world bank - Pwim.Net

World Bank Pushes to Raise the Bar for FinTech and DLT for Cross-Border Interoperability and Financial Inclusion

The World Bank Group has recently published a study, issued by the Bank for International Settlements (BIS) on “Payment aspects of financial inclusion in the FinTech era,” highlighting the concepts derived using blockchain, including stablecoins, and central bank digital currencies (CBDCs).

Disruptive technology and innovation have made its way to the financial services sector, specifically evident in the payments industry. This has led to the “era of fintech,” as the report indicates, which has the ability to transform the provision of financial services, leading to advanced business models, applications, processes, and products.

The report reflects and enhances the guidance issued in the report on Payment aspects of financial inclusion by the World Bank along with the Committee on Payments and Market Infrastructures in 2016. In this report, FinTech has been emphasized with its opportunities and challenges in improving access to and the usage of safe transaction accounts.

As usual, as the report indicates the benefits of leveraging financial technology for financial inclusion strategies, it also emphasizes on attending to the potential risks. These risks include operational and cyber resilience risks, and it is essential to note and protect customer funds, data, privacy, digital exclusion, and market concentration.

FinTech developments could potentially enable an increased international and cross-sectoral coordination, with the development of CBDCs, and other cross-border innovations, the report calls for the continuation of addressing the risks involved.

Distributed ledger technology

Distributed ledger technology (DLT) has been regarded as one of the most relevant new technologies in the FinTech development area for financial inclusion, along with cloud computing, contactless technologies, digital identification, and the internet of things. These technologies could be applied to existing payment products or financial products to promote broader access to the population.

The institution indicated hope that the technology would live up to its expectations, as the application of DLT could address the challenges in enhancing access to financial services. Other than the payment and financial services applications, identity management systems, and asset registries could also be eased with DLT.

The PAFI FinTech wheel shows the focus of new technologies in the center of the wheel while allowing for optimization for traditional existing processes and products, and new products that could be harnessed with the technology, according to the report.

Source: Bank for International Settlements

What about Stablecoins and Libra?

The World Bank also highlighted the role of stablecoins and CBDCs in cross-border transactions, and stablecoin projects such as Facebook’s Libra has acted as a catalyst for many jurisdictions to be open to exploring CBDCs to address cross-border payment difficulties.

The report stated, “Stablecoins have prompted central banks in some countries to accelerate their investigations into CBDCs and generally resulted in greater attention being paid to the challenges of financial inclusion and more efficient cross-border payments […] No global retail stablecoin initiative is currently operational.”

BIS report on the changes in the payment industry, impact of the coronavirus outbreak

The Bank for International Settlements (BIS) has previously released a quarterly report on the changes in the payment industry, including the market impact of the recent coronavirus outbreak.

Some of the trends mentioned in the report include stablecoins, tokenized securities, CBDCs, cross-border payments, and peer-to-peer payments.

The pace of change and innovations’ potential for disruption in the payments industry was one of the key takeaways of the report. In turn, this has propelled payment systems to the top of policymakers’ agenda, according to the BIS.

Bitcoin and Libra have also caught the institution’s attention. At the same time, the BIS acknowledged that central banks are increasingly exploring the “desirability and feasibility of establishing their own peer-to-peer systems through digital currencies.

Image via Shutterstock

Citi Partners with World Bank on Euroclear's DLT Platform for Digitally Native Note Issuance

Citi’s Issuer Services, a segment of Securities Services, acted as the Issuing and Paying Agent for the first Digitally Native Note (DNN) issuance under English Law through Euroclear’s Digital Financial Market Infrastructure (D-FMI) distributed ledger technology (DLT) platform. The transaction involved a EUR 100 million, 3-year DNN issued by the World Bank – International Bank for Reconstruction and Development (IBRD) and was listed on the Luxembourg Stock Exchange.

The Significance of Digitally Native Note Issuance

The issuance and settlement of DNNs on a T0 (same-day) basis mark a pivotal advancement in the bond sector, laying the groundwork for a fully digital transaction lifecycle. This initiative demonstrates a scalable model that merges the merits of digitization with existing bond accessibility and liquidity. It showcases how blockchain technology can mesh with current capital market frameworks, aiming at enhanced efficiency and growth avenues for debt capital market players as the D-FMI infrastructure evolves.

A Multi-Year Collaborative Effort

The initiative is a result of a multi-year collaborative effort among key industry stakeholders including Citi, Euroclear, and IBRD. It aims to establish a robust digital infrastructure for the issuance of DNNs. Andrew Mulley, EMEA Head of Citi’s Issuer Services, highlighted the initiative’s potential to revolutionize the debt capital market operations. Moreover, Ryan Marsh, Global Head of Blockchain, Digital Assets & Innovation for Citi Securities Services, echoed this sentiment, hinting at a series of digital bond initiatives in the pipeline.

