Fintech trends and updates

An update on the latest fintech trends, including blockchain, open banking, PSD2 and initial coin offerings.

14 March 2018
The fintech sector is driven by constantly evolving technology and a complex web of global regulation. Below you'll find our regular round-up of fintech news, trends and industry analysis.
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Fintech updates

Update posted: 14 March 2018

Google bans cryptocurrency ads

By Alex Gillespie

At 4am this morning, Google announced that, as of June 2018, it would no longer permit advertisements which service cryptocurrencies and related content (including initial coin offerings, cryptocurrency exchanges, cryptocurrency wallets and cryptocurrency trading advice). The ban will cover both Google’s AdWords as well as Youtube.

No reasons were given in Google’s announcement, however, the ban follows a similar ban from Google’s rival Facebook in January. At the time, Facebook explained that this was due to the fact that many companies that advertised ICOs and cryptocurrencies were not “operating in good faith”.

It also follows the IMF’s announcement on Tuesday about the ‘peril’ of crypto-assets and calling for greater consumer protection internationally. The value of bitcoin fell 4.1% to below $9,000 following the announcement.

This is the latest example of an established firm distancing itself from cryptocurrencies (another recent example being Lloyd’s ban on the use of its credit cards to buy cryptocurrencies) to protect themselves against commercial or reputational damage by association with the technology. It is unlikely that Google will be the last firm to do so.

Update posted: 9 March 2018

Cryptocurrencies and the future of money

By Alex Gillespie

In a speech (PDF) last week, Mark Carney set out his views on the future of money and how, in his view, this will change with the development of cryptocurrencies. Here are some key high-level takeaways from Mr Carneys speech:

  1. The role of cryptocurrencies as money: Mr Carney was upfront about the fact that in his view cryptocurrencies are “failing” as a currency and explored three key problems with the technology, namely that cryptocurrencies: (a) are poor stores of value due to the extreme volatility caused by their lack of intrinsic value or external backing, (b) are inefficient media of exchange due to their generally being slower and more expensive than payments in sterling and (c) because of these problems are virtually unused as units of account.
  2. The Bank of England’s policy towards cryptocurrencies: In addition to cryptocurrencies’ shortcomings as money, the Bank of England has wider concerns around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion and the circumvention of capital controls and sanctions. However, the Bank of England does not wish to avoid stifling innovation or preventing the implementation of technologies that will bring future benefits to the financial system.
  3. The regulation of cryptocurrencies: In view of the potential technological benefits, Mr Carney was against general bans on the use of cryptocurrencies but instead targeted regulation so that cryptocurrencies are held to the same standards as the rest of the financial system. Mr Carney gave the following examples that the Bank of England are looking into: (a) regulating crypto-asset exchanges according to the same standards as security exchanges, (b) introducing regulations to prevent ICO’s being allowed to “use semantics” to avoid regulations and (c) clarifications to the regulatory requirements, such as for capital, of institutions which engage with or have exposure to cryptocurrencies.
  4. The future of money: Perhaps most interestingly, Mr Carney shared his thoughts on how, if cryptocurrencies as we know them are not the future, money and payment systems will change in the future as a result of the technology such as: (a) the diminished role of financial institutions as society’s preference changes towards decentralised peer to peer interactions (b) the role of distributed ledger technology and the benefits this will have on the efficiency, reliability and flexibility of payments and (c) the adoption by central banks of their own digital currencies (however, Mr Carney was of the view that this was unlikely to take place in the short term due to the technology’s existing shortcomings).

It is interesting to hear the views of such a senior policymaker on how a not-so-distant financial system might look based on market conduct to date. It also raises an important debate about how our financial system may need to change for the benefit of society and how traditional financial institutions will fit into that given the recent advances in cryptocurrency technology. Mr Carney’s speech will interest anyone engaged with this technology or financial services as a whole.

Update posted: 16 February 2018

Will artificial intelligence take our jobs?

By Nathan Dudgeon

We looked at a PwC report on the impact of AI over the next 15 years. The results were a bit more nuanced than most – discussing which industries, which job types, and which demographics are at risk to artificial intelligence, why, and when.

Read the full article here.

