FINANCE, Interviews

Konstantin Krinichansky: We create a platform for discussions about the future of financial market

The Central Bank of Russia is preparing to launch a digital ruble, domestic companies have begun issuing digital financial assets (DFAs), and the number of owners of crypto wallets in the country exceeded 10 million. The future, including these digital innovations, as well as their impact on the financial market was discussed by the participants of the international scientific practical conference “Transformation of financial markets and financial systems in a digital economy”. We spoke about key moments in the work of the conference, the most important reports, as well as future plans with the project initiator and its organizer – Konstantin Vladimirovich Krinichansky, Doctor of Economy, Professor from Department of Financial Markets and Financial engineering of the Financial University.

The forum is becoming a tradition

– Konstantin Vladimirovich, the conference “Transformation of financial markets and financial systems in conditions of digital economy” has become a true tradition for Financial University. Tell us more about the conference, what is its importance to the university, as well as to scientific, and academic, community?

– This year’s October conference was the fourth one, and this, indeed, is an attempt to make our forum traditional. Its idea is extremely simple – to create regular platform for discussions on issues brought by digital technologies in the operation of financial markets and their participants – from ordinary users to systemically important players and the regulator. As the rhythm of digital innovation is very high, and the area embraced by them increases, the need to analyze the changes taking place and the translation of the corresponding information “horizontally” only grows.

We have a good understanding of our mission and our niche. Our target audience in the present moment is, first of all, the faculty and the academic community with their responsibility to prepare personnel in higher education via a flexible model that takes into account the speed and the depth of adaptation of financial systems to technological challenges. At the same time program planning of the conference and its circle of key speakers include Bank of Russia (Financial Market Strategic Development Department), self-regulatory organizations (NFA), Chamber of Commerce and Industry of the Russian Federation (represented by the Council on the financial, industrial and investment policy), and Moscow Stock Exchange.

Reports and discussion of this year showed not only promising directions for transformation of financial markets in the context of technological changes, but also great potential of the Russian market and its participants, who have accumulated serious experience in the development and implementation of digital-based project platforms.

– The main topic, the problems discussed at the conference remain unchanged. And yet, if compared with conferences of previous years, which changes and innovations can be noted?

– In our opinion, the problems stated in the conference topic will remain in the current agenda in the foreseeable future. Its configuration began to change last year, when the plenary session started with a report on aspects of Russian financial market transformation considered within the framework of its development strategy by the Bank of Russia.

This year we have retained this format, aiming the audience’s attention at the financial regulator’s vision of its tasks in radically changing conditions. In the same direction, within the conference round table “Vectors of financial sector development in the context of structural transformation of the economy” was held. Thus, conference participants this year had the opportunity to a greater extent to exchange views on practical steps in the development of the Russian financial system.

At the same time, academic discussions became the subject of a separate round table discussing the results of the research conducted by the scientists from the Financial university on fundamental scientific topic “Modern theory of financial development”.

Innovation in the era of turbulence

– In your opinion, what problems discussed, and reports made at this year’s conference were especially important and memorable?

– Let me speak only regarding the plenary session (since the number of reports of thematic sessions is very high). Of course, we received the key messages from the speech of Mikhail Anatolyevich Kovrigin, Director of the Financial Market Strategic Development Department of the Bank of Russia. He outlined the four main directions where the efforts of the regulator are concentrated, explaining also in which issues the contribution of the academic community can be especially important.

Among such issues are taxonomy of government modernization projects, set of criteria and principles for selection of such projects; development of long-term financing mechanisms; implementation of measures for return of trust in the financial market by a retail investor; formation of new cross-border settlement and payment system configuration (special reaction of listeners was caused by a remark that today experience of specialists of the 1970s may be needed, who know how mutual settlements worked within countries of Warsaw Pact), including in terms of use of innovative instruments built on the DFA model.

Subsequent reports provided answers to questions regarding how the financial market mechanisms are built or should be built in Russia, relying on technologies with a digital component.

So, Vladimir Andreevich Gamza, Chairman of the Council of the Chamber of Commerce and Industry of the Russian Federation on financial, industrial and investment policy, identified the problem of absence of a working project financing mechanism in Russia.

Alexey Yuryevich Zhinkin from the SRO NFA spoke about today’s experience of working in Russia financial investment platforms, detailing the example of building such a platform on base of accounting institutions of the financial market.

Sergey Yuryevich Titov, representing PJSC “Moscow Exchange”, outlined details of the project launch of the tool for short-term borrowing by legal entities through the issue of DFA.

Artem Semenovich Genkin, President of the ANO “Center for the Protection of Bank Clients and investors”, formulated a number of fundamental provisions concerning conditions and prospects for the effective implementation of blockchain technologies, focusing on such a necessary condition as “geopolitical stress resistance”. The Speaker also detailed the debate around DeFi as a sector that not only promises to reformat the financial sector and multiply its functionality, but also generates the largest number of safety and risk concerns for participants.

– The conference discussed the problem of adapting financial markets and financial systems to global turbulence. How much innovative technologies contribute to it?

– This is not an easy question. In financial history, we see that innovation in finance can serve as the basis for the expansion of financial markets and as a source of growth, and as well as a kind of forerunner of global growth turbulence (recall the 2008 crisis). At the same time, crises can serve as a time when not only new ideas are born, but new tools are created, the formation of entire directions and markets takes place. Such example in world history were the 1980s. Today’s time can become something similar, and digital technologies are able to allow the formation of such mechanisms that will create a base, for example, for rebuilding the existing international settlement and payment systems.

– At the conference you made a presentation on smart contracts in the capital market. In your opinion, what questions in connection with the use of smart contracts in this area remain the most relevant? How could you evaluate in principle the prospects for using smart contracts for the financial market? In Russia, can they find effective application?

– The main question is, of course, disintermediation. Blockchain and smart-contracts are able to bring such changes that will exclude the need for traditional functions of a number of financial intermediaries and infrastructure organizations, allowing in the future to act without them at all. As for the prospects for using smart contracts, they are determined mainly by their properties, such as overcoming counterparty risk without the use of collateral or centralized clearing, the ability to increase liquidity through tokenization and cost fractionation.

At the same time, their application both in Russia and in other countries is still constrained by the lack of proper regulation, as well as outstanding issues, such as difficulties of their standardization with a limited number of attributes and set of algorithms and of description of the cash flows underlying the financial contracts that lie in the basis of smart contracts.

The plans include reaching the world level

– This year, the “student” section worked at the conference. Do students and young specialists participate actively in the conference?

– We included the student section in the conference structure back in 2019. This year we received a large number of applications, so we made a decision to select the best, while receiving 5 reports for 1 competition “vacancy.” We noticed that the interest of the younger generation of researchers this year has shifted towards studying the architecture of the cryptocurrency market and DFAs, analysis of the risks arising here. However, there were also original studies, for example, aimed at creating the concept of a computer game, with conditions close to modern markets’ reality.

– In what direction do you plan to develop the conference?

– In terms of topics, the conference will retain its focus. As for participants, we intend to expand their number at the expense of representatives of financial business, as well as the academic community of other countries and Russian regions.

– What other important activities may be planned?

– First of all, we would like to announce at November 22, 2022 the next VII International Forum of the Financial University, where Department of Financial Markets and Financial Engineering, which I represent, will be one of the active participants and curators of the thematic sections. In addition, we invite the readers of Invest-Foresight to participate in shaping the agenda for next year’s conference about transformation of financial markets in a digital economy.

Interviewed by Olga Blinova

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