Reflecting on Past and Future Digital Initiatives

Lieve Mostrey, Euroclear Group CEO, and Jorge Familiar, Vice President and Treasurer, World Bank, also expressed their enthusiasm for the digital venture. This initiative follows the World Bank’s earlier blockchain bond “bond-i,” further propelling the digitization journey of debt capital markets. Citi continues its endeavor in digital asset solutions, aligning with its strategic objectives and risk tolerance, leveraging a unified technological framework for innovative solutions in digital money, trade, securities, custody, asset servicing, and collateral mobility.

Citi Securities Services at a Glance

Citi Securities Services, boasting about US $28 trillion of assets under custody, administration, and trust, offers an array of securities services solutions tailored to meet clients’ demands. With an expansive proprietary network over 60 markets, it stands as a robust cross-border support for clients, manifesting Citi’s overarching capability in managing a broad spectrum of financial products and services across nearly 160 countries and jurisdictions.

Nexo Seeks $3 Billion in Damages from Bulgaria Over Investigation

Nexo, a cryptocurrency lending platform, has taken a significant legal step against the Republic of Bulgaria, seeking $3 billion in damages. This arbitration claim, filed through the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C., centers around allegations that Bulgaria engaged in wrongful and politically motivated actions against the company.

The origins of this conflict trace back to an investigation launched by Bulgarian prosecutors in early 2023. Nexo’s offices were raided over allegations of participation in an organized criminal group aimed at profiting from crypto lending. Four Bulgarian nationals, including Nexo co-founders Kosta Kanchev, Antoni Trenchev, Trayan Nikolov, and Kalin Metodiev, were charged following these raids. However, in December 2023, the case was dropped due to a lack of evidence and Bulgaria’s absence of a legal framework for crypto assets.

Nexo alleges that the investigation was baseless and has had a severe impact on its business operations and reputation. The company claims it was in the process of working with U.S. banks on an initial public offering (IPO), with a valuation estimated between $8 and $12 billion. Additionally, Nexo was reportedly close to finalizing a sponsorship deal with a major European football club, which would have significantly boosted its global exposure. Both of these lucrative opportunities were lost due to the investigation.

Apart from these setbacks, Nexo also faced legal challenges in the United States. The company agreed to a $45 million settlement with the U.S. Securities and Exchange Commission (SEC) and North American Securities Administrators Association (NASAA) over its Earn Interest Product. This led to Nexo discontinuing the product in April and eventually winding down its U.S. operations, citing a lack of regulatory clarity.

Nexo’s legal team, led by U.S. law firm Pillsbury Winthrop Shaw Pittman LLP, argues that the investigation by Bulgarian authorities was unjustified and oppressive, leading to significant financial and reputational damage. The claim, filed by Nexo’s Swiss subsidiary Nexo AG, seeks to recover lost opportunities and damages caused by the allegations.

Honduran Withdrawal from ICSID Backed by Economists Amidst Crypto Firm Dispute

A group of 85 economists has openly supported the Honduran government’s decision to withdraw from the International Centre for Settlement of Investment Disputes (ICSID), an arbitration body of the World Bank. This backing comes against the backdrop of a contentious battle with Próspera Inc., a firm specialized in creating cryptocurrency-powered islands, which has lodged a staggering $10.8 billion claim for damages due to a change in legislation enacted in 2022.

The economists’ endorsement reflects growing concern over the sovereignty implications of international arbitration bodies. They argue that such institutions often prioritize corporate interests over national development and welfare. The dispute with Próspera Inc. has become a case study in these concerns, with the company seeking compensation following the Honduran government’s legislative changes that purportedly affected its business operations and future profits.

Próspera Inc. had been involved in an ambitious project to develop a semi-autonomous crypto-based economic zone on the island of Roatán. However, the Honduran Congress passed legislation that effectively dissolved the legal framework enabling the operation of such zones, known as ZEDEs (Zones for Employment and Economic Development). Consequently, Próspera Inc. contends that this move has caused substantial financial harm to its investments and future revenue potential.

The economists’ support for Honduras’ withdrawal from ICSID is reflective of a broader skepticism towards such arbitration bodies, which are often seen as tools that can undermine a nation’s ability to govern itself and regulate foreign investments within its borders. Critics argue that the threat of substantial claims like that of Próspera Inc. may deter countries from enacting policies in the public interest, particularly in areas such as environmental protection, labor rights, and economic sovereignty.

The Honduran government’s decision to exit ICSID is not without precedent. Bolivia, Venezuela, and Ecuador have also exited the body in the past, citing similar concerns about sovereignty and the undue influence of multinational corporations.

This situation raises critical questions about the balance between protecting investors and preserving national regulatory authority. As the case progresses, it will be closely watched by policymakers, investors, and international law experts. The outcome could potentially reshape the landscape of international investment disputes and the role of arbitration in resolving them.

The broader implications for the cryptocurrency sector and firms involved in blockchain-based infrastructure projects are significant. The case demonstrates the complex interplay between innovative business models and national legal systems, highlighting the need for clear regulatory frameworks that can accommodate new technologies while safeguarding national interests.

The Honduran government’s stance, bolstered by the support of numerous economists, signals a growing resistance to the perceived overreach of international arbitration bodies. This development could inspire other nations to reevaluate their own commitments to such institutions and assert greater control over their economic and legislative destinies.