Update posted: 8 February 2018

FCA confirms (again) that cryptocurrencies may be regulated

By Nathan Dudgeon

In October last year, the Treasury Select Committee asked the FCA’s Chief, Andrew Bailey, to explain the limits of the FCA’s powers. This week they published a letter with the FCA’s detailed response (PDF).

In it, Mr. Bailey explains a number of areas that fall on the border of the FCA’s powers, one of which is cryptocurrencies.

The summary is that nothing has changed – crypto is still borderline.

Why? At a very high level, the existing regulated activities and financial promotions regimes were not originally drafted with ICOs in mind. The laws point to exhaustive lists to determine whether something is regulated or not, and digital tokens are not expressly referred to in the lists. We think this is partly why so many people (mistakenly) believe that all ICOs are not regulated in the UK.

Remember, however, that tokens’ functions vary widely. Many digital tokens perform the same or similar functions to financial instruments which do fall within the list of regulated investments.

The FCA has previously warned that “depending on how they are structured, some ICOs may involve regulated investments and firms involved in an ICO may be conducting regulated activities”. They noted that some ICOs show parallels with IPOs, private placement securities, crowdfunding, futures, options, or collective investment schemes. All of which are very much regulated.

This latest letter from the FCA merely confirms the status quo, for now.

Update posted: 2 February 2018

Lessons on building cyber resilience from the FCA

By Alex Gillespie

Cyber security has become an increasing concern both for individuals and businesses over the years. We have already seen one large cyber security scare in 2018 with the threat posed by ‘Meltdown’ and ‘Spectre’ both being widely reported in the media. With Open Banking coming into effect it is unsurprising that cyber security is very much in the FCA’s focus.

On Friday, Robin Jones, Head of Technology, Resilience and Cyber at the FCA, gave a speech setting out some salutary lessons the FCA has drawn from previous cyber attacks over the years and offering guidance to firms around improving their cyber resilience. By way of illustration of the dangers, according to the National Cyber Security Centre there were over 1,100 reported attacks in the last 12 months alone (590 of which were regarded as ‘significant’) and there are more than 10 cyber attacks in the UK every week.

Consequently firms should understand the dangers and make efforts to build their resilience against such a threat. The FCA expects firms to follow the basic principles of ‘resilience’ – being not only that firms can protect themselves against attacks and identify potential threats and their own vulnerabilities, but also that they can detect attacks that have been successful and know how to respond and recover from them.

According to Mr Jones, there are three key lessons that firms can take away from some of the last year’s high profile cyber attacks. These are:

  1. Address the basics: Cyber attacks typically exploit well-known vulnerabilities in systems. Wannacry is one example of where the attack could, for the most part, have been prevented if the NHS had carried out some basic security practice.
  2. Detect attacks, stop them spreading and have robust contingency plans: The best way to mitigate an attack is to have a back-up. Firms should consider and identify their tolerance for the systems or data being made unavailable due to a cyber attack.
  3. Ensure any contingency plan includes a communications plan: Know how to get hold of key people and contact staff, consumers, suppliers and authorities. Firms should ensure that they have plans in place prior to any attack, rather than trying to create plans at the same time as reacting to an attack.

Ultimately, the FCA expects firms to have strong governance procedures in place and show visible leadership in the event of an attack. According to the FCA, firms should understand their key assets and their back-up arrangements. They should be in a position to know what is important and the means for protecting their customers from any theft (most attacks exploit the simplest vulnerabilities and therefore following basic cyber-security practices will go some way to addressing this).

Firms should exhibit a good security culture whereby senior leaders and staff alike are alert to potential threats and trained to follow good security practices. Systems should also be put in place whereby passwords are regularly changed, systems access limited to only those that require it, etc.

Of course, this speech will be helpful both on a practical level and, for authorised firms, to help better understand the FCA rules pertinent to cyber-security. Read the full speech.

Update posted: 19 January 2018

Baidu releases blockchain as a service platform

By Nathan Dudgeon

Baidu aren’t the first huge company in China to launch blockchain as a service. In fact, both Tencent and Ant Financial (part of Alibaba) already have blockchain services in the market.

What is blockchain as a service? Firstly, you’ll need to understand blockchain – start with our article, or this YouTube video.

Blockchain as a service is, generally speaking, where a company (like Baidu) creates its own blockchain system and hosts it on the cloud. This blockchain is a foundation, or a template – and you can build stuff on top of it.

