Welcome back everybody to another edition of C&F Talks. Today, it's my pleasure to have with me, Natalie Lewis, who is a Partner of Travers Smith. Natalie is going to be joining us and speaking at our forthcoming Payment Innovation and Regulation Summit, in London on the 21st of January. Natalie, welcome.

Thank you very much, Maurice. I'm very much looking forward to it.

Be great to have you there with us.

First question. We waited nearly a year and a half to see the Treasury's National Payments Vision, which was published on the 14th of November. Was it worth the wait? Do you think it would have more of a lasting impact than earlier attempts to reset the agenda for payments?

So, I think that's quite a complicated question, Maurice, actually. And I think the short answer is I think for some of it, we're still waiting. But let's start with the positives.

I think it's completely fantastic that we've actually got a vision. And I think the industry was waiting for it. And we need to be optimistic that it was delivered. And actually, a lot of the themes in there, I think, are very positive for the industry.

So, I personally, I think, was eagerly awaiting the National Payments Vision, particularly because I found it quite ironic that Joe Garner's report that was intended to unlock the payments innovation and payments ecosystem, actually ended up holding up quite a lot of the innovations in this space. The new payments architecture, obviously, being a prime example.

But I don't think we can deny that I think open banking is a specific success story for the National Payments Vision. I think it sits there loud and clear. Now, obviously, under the FCA's umbrella, which I think is to be welcomed.

And we also know that the government's going to use the data use and access bill that's currently actually going through the House of Lords to deliver aspects of the framework in future. So, I think there are a lot of positives about the National Payments Vision. But the reason that I say we're still waiting is because there's a lot of unknowns at the moment.

There are two plans in particular that need to be delivered. Firstly, obviously, we need to see what the Payments Vision Delivery Committee is going to say about the national infrastructure. So, the retail payment rails, what's going to happen with that and we're expecting them to publish something mid next year on that.

But also, we're still awaiting their payments forward plan as well. And that's been described rather broadly as a sequence plan of broader future initiatives. So, I think, in a nutshell, we don't know a lot of the detail at the moment.

And that can be quite frustrating, because certainly in some other jurisdictions like Ireland and Australia, they managed to put out a vision that had a lot more detail from the outset.

Yeah. So, wait and see before rushing to judgment.

Exactly.

Maurice

I mean, there's quite a few other developments out there recently in the final months of 2024 related to digital assets. To name three big ones, the introduction to the House of Lords of the Law Commission's bill, the D'Aloia case in the High Court, and the city's announcement about the government's plans for digital assets, including stablecoins, and announced, I would add, at our own tokenisation conference.

Do you think that these developments together or separately will drive greater adaptation, or sorry, greater adoption of digital money?

Again, I think this is a question with multiple different answers, some positive, and I think some a bit more complicated still. I have to say, I think we've seen huge developments in digital assets and digital money over the last year, actually, and that's not seeing any signs of slowing down. So, I think that's a huge positive.

But if we start with, I'll take your three in turn, we'll start with the bill, which as a lawyer is very close to my heart. So, this obviously came off the back of a lot of good work by the Law Commission, trying to work out whether we needed a bill to make it absolutely certain under English law that digital assets are property. Because obviously, until we have that, it's very difficult for anyone to launch any sort of stablecoin or other type of digital asset project with the certainty that is required.

So, the Law Commission did a lot of work around this, and broadly where it ended up was it thinks that we should have a bill to put it beyond doubt that digital assets are property under English law. But what they did say is that in doing that, it would be better rather than fit digital assets into one of the existing categories, which broadly are tangibles and intangibles, to create a third kind of quasi-tangible body of law to fit digital asset in, which by itself seems quite attractive. The issue is it can have some unintended consequences.

So, without boring you too much, Maurice, I will just tell you two. One of which is obviously the bill is meant to increase legal certainty. By introducing a completely new category of property, it's going to take decades for the common law to work out what rights, principles, remedies ought to attach to that category of property.

So it's going to actually take us a long while if we go down this route, to get to the certainty that people want, which is broadly that a law firm like mine will be able to give a clean legal opinion to crypto and other firms to say that their structures work. So that's perhaps one unintended consequences. The second one is actually highlighted by your second point.

