Where Finance Finds Its Future

Artificial intelligence (AI) and machine learning (ML) are technologies subject to errors of pessimism as well as errors of optimism. Predictions of their eventual impact range from dystopias in which machines reduce human beings to helots, through mass, machine-led unemployment, to Utopias of universal leisure in which all the work is done by machines. In the financial services industry, meanwhile, practical applications of AI and ML are yielding substantial returns in the detection of errors and anomalies. The returns certainly include savings in labour costs but also increased fulfilment at work as dreary jobs are automated, and the quality, productivity and output of other forms of work are enhanced. But the highest returns of all come from cumulative innovation, as AI and ML uncover previously unknowable or impractical opportunities to create new and improved services. Dominic Hobson, co-founder of Future of Finance, asked Bob Suh, former chief technology strategist at Accenture and founder and CEO of AI in financial services venture OnCorps, to share the counter-intuitive lessons he has learned from combining a rich understanding of human behaviour with ML algorithms in the asset management industry.  Hosted on Acast. See acast.com/privacy for more information.

“We have yet to hear a convincing case for why the UK needs a retail Central Bank Digital Currency (CBDC),” concluded a report of January 2022 from the Economic Affairs Committee of the House of Lords. “While a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy.” The Committee included a former Governor of the Bank of England and a distinguished economic historian (of the “What would Keynes do?” school). Despite such sceptical voices, the Atlantic Council CBDC Tracker lists 78 retail CBDC projects currently being pursued by central banks around the world and only six that have a wholesale component. Of course, every jurisdiction is different. Each country that has issued a CBDC (the Bahamas) or is experimenting with one (China, the Eastern Caribbean and Nigeria) has its own reasons. For most, the limited reach of conventional banking systems is a major factor. A related concern is the possible cession of monetary sovereignty to crypto-currencies or Stablecoins controlled by private interests. Some (Iran and Russia as well as China) see a CBDC as part of a geopolitical strategy to undermine the dominant position of the US dollar and circumvent reliance on payments systems controlled by geopolitical opponents. In the developed economies of the G7, the momentum is shifting from retail CBDCs back to wholesale CBDCs, where the potentially disruptive effects can be contained within the existing banking system. The emerging use-cases include cross-border payments, trade finance and securities settlement, where numerous experiments led by central banks have proved the technology works. However, concerns that a CBDC might disrupt correspondent banking networks, or undermine the funding of commercial banks with consequently deleterious effects on their capacity to lend, might be fostering an unduly conservative approach in the developed economies. After all, CBDCs also represent an opportunity to re-think the relationship between monetary policy and fiscal policy and how credit is created and distributed in a sophisticated modern economy suffering from pockets of inequality as well as illiquidity. At this webinar, Future of Finance re-visits the arguments for and against retail CBDCs, examines use-cases for wholesale CBDCs and asks whether central banks need to see CBDCs as a massive opportunity to re-design the way money and data flow throughout economies rather than a systemic threat to financial stability. Hosted on Acast. See acast.com/privacy for more information.

For more information click HEREIt is easy to portray the tokenisation of securities as a mortal threat to central securities depositories (CSDs). In principle, security tokens issued on to blockchain networks can dispense with all the core functions of a CSD in safeguarding the integrity of issues, maintaining a register of investors, settling transactions in central bank money, distributing entitlements and maintaining accounts for custodian banks acting on behalf of investors. That is why most of the discussion about the future of CSDs since the tokenisation of securities was first broached in 2018 has focused on the escape routes rather than the paths to the future. CSDs could appoint themselves operators or “governors” of the private, permissioned networks that looked likeliest to be adopted by incumbent financial institutions such as investment banks, custodian banks and asset managers. They could run the Know Your Client (KYC), Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and sanctions screening checks to filter the issuers and investors that aspired to belong to these networks. CSDs could offer their classic services to the new classes of asset-backed tokens that were expected to emerge from the real estate, fine art, fine wine and collectibles markets, by developing digital wallets and atomic settlement services. By these means, they could make even the Decentralised Finance (DeFi) markets safe for institutional money. Unsurprisingly, when confronted by such defensive tactics and a diverse range of options that were not strategically coherent. many CSDs seemed unable to act at all. Lately, a more positive outlook has become clearer. Central Bank Digital Currencies (CBDCs), by putting central bank money on to blockchain networks, appears to solve the biggest obstacle to settling security token transactions. Even the adventurous institutional investors, dabbling in crypto-currency and token investing for the first time, have made clear they prefer to do so in the company of regulated financial institutions and financial market infrastructures. At least some of the two dozen or so security token exchanges that have emerged incorporate a CSD function, partly because unreconstructed securities laws and regulation insist upon it, but mainly because institutional money feels more comfortable with it. At this webinar, Future of Finance joins forces with The Africa and Middle East Depositories Association (AMEDA) and sponsors Percival Software, a leading provider of CSD systems, to ask: Is tokenisation the nemesis or the apotheosis of the CSD?Some of the topics to be discussed:Will tokenisation of securities kill, maim or transform CSDs?Does the current size of securities token markets argue for a masterful period of inactivity?Has the idea of saving issuers and investors money by disintermediation died?Are the costs of post-trade intermediation so high that they warrant disintermediation?Which intermediaries are at greater risk of disintermediation than CSDs?PanellistsVipin Mahabirsingh, Managing Director at Central Depository & Settlement Co. LtdChris Richardson, CEO at Percival SoftwareAndrea Tranquillini, Senior Post Trade Market Infrastructure ExecutiveMark Smith, CEO and Co-Founder at SymbiontVic Arulchandran, Co-Founder at NivauraModeratorDominic Hobson, Co-Founder and Editorial Director at Future of Finance Hosted on Acast. See acast.com/privacy for more information.