So instead of setting up your own blockchain, which costs a lot of time and resources, you might go to a blockchain service provider, like Baidu, and use theirs for a subscription fee. Companies will come in, use Baidu’s technology, and shape it into whatever specific purpose they choose. Baidu will no doubt have plenty of their own pre-made models to allow you to start immediately.

It’s the same idea as Dropbox – for many companies this is far cheaper, better-made, secure, and easy-to use than creating their own in-house file sharing system.

So what is Baidu actually offering? “Efficient and low cost traceability and trading, ideal for digital currency, payment and settlement, digital ticketing, bank credit management, equity proof and exchange-traded securities, insurance management, financial auditing and more.” Elsewhere, Baidu have said they want to use blockchain in AI, driverless cars and distributed computing.

People have noted that this is fairly generic, but that’s a common practice in the market at the minute. Apparently the whole platform has been built in-house, which is different to most other providers – commentators wonder whether this means it’s a private ledger (i.e. it is invitation-only, but probably also takes less of your computer power to run).

Update posted: 17 January 2018

PSD2 and Open Banking: finally here

By Nathan Dudgeon

The Payment Services Directive (PSD2) came into force this week. You might have noticed news stories about how credit card surcharges are ending, or an increase in ‘strong customer authentication’.

Open banking is probably the biggest change brought by this new law. Banks can now share your data with third parties (on receipt of your permission), and these can ‘plug in’ to your bank via an API to bring extra value. Interesting times are ahead; will the banks adapt or just become ‘dumb pipes’? (See this article in The Times. Please note, you will need to register/login to view.)

You can also read our Guide to Open Banking or Understanding the new Payment Services Regulations

Update posted: 15 January 2018

Lessons from the KodakCoin

By Alex Gillespie

On Tuesday 9 January 2018, Kodak became the latest firm to seek to raise capital from an initial coin offering (ICO). At the CES2018 convention, Kodak announced plans to use the Ethereum blockchain to create a digital platform for photographers to monitor and protect their photographs from IP infringement. Once launched, customers will be able to purchase photographs over the platform using its own digital currency, the ‘KodakCoin’. According to Kodak, the platform will record a cryptographic record of all photographs purchased through it.

On the day it was announced Kodak’s share price rose by 119% but it has also faced criticism from many commentators on the proposal, particularly because KodakCoin and Global Blockchain Technologies Corp made an immediate $2 million investment into the cryptocurrency (subscribing for all 8 million KodakCoins available at the first stage of the pre-initial coin offering).

Many commentators have expressed concern at the considerable interest shown by investors in a platform that has not even been launched yet, akin perhaps to the frenzy shown by investors during the 17th century TulipMania, and an aspect of ICOs that the FCA has already expressed concern about in the UK. We have previously noted the FCA’s concerns about ICOs after it publically voiced concerns about a general lack of investor understanding in the products and a lack of substance behind many ICOs.  

Commentators have criticised the proposal for being vague and even flawed. For example, the ICO will only be available to ‘accredited investors’ earning more than $200,000 in income or with a net worth of £1 million (to avoid the ICO being registered with the SEC) creating considerable problems for a platform allegedly intended to be used by the mass market. Other commentators have argued that there is no need at all for the use of cryptocurrencies and blockchain for what is, after all, a proposal for a central database to record ownership supported by a web-trawler to identify cases of IP infringement.

The industry criticism should also be viewed in the general context that Kodak was only recently saved from bankruptcy and since the announcement had an ever falling share price. Kodak’s business and the problems that led to its falling share price (principally its failure to keep up with digital technology) do not appear to have changed beyond speculative proposals for the KodakCoin.

Of course, time will tell and the resurgence of a fading household branch is a great thing. However, it is clear that Kodak has a long way to go to convince its detractors (and perhaps the regulators) as to the viability of this project. We wait to see whether this could be the next KodakMoment.

Update posted: 27 December 2017

Tandem gets a banking licence, again

By Nathan Dudgeon

Earlier this week, the PRA gave Tandem permission to acquire 100% of Harrods Bank Limited.

This is big news. Tandem will finally have a banking licence, again – they did have one at the start of 2017, but lost it after failing to secure funding from a Chinese conglomerate in March (as reported in the Financial Times).

