Where Finance Finds Its Future

Wealth management faces much the same challenge as other forms of asset management: the fact that costs are rising faster than revenue. The consequent squeeze on profitability is encouraging many wealth managers to explore how technology can help restore a more comfortable expense ratio. But it is in the nature of wealth management to place service on at least an equal footing to efficiency. Which is why Wealth Wizards, a 12-year-old FCA-regulated technology provider to the industry, emphasises that the purpose of its systems is to not to cut costs but to make sure the provision of financial advice by experts is affordable. Indeed, the company holds that technology can make expert advice available to everyone, not just the wealthiest investors. Dominic Hobson, co-founder of Future of Finance, spoke to Nick Hall, head of advice at Wealth Wizards, about how the Turo software as a service platform can be used by wealth managers to free up time to spend profitably with clients at any level of income or wealth. Hosted on Acast. See acast.com/privacy for more information.

Blockchain has so far failed to overcome its notorious trilemma: the need for trade-offs between speed, scalability and decentralisation. Until it does, blockchain technology will struggle to fulfil its potential by penetrating the traditional securities and derivatives markets and remain trapped in the mere transmission of value in crypto-currency markets rather than displacing the entire structure of the global financial markets. Enterprise blockchains, the long awaited Ethereum 2.0 and variations on Proof of Work offer a variety of ways around the trilemma. The Casper Association, with its own variation on Proof of Stake, is not dismissive of these technical fixes, but two of its members think a financial contract standard could also help. Dominic Hobson, co-founder of Future of Finance, spoke to Ralf Kubli, an investor and independent director, and Willi Brammertz, managing director at Ariadne Business Analytics, about the Actus FRF data standard, which distils the essence of any financial instrument into its cash flows. Hosted on Acast. See acast.com/privacy for more information.

There are offshore financial centres and there are onshore financial centres. And there is the Labuan International Business and Financial Centre (IBFC) in eastern Malaysia, which styles itself as a “midshore” financial centre. The neologism is well-chosen, for the IBFC enjoys a special status within Malaysia. It has its own regulator, its own legal system, its own exchange, and it is not subject to the exchange controls that govern capital flows into and out of the mother country. Since its foundation in 1990, the IBFC has attracted more than 900 businesses, mostly drawn from the wealth management, funds and insurance industries. But it is now home to crypto-currency exchanges and tokenisation entrepreneurs, and is fast-becoming an important digital financial centre even without resort to the usual regulatory “sandbox.” Nor is there a financial centre anywhere in the world whose leadership is more convinced that an international financial centre can contradict the cynics and use digital finance to increase financial inclusion. Dominic Hobson, co-founder of the Future of Finance, spoke to Farah Jaafar, chief executive of the IBFC. Hosted on Acast. See acast.com/privacy for more information.

In a modern economy, the most important costs are transaction costs. And the cost of compliance is fast becoming a major tax on financial businesses. Deloitte has put the cost of regulatory reporting in the banking industry alone at 10 per cent of operating costs, or €230 billion a year. LexisNexis has estimated the cost of running KYC, AML, CFT and sanctions screening checks at US$115 billion a year across North America and just five countries in western Europe. What drives these costs is the same as what could mitigate them: data. If banks, asset managers, brokerage firms, wealth managers and insurers could source, normalise and integrate their own data into a single view of the client, and marry it to external sources of data as well, the cost of compliance could fall dramatically. One company which believes it can help to make that happen is Identitii, a RegTech company set up to help companies automate regulatory reporting. Significantly, it is now extending its reach into financial crime. Dominic Hobson, co-founder of Future of Finance, spoke to Joe Higginson, chief commercial officer at Identitii, who joined the company in 2021, having spent most of his career in the payments industry. Hosted on Acast. See acast.com/privacy for more information.

