framework that ensures privacy protection is crucial. Such a framework should also consider countermeasures due to the potential increase in room for illicit financing such as money laundering.
Further considerations for implementation
In considering the potential implementation of a retail central bank digital currency (CBDC) in Japan, Ueda emphasised the importance of consulting with the public. The Bank has been conducting technical experiments and exploring institutional arrangements to facilitate such discussions. According to him, the discussions must take a well-balanced perspective, considering external factors such as the introduction of new technologies, both global and domestic circumstances, and the potential problems that could eventually arise. Additionally, the potential to create diverse values through the digital features of CBDC should be considered.
Ueda concluded by stating that the Bank continues to engage in various efforts to envision the future of the overall payment system.
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EBA consults on draft RTS on off-balance sheet items under CRR3
The European Banking Authority (EBA) has issued a consultation paper on its draft Regulatory Technical Standards (RTS) under the Capital Requirements Regulation (CRR3) regarding off-balance sheet items under the standardised approach of credit risk.
These RTS are part of phase 1 of the EBA roadmap on the implementation of the Basel III framework through the EU Banking Package.
The consultation paper focuses on the calibration of applicable percentages, which determines the exposure values of off-balance exposure. The calibration amendments introduced by the CRR3 update this percentage system by introducing an adjusted weighting scheme and an additional bucket.
The draft RTS outlines the criteria institutions should follow when classifying off-balance sheet items unless stated otherwise in Annex 1 of the CRR. They also specify the factors that may limit institutions’ ability to cancel the unconditionally cancellable commitments.
The consultation runs until 4 June 2024.
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RBI Governor on digital payment landscape in India
Shri Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), recently gave a speech during the Digital Payments Awareness Week celebrations in Mumbai. In his address, the Governor provided an overview of the digital payment landscape in India and the initiatives undertaken by the RBI to improve trust.
The Governor highlighted the “extraordinary growth” in retail digital payments in India, which has seen a 90% increase over 12 years, largely due to the success of the Unified Payments Interface system, which enables mobile-based transfer of funds between two bank accounts.
However, the Governor believes that there is considerable scope for expanding digital payments, provided that trust, safety, and security in this space are ensured. Das highlighted several initiatives to reinforce these principles.
Firstly, the RBI aims to reach out and empower every individual with the knowledge and tools necessary to navigate this digital payment landscape with confidence and ease. According to Das, this will be achieved through programs like Electronic Banking Awareness and Training (e-BAAT) and public campaigns under the tag ‘RBI Says’ or ‘RBI Kehta Hai’.
Secondly, the RBI has implemented measures to add a layer of security, such as the adoption of an additional factor of authentication, EMV3 Chip and PIN-based cards, restrictions on storing actual card data, and the requirement for all operators and participants of authorised payment systems to resolve failed transactions within a specific time frame. Another measure is the implementation of a web-based solution called the Central Payments Fraud Information Registry for reporting all payment-related frauds.
Despite the progress so far, the Governor highlighted one major roadblock: online merchant payment transactions, which are currently processed through Payment Aggregators, lack interoperability. The RBI aims to address this under its vision for payments in 2025 by establishing an interoperable payment system for Internet banking transactions, ultimately boosting user confidence in digital payments.
In his concluding remarks, Das urged all stakeholders, such as industry players, payment system operators, media, digital payment users, and others, to take collective responsibility for achieving the full digitisation of payments. He emphasised that this mission is not solely the RBI’s responsibility but rather a shared goal for the entire nation.
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FRC issues sanctions against KPMG and engagement partner for audit failures
The Financial Reporting Council (FRC) has recently issued a Final Settlement Decision Notice (FSDN) along with sanctions against KPMG and Adrian Wilcox, who was the audit engagement partner, for their audit of M&C Saatchi plc for the year ending 31 December 2018.
Both KPMG and Mr Wilcox have admitted to breaches affecting several areas of the accounts, including:
- Failure to audit with sufficient professional scepticism
- Failure to properly audit journal entries across several subsidiary companies
- Failure to document the auditors’ reasoning or complete enquiries with management.
KPMG has been fined £2,250,000, discounted to £1,462,500 for early disposal and admissions. Furthermore, the firm will be subjected to non-financial sanctions and has also paid the investigation costs.
Wilcox has been fined £75,000, discounted to £48,750 for early disposal and admissions. He was also subjected to non-financial sanctions.
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