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A Quantum Leap for Financial Services

FCA Insights | Jul 4, 2021

Quantum information tech - A Quantum Leap for Financial ServicesThe financial services industry has always been at the forefront of technology, from the invention of the ATM in the 1960s to electronic trading and the growing world of financial technology (FinTech) today. However, a new player - quantum information technologies (QIT) - has the potential to revolutionise how financial firms and markets operate and to create unprecedented challenges to firms and policymakers.

Bringing dramatic and game-changing increases in capability and computing, QITs are poised to raise significant questions about the future of financial services in the areas of security, competition and policy. An FCA workshop heard the views and proposals from experts in both technology and finance.

What is QIT?

Quantum Information Technology (QIT) refers to the broad fields of quantum computing and quantum communications that are developing computer technology based on principles of quantum mechanics (which explains the properties of nature on the atomic and subatomic levels) and quantum information science. Classical computers of today use ‘bits’ to encode information in the values of 0 or 1, while quantum computers use ‘qubits’ (quantum bits).

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These qubits rely on exceptional abilities of subatomic particles to be in two (or more) states at the same time – a phenomenon called quantum superposition. In computing terms, they can be both 0 and 1 at the same time, thus enabling a wide range of computing capability and potential when connected with other qubits through quantum entanglement.

Security & Encryption within QIT

QIT poses a potential existential threat to the many encryption methods used today. Although these risks are not yet crystallised and the timelines are uncertain, attendees of the workshop agreed that QIT poses a threat to the integrity and stability of financial services. They also agreed that there was a fundamental lack of education and awareness of the quantum encryption risk for financial services. The National Cyber Security Centre (NCSC) has previously warned that organisations should already be considering how to protect their data from quantum-powered threats. Despite this, attendees agreed that the industry is not as proactive or engaged on this topic as it should be.

QIT Potential Impact on Competition in FS

It is widely expected that most QIT users, including in financial services, will access resources over cloud-style shared quantum servers, rather than owning their own quantum computing resources. This “democratisation” of access could remove some barriers to competition and barriers to entry and reduce competitive advantage. However, the counterargument is that smaller firms might not have the necessary foundational capability and talent to work with these emerging technologies leading to a two-tier market.

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At the same time, such ‘democratised’ access is usually provided by ‘BigTech’ firms such as Amazon Quantum Solutions and Google Quantum AI. Combined with these global giants’ increasing role in financial services (such as Amazon Lending and Google Pay) and high dependency of the sector on cloud services could lead to market concentration, with a small number of firms dominating the provision of services.

Policy Considerations of QIT and Emerging Technologies

From the lack of explainability of quantum algorithms to the uncertainty of third-party data processing through Quantum-as-a-Service (as banks will have to use external systems to process data), there are important questions about how policy and regulation should react to QIT in financial services, including whether regulators will be able to remain technologically-neutral in their response.

On the policy side, there is an extensive discussion on the ‘explainability’ of AI across international regulatory jurisdictions. QIT could raise very similar questions due to the complex nature of quantum processes. On the one hand this is a new challenge, while at the same time the workshop discussion suggested lessons learned and solutions developed could be shared between the two fields.

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NCFA Jan 2018 resize - A Quantum Leap for Financial Services The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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