So I'll take your second development in turn, which is this D'Aloia case. So, this was also quite a welcome development on the face of it, because this was a case about USDT, so obviously Tether's stablecoin. And it's a really recent case in the UK where the judge, heavily reliant on the law commission's report and direction of travel with the bill, said that Tether's property. So good, great start.

But what it also said in obiter remarks was that Tether is actually not fungible. The fact that Tether would not be considered fungible under this kind of third category of property could be actually quite devastating for the digital assets markets.

So, I suppose my warning on that is, be careful what you wish for. And I think we should all pay attention to the devil in the detail with the bill as it's now going through Parliament.

Absolutely.

And finally, the final one is really about the government's plans for digital assets. The announcement that came out a week or two ago, what did you make of that, the government’s plans, the consultations of the FCA and so on?

Well, it's good news as a starting point that at least the government is not backing away from the fact that it's going to bring stablecoins and other digital assets within the regulatory perimeter. But I think we're probably all on the same page that a big kind of sigh of disappointment, that actually the regulation for stablecoins is going to be pushed probably even further into this year.

So again, I think a bit of a mixed response to that one. I've got so many clients really wanting to launch a GDP stablecoin in the UK, and they're desperately waiting for some regulatory certainty. So, my plea to the regulators is let's just push on with this as quickly as we can.

Yeah, absolutely.

Finally, at last year's summit, you moderated a panel on innovations in cross-border payments. What's happening now in that field? Is the activity driven by firms or by central banks and regulators?

I think, again, a bit of a mixture of the two.

It has to be a collaborative effort. Any form of cross-border solution needs some sort of public sector and private sector collaboration. But I think it has to be said that a lot of the activity at the moment is driven primarily by the central bank.

And that's because there's obviously a big drive towards the G20 commitments to transform cross-border payments by, I think, was it 2027? And actually, Victoria Cleland, who is also going to be at the summit in January, actually has a really prominent role for the Bank of England in their work in this space. And a lot of it, of course, crosses over into what we've just been discussing, the digital asset, digital money tokenisation aspects. And the Bank of International Settlement actually has an innovation hub.

And it has a number of projects at the moment, looking at how technology in particular might be able to accelerate, shall we say, some of the G20's aims in trying to revolutionise cross-border payments. But I'll take two examples really quickly of some current projects that are going on.

We firstly got Project Agora. So that's a public-private partnership, obviously, that's looking into tokenised deposits, tokenised wholesale CBDCs as a way to streamline some cross-border payments processing today. And actually, the BIS have said that that's their biggest innovation hub project. So, it's got six central banks in it. It's got over 40 commercial banks and other payments businesses. And that's really deep into the design phase at the moment. So that's Project Agora.

We've also got Project Nexus. Now, this is a really interesting one, I think. This is going to be a kind of hub-and-spoke model, which is going to allow faster payment systems in many jurisdictions to interlink and have some sort of interoperability between the faster payment systems.

I think this has a lot of potential because, for example, if we think about money remittances today, imagine if you could just go on your online banking app and be able to pay someone cross-border just using your online banking app. But actually, we're still very early days in this project as well. And there are still some legal questions, obviously, I would say that about how that's really going to deliver true kind of PVP or DVP, depending on how it's used in the market.

But I think that's a really exciting development. So I think in a nutshell, there's a lot of collaboration. It's probably being led by central banks.

It needs to be because they need to open their doors and access to these new innovative projects. But it really needs a public and private partnership for it to work.

Yeah, interesting times, very exciting times, I think, for all your answers to those questions.

For our viewers, I very much hope you'll be able to join us at the event itself. As I said, Payment Innovation and Regulation Summit on the 21st of January in London, where you'll be able to hear more on this topic from our array of speakers, from Natalie and a host of others, including the Bank of England. So, very much hope you'll be able to join us in person. Do have a look at the website www.cityandfinancial.com for further details.

Natalie, thank you so much. Look forward to seeing you in January.

Perfect. Thank you.