The deal is due to complete sometime in the new year, and Tandem will get £80 million of capital, access to a full banking licence and 10,000 savings and mortgage customers (plus tens of thousands of Tandem co-founders are already on the waiting list). The licence means Tandem will be able to offer their current accounts and finance other business activities with the deposits (such as offering loans).

Buying a banking licence is a fairly unusual way to get one – banks are rarely put up for sale and there are still regulatory hurdles to jump before you can buy one, which is why this news comes months after Tandem’s announcement of the deal. Another alternative is to become an ‘appointed representative’ – where someone who is already authorised agrees to take responsibility for your performance of that regulated activity, usually for a considerable fee.

To find out more about setting up a bank, have a look at the Bank of England’s new bank start-up unit, or you can always reach out to us.

Update posted: 18 December 2017

The FCA gives feedback on DLT

By Alex Gillespie

There was, I think, little to surprise in the FCA’s feedback statement (PDF) to its discussion paper on distributed ledger technology (DLT) which, in the rapidly changing world of fintech is arguably a surprise itself! There were no radical new policies or initiatives or proposed changes to the FCA Handbook just a confirmation that “our current regulatory requirements appropriately reflect our strategic objectives” and a commitment for further engagement with fintech, both domestically and internationally.

Despite the lack of any headline changes, the statement itself had the quiet confidence of a Regulator that is slowly getting to grips with the rapid changes to financial services brought about by fintech and DLT. The FCA engaged with participant feedback on topics ranging from digital currencies, smart contracts, regulatory reporting and financial crime (among others). Most of all, the statement primary reaffirmed the FCA’s ongoing commitment to engage with UK fintech as a ‘technology-neutral’ observer and highlighted the benefits which DLT offers to financial services as well as the shortcomings that need to be resolved.

My main take away from the statement, is that the FCA has rightly identified initial coin offerings (ICOs) as requiring closer scrutiny. The FCA mostly reiterated the concerns it gave in its consumer warning from September 2017 – that these are high risk investments little understood by the average investor – but also included a ‘regulatory considerations on ICOs’ annex to address widespread confusion as to the regulatory requirements behind an ICO (including when they are ‘regulated’). This should be compulsory reading for anyone considering launching an ICO.

Update posted: 12 December 2017

Madrec, MiFID II, and Ethereum: both complicated and excellent

By Gareth Malna

There is only a matter of weeks until the date that MiFID II takes effect, bringing with it the swingeing changes to the regulatory landscape that many compliance officers in the financial services sector have been working towards (and, perhaps, dreading) for the better part of two years. But, with a sense of inevitability, the world continues to turn and the big winners from the changes are likely to be those institutions that provide the tools to ensure compliance.

Step forward UBS, which with help from Barclays, Credit Suisse, KBC, SIX and Thomson Reuters has launched the Massive Autonomous Distributed Reconciliation platform (Madrec); an initiative based on the Ethereum platform to make the reconciliation of counterparty data a much simpler, automated, process. 

From a brief review of articles and blog posts reporting on the launch of Madrec it is clear that media commentators are struggling to understand exactly what the project does and why it is important, so we have set out our take on it below.

Without Madrec, banks (such as UBS) which make transactions in financial instruments for their clients are required to clear transactions on trading venues. This is done on a transaction-by-transaction basis and requires a physical review of the trading contracts in order to check the veracity of data being reported by the counterparties before the transaction can be cleared and regulatory reports filed. In order to effect that checking process banks rely on their own processes and data sources, taking external reference data from a number of sources without any agreed standard. 

As of 3 January 2018, MiFID II will require all parties to the majority of financial transactions to obtain and maintain a unique identification code for the purposes of increasing transparency about exactly who is actively participating in transactions in the market. That unique code is a Legal Entity Identifier (LEI), which has to date only been required of trading venues under certain European regulations – notably the European Market Infrastructure Regulation (EMIR – which imposes requirements on derivatives transactions) and the Market Abuse Regulation (MAR – dealing with illegal trading behaviours).

Pre-Madrec, banks acting for counterparties will be able to use the LEIs of the counterparties to identify and carry out checks on those counterparties using the bank’s standard data sources – a manual and potentially time-consuming process.

In a post-Madrec world, banks will be able to use the permissioned platform (which is based on smart contract technology) to automatically reconcile in real-time the information pertaining to each LEI against consensus baseline information. Any deviations in the reported information from the consensus could then be highlighted and resolved where necessary.