The legal services industry in the United States generates about US$350 billion a year in fees. In the United Kingdom, the second largest market for legal services in the world, a 2020 report by KPMG for the Law Society estimated legal services generated value of around £60 billion a year after costs. So law is a substantial industry on both sides of the Atlantic, but its product is antiquated, expensive, opaque and of variable quality. Which is one reason why artificial intelligence (AI) is making inroads into the law already, chiefly by classifying, assembling, reading, comparing and managing documents, or at least helping less expensive employees to complete these tasks. However, there is a more fundamental reason that law is imperilled by the combination of digital technology and digitised data. This is that the product customers buy from lawyers – namely, specialist knowledge – is not physical. Since the analogue economy gave way to the digital, that knowledge has accumulated in digital form. Like any piece of digital information, the marginal cost of reproducing it is effectively zero. It can be consumed repeatedly, and by anyone, without any of its value being lost. In other words, the nature of legal knowledge means that digital technology condemns the law to a steady process of commoditisation. Resistance by lawyers, though it is bound to be ingenious, is futile. The legal profession must embrace its Nemesis, as many legal firms now are, by using AI to cut costs and enlarge their range of services, by being willing to trade exorbitant billable hours for fixed price sales volume and by seeking amalgamations with similarly threatened professions such as accountancy. This webinar will explore why the law has become an early use-case for AI, how legal firms are deploying AI in their practices today, what investment and technical challenges they must overcome, what benefits and problems they are encountering and what forms of resistance they are putting up. Hosted on Acast. See acast.com/privacy for more information.

Open Banking is existentially important. By pioneering the exchange of customer data between financial institutions through Application Programme Interfaces (APIs), it is the leading experiment in the economic consequences of giving consumers ownership and control of the data they create through their interactions with business and government. The success of the experiment matters intensely because the impact of data-driven transactions on the structure of capitalism as a whole, let alone finance, is potentially revolutionary. Open Banking, driven either by regulation or by market forces, is now at various stages of development in at least 11 jurisdictions around the world, including the United States and Australia. But it is the United Kingdom which pioneered Open Banking, and where enough time has now elapsed to pass at least an interim judgment on its success. True, its origins lie in the relatively modest ambition of fomenting competition in the oligopolistic retail banking market of the United Kingdom, where a 2016 Competition and Markets Authority (CMA) report concluded that the behaviour of the nine largest banks had created “adverse effects on competition” to provide personal and business accounts and loans to SMEs. But the apps developed by third party providers (TPPs) – there are nearly 238 registered in the United Kingdon and nearly 500 across Europe as a whole – are introducing techniques that are prompting changes at incumbent institutions and which could overthrow them altogether by fundamentally changing the way business is done. With Open Banking now morphing into Open Finance, similar effects are likely to be felt soon by incumbents in the insurance and savings industries. An Open Data economy is also becoming visible, with initiatives to use customer data to facilitate switching in the energy and broadband industries now under way in the United Kingdom as well as other jurisdictions. This webinar, hosted in partnership with Trade and Invest Wales and Fintech Wales, will gauge the success of Open Banking in the United Kingdom so far, explore its evolution into Open Finance and Open Data, and ask what an Open Data economy will eventually look like and what it implies for a range of new and established businesses in the financial services industry.  Hosted on Acast. See acast.com/privacy for more information.

Financial crime compliance has grown from small beginnings in the Bank Secrecy Act passed by the Nixon Administration in 1970 to combat money laundering. The PATRIOT Act of 2001 added countering the financing of terrorism (CFT) to anti-money laundering (AML). But it is the universalisation of these American precedents through the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation of the Financial Action Task Force (FATF), first promulgated in 2012, which have turned customer due diligence into the one area of the financial services industry that is growing everywhere. Estimates of its cost run into hundreds of billions of dollars, even without taking into account the fines levied on regulators by the non-compliant or the insufficiently vigilant. One company which has prospered from helping financial institutions battle financial crime is NICE Actimize. Dominic Hobson, co-founder of Future of Finance, spoke to Stephen Taylor, General Manager, Anti-Money Laundering, at NICE Actimize, about how financial institutions manage the problem, how the problem is mutating, which business areas face the gravest threats and how techniques to combat financial crime are evolving. Hosted on Acast. See acast.com/privacy for more information.