Bond markets were a primary target of blockchain technologists. As early as 2017-18 bonds were being issued and auctioned on blockchains by banks and benchmark issuers, and proofs of concept continued throughout the blockchain winter that took hold in 2019. In the Spring of 2021, the European Investment Bank issued a tokenised bond on to a public blockchain without the intermediation of a central securities depository (CSD) or a custodian bank. For a time it looked as if that one deal might finally transform promise into reality. A year later, a familiar pattern is restored: experiments without lift-off. Issuances and transactions in high volumes are conspicuous by their absence from the tokenised bond markets, which remain a cottage industry in a global marketplace capitalised at more than US$120 trillion. True, a new breed of token exchanges such as ADD-X in Singapore and SDX in Zurich are now hosting bond issues, but they too are still proving the technology and technique works rather than riding a rocket ship. Fulfilment of the signal promise of blockchain technology – namely, cost-cutting through disintermediation – is proving worryingly elusive. The FinTechs and exchanges which have identified the bond markets as an opportunity ripe for tokenisation are careful to stress that they have no intention of disintermediating investment banks, CSDs, custodian banks or issuing and paying agency banks, or indeed anybody else. As if to emphasise this point, the R3 Corda blockchain that turns existing intermediaries into members of private, permissioned blockchain networks has emerged as the technology provider of first choice for bond market FinTechs. The alleged remark of Clinton adviser James Carville (“I want to come back as the bond market. You can intimidate everybody”) certainly seems to apply to FinTechs, whose reluctance to challenge openly the banking stranglehold on the bond markets is almost palpable. Instead, investors and issuers are promised a more efficient primary market process, with less use of paper documents and the telephone and more use of simultaneous and controlled digital access to useful information such as initial term sheets, contractual agreements, prices and holders of particular bonds. Yet it is possible that such modest ambitions could conceal a revolutionary outcome, if not intent. Bond market FinTechs could morph into information entrepots that displace CSDs, issuing and paying agency banks and custodian banks by a gradual process of encroachment into the crucial data flows that makes such intermediaries evidently redundant. Who needs a CSD or a custodian when you can issue bonds on to a blockchain in fully registered form and settle transactions the same day? In theory, investors on a blockchain network can transact directly with each other without waiting for a bank to confirm it has received the cash or the securities. And nobody will need an issuing or paying agent when the coupons can be paid by smart contracts. All of these functions will be fulfilled by efficient data flows rather than by reconciliation of separate data sets. This Future of Finance webinar will ask whether the apparent timidity of the bond market innovators conceals something much more threatening to at least some of the existing intermediaries. Hosted on Acast. See acast.com/privacy for more information.

Growing institutional interest in the largest and most liquid crypto-currencies is now spilling over into staking via Decentralised Finance (DeFi) protocols and into Non Fungible Tokens (NFTs). While widening institutional interest in digital assets is partly explicable as a search for an income-producing outlet for crypto-currency holdings, it also attests to a growing institutional confidence that blockchain-based networks will one disrupt the established order in the money and capital markets. The joint venture partners behind one regulated digital asset custodian for institutional traders and investors – investment bank Nomura, blockchain technology vendor Ledger and crypto-currency fund manager CoinShares – are certainly betting on that outcome, with the support of some shrewd private investors. Dominic Hobson, co-founder of Future of Finance, spoke to Sebastian Widmann, Head of Strategy at Komainu, about the origins and growth of the firm. Hosted on Acast. See acast.com/privacy for more information.