Suddenly the compliance burden is reduced and firms are free to use their resources to focus on the business of running their business rather than relying on inefficient processes to meet their regulatory obligations.

This is clearly what the times should look like – use of available technologies in a manner that facilitates regulatory compliance and transparency at a reduced time and cost burden. The only question is, who else will step up to the plate to benefit from the regulatory changes that are afoot?

Update posted 8 December 2017

Bitcoin benefits: save hay while the sun shines?

By Nathan Dudgeon

Every news agency on the planet is talking about how bitcoin passed the $16,000 mark last week. The articles are full of people lamenting the fact that they deleted their bitcoin, or spent it all years ago and didn’t become millionaires. The pages are also full of dire warnings against bubbles.

Something from CoinDesk caught our attention this week, because it argues for bitcoin benefits beyond simple profit.

Marc Hochstein says:

“Off the top of my head, I can name three social useful functions of bitcoin: its censorship-resistance; its judgment-resistance; and the topic of this essay, its deflationary quality, which rewards saving for tomorrow rather than splurging today.”

In short, he argues:

"Bitcoin encourages people to be wiser with their money, to think before they spend, to plan ahead and not act so much on impulse."

Why? Because there are a finite number of bitcoins – once we’ve finished mining them all there will be no more. As bitcoin becomes more popular/widespread, the price rises, and a government can’t ‘print’ more money to water down value. If the value of your money increases as you hold it, you’re going to think a lot more carefully before spending it, and are incentivised to think long-term. The article argues that this will cause a shift away from “the culture of conspicuous consumption, of shopping as therapy”.

This is especially so for young people, whereas in contrast:

“More typical is the short-termism that, at its most destructive, led Wells Fargo to set impossible sales quotas for its retail bankers, motivating them to create millions of unauthorized accounts and ultimately resulting in massive fines and brand damage.”

We enjoy a good debate here at Burges Salmon so we think it’s important to highlight ‘a reasoned response from the other side’, regardless of whether we agree or not. If you’re interested in reasoned arguments against what some call ‘ICO mania’, take a look at Preston Byrne’s content.

For me, it is easy to say that you are patiently waiting for long term gains when your investment’s value rises meteorically every week. A more worrying thought is if bitcoin is a bubble, then when it bursts and those who bought high lose out, you’ve instead taught the exact opposite – they should have made the most of the short term gains while the sun was shining. That’s a point we can definitely agree on; short termism is rarely a good thing.

Update posted: 8 December 2017

FCA regulatory sandbox: Cohort 3 announced

By Nathan Dudgeon

The FCA have published an update on the third and fourth cohorts of their very successful regulatory sandbox.

There were 61 applications for cohort 3, and 18 made it through the selection process. They’re all listed on the website for you to have a look, but big players include Nationwide (robo-advice) and Barclays (regtech), and the rest cover everything from cybersecurity and insurance to investment management and AML.

In particular, the FCA has given some encouraging news regarding the location of the latest cohort:

In the sandbox’s first phase, a majority of the firms were London-based with only a few from other parts of the UK. As the FCA continues to increase its regional engagement in emerging FinTech hubs, encouragingly, the proportion of regional firms has increased in each subsequent cohort. Over 40% of firms invited to test in cohort 3 are based outside London, compared to 35% in cohort 2 and 25% in cohort 1.” 

Cohort 2 includes Bristol-based Moneyhub.

The sandbox is very popular and applications are being accepted for the fourth cohort now. Deadline is 31 January.

23 November 2017

The Autumn Budget and fintech

By Alex Gillespie

For those of us engaged with the UK’s burgeoning fintech scene, there was much to be pleased by in the Autumn Statement. Fintech and new technologies as a whole are increasingly seen by the government as part of the answer to the UK’s future and the uncertainties of Brexit. If you didn’t manage to catch the budget itself, one of the key policies (for fintech at least) was the government’s plan to unlock over £20 billion of investment to support the growth of innovative firms over the next 10 years. This, the Chancellor said, will be achieved by:

  1. Establishing a new £2.5 billion investment fund incubated in the British Business Bank and designed to co-invest with the private sector to generate £7.5 billion of investment.
  2. Doubling the annual allowance for those investing in knowledge-intensive companies through the Enterprise Investment Scheme (EIS) and the annual investment those companies can receive through the EIS and the Venture Capital Trust scheme. The government expects this will unlock £7 billion of investment.
  3. Investing in fund of funds in the private sector, with the initial wave of investment seeded by the British Business Bank. There will be up to three waves of investment to support up to £4 billion investment.
  4. Backing new and emerging fund managers through the Enterprise Capital Fund programme established by the British Business Bank, expected to unlock £1.5 billion.
  5. Backing overseas investment in UK venture capital through the Department of International Trade, which is expected to unlock £1 billion of investment.

