Developing space finance, helping banks develop crypto tools and regulatory compliance by design: here’s a taster of the latest fintech developments at the University of Luxembourg’s Interdisciplinary Centre for Security, Reliability and Trust (SnT).
Today finance represents a quarter of Luxembourg’s value added GDP. But, when the SnT was created 13 years ago, banks had yet to embrace the potential of technology to support their activities. “It was a necessity, but not a means to achieve something,” recalls head of technology transfer at the SnT Carlo Duprel. Then the fintechs arrived, bringing with them new customer expectations and complex regulatory demands.
In 2016, the SnT began building partnerships in financial services to address their challenges, a dynamic that culminated in 2022 with the creation of the SnT internal think tank the Finnovation Hub.
“The purpose is to gain insights and an understanding of how financial services work, thus allowing us to better adapt our research, but also the way we talk to industry,” explains Duprel, adding: “Researchers deliver research work, so they have their own jargon, and I personally believe that our research is already very open. But there is still a big gap between the two worlds.”
“Researchers deliver research work, so they have their own jargon, and I personally believe that our research is already very open. But there is still a big gap between the two worlds.”
Carlo Duprel, Head of Technology Transfer at SnT
Jean Hilger, who chairs the digital strategy committee at Luxembourg banking association ABBL and is senior innovation advisor to the Spuerkeess CEO, leads the hub. He has been involved in projects early on to discuss how it can be applied and the challenges encountered, for instance by new regulation.
“We are working on multiple projects. We are also discussing partnerships on sustainable finance, which for the moment, is very much being driven by the regulatory environment imposed,” says Duprel. The core challenge for which Duprel says there is no long-term solution is the reliability of data from commercial intermediaries. One SnT project examines how in future, this data can be organised so that collection methods are transparent and data trustworthiness can be assessed.
Another project, meanwhile, examines how large language models like ChatGPT to combat the large quantities of documentation required by the financial services industry to comply with regulation. “On the one hand these large language models can help construct or set up documents in a more efficient way. On the other hand, it can also be used to check documents more efficiently. So there’s a lot of different use cases that we are now investigating,” says Duprel.
Testbeds
To complement its links to the financial services industry, in March 2023 the SnT and the Faculty of Law, Economics and Finance launched its National Center of Excellence in Research in Financial Technology (NCER-FT), an interdisciplinary research approach “blending ICT solutions with law and finance,” according to Duprel.
Technology’s disruption of financial services has led to security issues, with fraud controls shifting from human to machine, creating new compliance and regulatory issues. “If you change from manual to technical, you change ethics and the regulation needs to adapt,” says Veronique Schlick, SnT NCER-FT programme manager. She adds that fraud management is shifting away from human to machine learning controls, transforming the sector at breakneck speed, and creating the need for different scientific regulatory processes. “SnT and the Faculty of Law, Economics and Finance joined forces to create the NCER-FT, which we are bootstrapping with 14 projects over two years funded up to €6.5m by the Fonds National de la Recherche and the University of Luxembourg.”
“SnT and the Faculty of Law, Economics and Finance joined forces to create the NCER-FT, which we are bootstrapping with 14 projects over two years funded up to €6.5m by the Fonds National de la Recherche and the University of Luxembourg.”
Veronique Schlick, SnT NCER-FT programme manager.
The NCER-FT offers academic knowledge, helping partners build their future products and services and enables access to talent. Its four pillars include the creation of an innovation-friendly regulatory environment, the establishment of an AI sandbox in Luxembourg, making the decentralisation of Luxembourg’s back offices a reality and training a fintech community composed of academics and industry players through initiatives such as hackathons, calls for ideas and outreach events. Its research topics focus on new frontiers for digital and automated finance; regulatory technology and compliance by design, financial inclusion, as well as trust and security.
Among its projects are a testbed where a financial industry player wishing to create an AI can trial the system.
The University’s NCER-FT will also coordinate meetups and masterclasses for industry leaders in banks, insurance, asset management, Fintech players and the academic community to share knowledge and industry challenges around fintech.
Examining The Space Economy
Dr. Gilbert Fridgen is PayPal-FNR PEARL Chair in Digital Financial Services at the SnT, and leads a research group focused on fintech, govtech and energy markets. His topics range from digital identities in collaboration with the ministry for digitalisation to the financials behind the energy transition.
On the fintech side, since December 2022, he has been collaborating with Spuerkeess offering decentralised finance for the end customer, with researchers working closely with the bank on how to integrate Distributed Ledger Technology (DLT) and DeFi, covering topics such as the metaverse, crypto-assets, NFTs and the mutualisation of back-office operations based on DLT.
“Basically making crypto assets available to the end customer – the strategy for traditional finance companies as well as the challenges,” explains Fridgen.
The project responds to growing customer demand for crypto services but from a trusted source rather than going through an unregulated crypto exchange. The expert was optimistic. “We wouldn’t do a project without thinking that we can make it, but we need to find some workarounds, and the regulation is changing. MiCA [European markets in crypto-assets regulation] has just been updated, so there is a lot going on.”
To comply with current and future regulation, his team is working on research projects linking, for instance, digital assets and digital identities.
“Robots built by different companies will be able to collaborate without any human intervention on other celestial bodies using some kind of cryptocurrency to exchange value for their services.”
Dr. Gilbert Fridgen, PayPal-FNR PEARL Chair in Digital Financial Services at SnT
FireSparX, an FNR-funded fintech project his team is working on, examines the space economy so that machines in space can cooperate and exchange value. “For example, robots built by different companies will be able to collaborate without any human intervention on other celestial bodies using some kind of cryptocurrency to exchange value for their services,” he explains.
This kind of exchange value will be critical for infrastructure to make autonomous economic decisions on Mars where the signal runtime is too long for humans on Earth to make decisions. “Mission time is critical so they need to be able to make decisions on their own also with an economic rationale and with the interaction of different organizations that are in the background,” he says.
This article was first published in the Silicon Luxembourg magazine. Get your copy.