The Metaverse is notoriously hard to define. Those definitions which do exist describe a digital facsimile of the physical world, which people enter as avatars by donning headsets and hand sensors. Once inside, they walk around, talk to people, attend meetings and events, visit buildings and buy and sell goods and services, just as they do in the physical world. For businesses, it is the last of these activities that matters. For them, the Metaverse is a new way to find customers and sell them things. Indeed, the fact that Facebook has changed its name to exploit the opportunity has prompted many to predict that the Metaverse will take the manipulation of human behaviour to a whole new level (one comparable, perhaps, to The Matrix) and that users will once again be products rather than customers or creators. Already, Facebook has a digital wallet (Novi) and a Stablecoin (Diem) whose original use-case was to enable Facebook users to buy and sell products and services through the social media platform.Opening branches in the Metaverse will test bankers as merchandisersWherever transactions occur, banks can almost always be found, transmitting money or exchanging monies. Nor is there any reason why the products being sold in the Metaverse (and they are sold rather than bought) should not generate sales of other financial products, such as insurance and asset management. However, unlike Facebook, traditional financial institutions have so far failed to convince themselves that they can profit from the Metaverse. Yet there are some obvious moves to make. The fact that Bank of America is using Virtual Reality (VR) headsets to make its salesmen and relationship managers more effective is not Metaversal: it is just a training aid of the type airlines and armies have used for years. But the next step is conspicuous: close physical bank branches, open virtual bank branches in the Metaverse and replace the flesh-and-blood salesmen and women with virtual reality avatars that customers can engage with instead. In fact, this move is so obvious that Kookmin Bank in Korea has already made it, and other Korean banks and brokers are following its example.Find out more at: https://futureoffinance.biz/2022/01/31/how-banks-can-make-money-in-the-metaverse/Among the topics to be discussed at this webinar are:Is there a sound definition of the Metaverse?What does the Metaverse owe to the video-gaming industry?Is the Metaverse best built on blockchain technologies?Are crypto-currencies, Stablecoins, utility tokens, payment tokens, security tokens and Non-Fungible Tokens (NFTs) incidental to the Metaverse or central to it?What financial services use-cases for the Metaverse are there?How do those use-cases vary between (a) banks (b) asset managers and (c) insurers?How can the Metaverse avoid becoming a series of walled gardens as opposed to a decentralised network of parallel but linked Metaverses?How can standards best be developed to facilitate data exchange between Metaverses?How serious an obstacle to progress are the headsets and sensors?Does the technology currently support the production of compelling content, especially in terms of speed and scale?What are the major engineering challenges that the Metaverse poses? Hosted on Acast. See acast.com/privacy for more information.