On top of this, the government has announced several other policies to support UK fintech, such as to invest £21 million of the next four years for the expansion of Tech City UK and to support regional tech companies. Other benefits include supporting challenger banks by making PRA capital requirements more proportionate for eligible smaller banks as well as the creation of a new £10 million Regulator’s Pioneer Fund to help regulators develop innovative approaches to help get new products and services to the market.

Of course (as with any Budget), the devil will be in the detail and execution of the proposals – we look forward to seeing them in action.

20 November 2017

Artificial Intelligence and ethics: just because we can, should we?

By Nathan Dudgeon

Just a couple weeks ago, a panel at Bristol TechFin 2017 led a discussion on the ethics of creating AI which might evolve into something you can’t understand. Just a few days ago, New York University officially launches ‘AI Now’ an institute dedicated to understanding the social implications of artificial intelligence. Creepy coincidence or a sign of the times?

We think it’s a sign of the times, and one of the biggest for us was that the keynote was from a lawyer (a Supreme Court Justice, no less) – someone whose job is to be risk-averse.

“At its most ambitious, AI’s promise is to serve as a framework for improving human welfare to make the world more educated, more interesting and full of possibility, more meaningful, and more safe. But once we overcome some technical problems that are more likely than not to get easier to deal with every day, we’re in for more than just a world of change and evolution. We’re in for some discussion of what it means to be human.”

“Tonight we gather not because we know how to answer that question, but because we realize – using different words, perhaps – that change is coming.”

An adaptation of the keynote was can be found on Quartzy.

It will be interesting to see what, if anything, the Institute covers on the financial services industry specifically. We definitely think that more discussion and more awareness is good – after all, collaboration and transparency are (often) hallmarks of the fintech world.

It may also provide useful assistance for politicians and regulators when making proactive and proportionate laws or regulations for the future. Here in the UK, the FCA are especially innovative and proactive when it comes to working with industry and understanding new technologies and industries – for example, the FCA’s foray into Model Driven Machine Readable regulation (yes, based on R3’s Corda distributed ledger tech) that Burges Salmon is taking part in as a legal Subject Matter Expert.

15 November 2017

UK Financial Services after Brexit – ECB criticises bank relocation plans

By Alex Gillespie

The European Central Bank (ECB) released an article on the Brexit-related relocation plans of UK banks. The article criticised the relocation plans of banks to EU member states as setting up ‘empty shells’ or ‘letter box banks’ and stressed that banks within the EU needed to have sufficient substance locally. The ECB warned that:

  1. Banks should not seek to transfer all market risk to a third-country group entity. Some risk should be managed by the EU bank locally, with local trading capabilities and risk committees. The EU bank should also trade and hedge risks with diversified counterparties not just with their own group.
  2. It was concerned by banks’ plans for ‘dual hatting’ whereby employees carry out roles for multiple group entities, particularly where the employees would be primarily located outside the EU. This would have the effect of diluting the local governance and autonomy of the EU bank.
  3. In the event of a transitional period being agreed, banks must nevertheless set out clearly what their plans will be, commit to them and explain how and when they will be carried out.

Comment: Almost immediately following David Davis’ call the day before for greater collaboration and a new partnership between the UK and EU, the EU has announced plans to exert greater authority over UK banks operating in Europe than had initially been expected. The most immediate issue for UK banks will be committing to contingency plans before the outcome of the Brexit negotiations have been determined.

14 November 2017

UK Financial Services after Brexit – David Davis makes a speech

By Alex Gillespie

The travails of the UK financial services industry continued this week as the UK and EU jostled over the industry’s future relationship with Europe after Brexit. On Tuesday, David Davis, the embattled Secretary of State for Exiting the European Union gave a speech on the financial services sector post-Brexit relationship with the EU. The speech was positive and optimistic for the future of the industry as Mr Davis reminded the audience of London’s historic strengths and that it was the world’s leading financial centre.