In January 2018, Gibraltar became the first jurisdiction on the planet to pass into a law a regulatory framework to accommodate financial services based on blockchain. It has helped to attract to the Rock more than a dozen digital financial services companies, including crypto-currency funds and Insurtechs.The government of Gibraltar and the Gibraltar Financial Services Commission (GFSC) pride themselves on their closeness and accessibility to the industry, which they believe encourages a spirit of openness among regulated firms, but they are not an easy touch: it can take 12 months to get approved, and more licence applicants are disappointed than endorsed. Dominic Hobson, co-founder of Future of Finance, spoke to the Honourable Albert Isola, Minister for Digital and Financial Services in Gibraltar, about what licence-seekers can expect and where he thinks the next big opportunities lie. Hosted on Acast. See acast.com/privacy for more information.

Gibraltar has built a reputation as a congenial domicile for insurance companies. With a robust regulatory regime but an accessible regulator prepared to work fast, Gibraltar is now home to a third of motor insurance premiums in the United Kingdom, including those paid to household names such as Admiral. With nine tenths of its business emanating from London, Gibraltar has suffered little from the loss of free access to European Union (EU) markets that followed Brexit. In fact, Gibraltar may even benefit if plans to join the Schengen Area are realised. With a blockchain law in place, and a statement of intent agreed with InsurTech UK, Gibraltar is also catching the attention of the new breed of technology-driven insurers planning to disrupt an industry that traditionally avoids being in the vanguard of technological revolutions. Dominic Hobson, co-founder of Future of Finance, spoke to Mike Ashton, senior finance executive, insurance and pensions, at Gibraltar Finance, the government body that promotes Gibraltar as a financial services centre, about the opportunities InsurTechs will find in the British Overseas Territory. Hosted on Acast. See acast.com/privacy for more information.

Central securities depositories (CSDs) are a target of the tokenization evangelists. CSDs are in theory completely redundant in a system by which tokens are issued directly into digital wallets, transactions are settled token versus token (TvT) between digital wallets, changes of ownership are registered automatically on a distributed ledger, and holdings of tokens are safekept in digital wallets and serviced by smart contracts. How soon such a system could come into being is impossible to predict. What we know is that today the scale of the security token markets is trivial. A generous estimate is that token issuers have raised just US$10.3 billion since 2017, or 0.008 per cent of current outstandings in the global bond markets and 0.009 per cent of the current valuation of the global equity markets. Bitcoin alone is worth 110 times as much as the entire value of the global security token markets. In growing, tokenization faces many obstacles, including the lack of digital cash (as opposed to payment tokens) on tokenization platforms and a lingering degree of uncertainty about the legal and regulatory status of tokens. But both these barriers are now being cleared. The financial incentives - notably a lower cost of capital and the reduction of transaction and data processing costs to nugatory levels – to tokenize are strong. The additional revenue possibilities, in terms of expansion into privately managed, OTC-traded and illiquid asset classes – to say nothing of attracting new types of investor - are tempting for asset managers and asset owners. History shows that digitized markets can scale remarkably quickly. The sheer size of the global bond and equity markets means that even if tokenization garnered no more than a tenth of the market, on current valuations the global market would still be worth US$23 trillion. So it is prudent for CSDs to take the threat of tokenization seriously, formulate strategies to adapt to its potentially rapid growth and develop services that treat tokenization as an opportunity. That opportunities exist, not least to help securities market participants capitalize on the new possibilities opened up by tokenization, is a certainty. At this webinar, Future of Finance joins forces with the Americas’ Central Securities Depositories Association (ACSDA) and sponsors Percival Software, a leading provider of CSD systems, to explore the nature of the threats and the opportunities that tokenization poses for CSDs. Hosted on Acast. See acast.com/privacy for more information.