A market in which the assets coveted by investors for use as profile pictures or digital avatars are branded as Crypto-Punks, members of the Bored Ape Yacht or Kennel Club, or as Pudgy Penguins, is redolent of the Pokemon card craze of the 1990s. As it happens, the popularity of these Non-Fungible Token (NFT) collections with gameified nomenclatures has sparked a rediscovery of Pokemon cards, which are enjoying a nostalgia boom. That incidental side-impact is not a surprising one, because the scale of the NFT market is increasingly hard to ignore. In 2021 investors sank at least US$44.2 billion into NFTs, according to Chainalysis. Transaction volumes, total value invested and average transaction size all rose sharply by comparison with 2020. The blockchain data platform bases its estimate on the amount of crypto-currency sent to the ERC-721 and ERC-1155 contracts, the two types of Ethereum smart contract associated with NFT marketplaces and collections.NFT marketplaces offer art, collectibles, videos, music and sportsThe fact that most NFTs are built on Ethereum is a major factor behind the surging transaction costs (“gas fees”) on Ethereum, and the associated interest in the low-to-zero transaction cost alternative of the Solana blockchain protocol. Most of the purchases made are intermediated by a newish breed of commission-based NFT marketplaces of which the biggest, OpenSea, is also built on Ethereum. The NFT marketplaces are akin to crypto-currency exchanges such as Coinbase but minus the custody function (unlike the crypto-currency exchanges, most NFT marketplaces expect investors to own and operate their own digital wallet) and plus (in the case of the most successful NFT marketplaces) a genuinely decentralised model. OpenSea, which currently lists more than 6,000 NFT collections, is the generalist option. Other NFT marketplaces (such as art marketplace Nifty Gateway, which is owned by cryptocurrency exchange Gemini, a parentage that enables provision of a custody service) focus on niches.The NFTs available are not confined to unique digital collectibles such as Bored Apes (there are only 10,000 available) or Pudgy Penguins (8,888). Fine art, videos, music and physical objects are also available as NFTs. Artist Damien Hirst has sold 9,000 of 10,000 unique, hand-painted, dot-covered works on paper at a price of US$2,000 each. He has given buyers 12 months to decide if they wish to take ownership of the physical work or own the NFT instead. If they choose the NFT, the physical work will be destroyed. Secondary market trades have raised the total market value of the Hirst collection to more than US$500 million. The traditional art auctioneers, whose nose for anything that smells of money is as finely tuned as the most shameless investment bank, have moved into the market. Christie’s made US$150 million from NFT sales in 2021 (US$69.3 million of it from Everydays: The First 5,000 Days, a digital art collage by artist Mike Winklelmann, better known as Beeple). Sotheby’s made US$100 million from NFT sales in 2021, including from sales of Bored Apes.Among the topics to be discussed at this webinar are:Who invented NFTs?What explains the recent growth of the NFT markets?How can NFTs best be categorised?What are the sources of value of an NFT?What are the links between blockchain, crypto-currencies, tokenisation and DeFI?Find out more at: https://futureoffinance.biz/2022/02/02/the-good-reasons-and-the-bad-for-taking-nfts-seriously/ Hosted on Acast. See acast.com/privacy for more information.

A Future of Finance interview with David Nicol, CEO and Co-founder of LedgerEdge. The US$124 billion global bond markets seem at last to be taking pole position in the race to unlock the efficiencies conferred by blockchain technology. Much of the effort is directed at the primary markets, where the telephone plays the part it has since the 1960s and the fax and spreadsheet continue in the roles they stole from the telex and the pocket calculator in the 1980s. But the real prize in fixed income lies in the secondary market, and especially in corporate bond markets that have become a byword for illiquidity and price opacity. Enter LedgerEdge, a two-year-old start-up based on R3 Corda technology that is exciting the buy-side as well as the sell-side with its promise of a decentralised marketplace in which it will be possible to find and then buy and sell corporate bonds without expensive information leakage. After making rapid progress since its foundation in 2020, LedgerEdge has acquired its regulatory licence from the Financial Conduct Authority (FCA) in London and is on course for its UK, US and EU launches in the second and third quarters of 2022. Future of Finance co-founder Dominic Hobson spoke to LedgerEdge CEO and Co-founder David Nicol. Hosted on Acast. See acast.com/privacy for more information.

Central Bank Digital Currencies (CBDCs) can seem like nuclear fusion: a proven technology delayed by engineering problems. It is an analogy that Simon Chantry will enjoy since he began his career as a nuclear engineer before co-founding the blockchain-based digital currency technology provider Bitt in 2013. As CIO at Bitt, he has implemented the Bitt Digital Currency Management System (DCMS) on behalf of the Eastern Caribbean Central Bank (ECCB) and the Central Bank of Nigeria, putting the company at the heart of two of the first CBDCs to be launched anywhere in the world. The company has also implemented a digital currency wallet for the National Bank of Belize and is now working with the National Bank of Ukraine on a project that is expected to lead to the introduction of electronic money. Dominic Hobson, co-founder of Future of Finance, caught up with Simon Chantry to get the full story behind the eNaira.  Hosted on Acast. See acast.com/privacy for more information.

It is not hard to see why centralised financial market infrastructures are more alive than other financial institutions to the opportunities and threats of distributed ledger technologies. They are the neutral entrepots through which data flows between participants in every financial market so, if every market participant can access the same data simultaneously, the occupation of any provider intermediating point-to-point data flows comes into question. In this environment, the wise market infrastructure chooses to disrupt itself before it is disrupted by others. This is the course taken by Finswitch, the financial market infrastructure that provides the South African fund management industry with pricing, transaction processing, income distribution and data services. It is transitioning to a blockchain-based platform which its leadership and shareholders believe will reduce friction and costs and create opportunities to develop new services. Dominic Hobson, co-founder of Future of Finance, spoke to Nick Baikoff, managing director of Finswitch, about why the organisation is adopting blockchain and how it is bringing its shareholders and users with it.  Hosted on Acast. See acast.com/privacy for more information.