Mr Davis warned of the potential risk to Europe of the Brexit negotiations leading to the fragmentation of its financial services sector. To avoid this the UK and EU should look for a ‘new balance’ between both sides, which should achieve three things:

  1. protecting financial stability
  2. ensuring consumer protection
  3. supporting the existing co-operative system for cross-border financial services.

These objectives were in the interests of both sides and would give clarity and certainty to businesses across Europe.

Mr Davis also disclosed that the government sought to include UK financial services in its two year transition period, during which UK firms would remain subject to EU regulators and agencies. A ‘carrot’, widely publicised by the media, was the government’s plans to introduce an Immigration Bill intended to give UK businesses greater flexibility over the mobility of their workers across the continent.

14 November 2017

FCA warns consumers of risks of cryptocurrency CFDs

By Guinevere Wentworth

The FCA has released a consumer warning on contracts for differences (CFDs) with cryptocurrencies, which are being heavily marketed at consumers. CFDs allow a consumer to speculate on the price of an asset by investing only a portion of its value. Both the potential profit and the risk are large and money can be lost very quickly so that money may end up being owed.

Cryptocurrency CFDs are extremely high-risk, speculative investments and the FCA highlights four main concerns:

  1. the price volatility of cryptocurrencies
  2. the large levels of leverage
  3. the high charges and funding costs
  4. the likelihood of pricing not being transparent.

It warns that only experienced and sophisticated investors with knowledge of the risks should invest. 

Comment: CFDs are regulated and investors should check that the firm is authorised if offered the opportunity to invest in a CFD or are considering one. This does not mean that losses from trading, however, are protected. Firms offering CFDs should make sure that they are authorised and prepared for MiFID II while also making sure that they only promote CFDs to appropriate investors.

13 November 2017

Concerns over ICOs raised by ESMA

By Guinevere Wentworth

The European Securities and Markets Authority (ESMA) has released two statements on the risks of initial coin offerings (ICOs). Read our introduction to ICOs.

The first statement (PDF) reminds firms involved with ICOs that they need to assess if their activities are regulated. If they are then they need to ensure that they comply with relevant EU legislation, such as the Prospectus Directive, the Markets in Financial Instruments Directive, the Fourth Money Laundering Directive and the Alternative Investment Fund Managers Directive, and any relevant UK law.

The second statement (PDF) is aimed at investors. It flags the key risks associated with ICOs, such as the risk of losing the whole of an investment, that there may be flaws in the technology, the lack of information provided to investors, that there may be no exit option and that there is no protection offered to the investor if the ICO is unregulated.

Next steps: Firms involved with ICOs should make sure that they are aware of the regimes in place and what their obligations are, while investors should carefully consider where they invest. If you have any questions on this area, please contact our fintech team or your usual Burges Salmon lawyer.

30 October 2017

CCC launches Image Clearing System

By Guinevere Wentworth

The Cheque & Credit Clearing Company issued a press release on 30 October 2017 launching the Image Clearing System. The Image Clearing System will mean that cheques processed under this system will be cleared much more quickly than the old, paper based system.

Funds will be available for withdrawal after being paid in by 23.59 on the following weekday (excluding bank holidays) rather being available six weekdays later, as is currently the case. Some banks are also likely to offer their customers the option of using a mobile app to pay in a cheque by taking an image of it, rather than having to physically pay it in.

The two processing systems will continue to be run in parallel while the Image Clearing System is phased in slowly.  Initially only very few cheques will be processed under the new system but the numbers will rise until no cheques will be processed under the old system. This is expected to happen in the summer of 2018. Consumers will not be able to ask for a particular system and will need to ask their bank for information on how quickly their cheques will clear in the cross-over period.

Comment: It may seem that cheques are unnecessary in the days of mobile phone transactions and Apple Pay, but 477 million cheques were used in 2016. This process will allow people to continue to bank in a way that they feel comfortable with (and in some cases is a still a necessity), but with the advantage of 21st Century technology eking out the lifespan of a paper-based payment that has apparently been around since the 9th century for a little while longer.

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