Where Finance Finds Its Future

A protocol which combines high speed and scalability with the highest standards of security and privacy is what is required to make blockchain both mainstream and universal. The designers of the Meta MUI Blockchain set out to meet these demanding requirements. Inspired by the vision of a high-volume transaction network that is seamless across the Internet and mobile telephone networks, and in which security and privacy are protected by tying digital assets to digital identities, their goal was to create a blockchain fit for the age of the Internet of Things (IoT) and the Metaverse. The earliest use-cases include Central Bank Digital Currencies (CBDCs), which require capacity, security and privacy, but the technology is extensible to security tokens and Non-Fungible Tokens (NFTs). Seokgu (Phantom) Yun is Founder and CEO of the Sovereign Wallet Network and Project Lead of the Meta MUI Blockchain. He spoke to Future of Finance co-founder Dominic Hobson.  Hosted on Acast. See acast.com/privacy for more information.

Enthusiasts for security tokenisation must sometimes feel like Old Testament prophets waiting for the new dispensation to begin. Yet the fact that they are waiting at all is a mystery. Theory and practice (albeit modest, so far) both suggest that issuers ought to be queuing up to issue security tokens. Tokenisation would cut their cost of raising capital significantly, by widening the investor base, cutting issuance fees and trimming listing and investor servicing charges. Yet even the most optimistic forecasts do not expect debt and equity security token offerings (STOs) to clear much above, say, US$4.0 trillion by the end of the decade. Which suggests tokenisation will not make much of dent in global equity and bond markets capitalised even today at US$225 trillion. The optimists have many reasons to be cautious about the rate of growth. It is hard to convince issuers to take the risk, especially when many extant STOs have failed to reach their fund-raising target, and securities laws and regulations are out of joint with the new technique. The start-ups aimed at making the primary markets more efficient seem to lack ambition. The sheer plethora and variety of security tokenisation platforms is daunting, and they are virtually all constrained by limited licences and unkind memories of the reputational issues at some crypto-currency exchanges. Though several established stock exchanges have embraced tokenisation, most are worried about cannibalising their existing revenues. So the marquee STO has yet to happen, and the security token markets look set for slow and unspectacular growth. That said, cumulative STOs will offer substantial scope for trading activity – perhaps 20 times as much as the value of accumulated outstandings, or more than US$150 trillion a year by, say, 2030. High-frequency traders, FX traders and hedge funds are already active in the crypto-currency and Decentralised Finance (DeFi) markets and should not struggle to adapt to trading security tokens as well, legacy systems apart. They and other trading houses ought to value round-the-clock trading, new asset classes in tradeable forms and the ability to arbitrage between tokenisation platforms as well as between tokenisation platforms and traditional marketplaces. As liquidity increases, price information will fuel the production of derivative instruments that increase liquidity still further. An active secondary market would do much to boost the primary markets too, not least as a source of price information for new issues. This happy outcome hinges on inter-operability, which in turn depends on the development of standards that make API-intermediated data exchanges between tokenisation platforms and between tokenisation platforms and traditional marketplaces friction-free. And, in the long run, even traders will baulk at the destiny outlined for them already by developments in the DeFi markets: their replacement by algorithmically operated liquidity pools that dispense with fee and spread-earning intermediaries such as brokers and market makers altogether. At this Future of Finance webinar, a panel of experts will consider what is going right and what is going wrong in security token issuance and trading, and share ideas about what can be done to bring a new and better capital market system closer. Hosted on Acast. See acast.com/privacy for more information.

The convergence of traditional and blockchain-based financial markets is now a given. But it still takes people and businesses to make it happen. The proportion of FinTechs seeking regulatory licences is one measure of who is doing what. Now a regulated Swiss security token start-up, STOverse, has hit upon an idea that the Peter Thiel of Zero to One would recognise instantly as an unsuspected secret hidden in plain sight: DeFi can be a source of capital and liquidity for securities tokens. In terms of Total Value Locked (TVL), DeFi has grown ten-fold since the beginning of 2020, clearing US$100 billion in November 2021. Staking is now an US$18 billion market, providing investors in security tokens with an obvious source of yield. By building a security token issuance and trading market based on liquidity pools operated by smart contracts that balance supply and demand algorithmically, STOverse aims to build a bridge to DeFi market-making exchanges, starting with SushiSwap. Its target audience is SME issuers and investors and DeFi investors familiar with liquidity pools. If it works as intended, STOverse could help the security token markets move from latent to actual growth. Dominic Hobson, co-founder of Future of Finance, spoke to Francesco Biviano, founder of STOverse, and Florian Ducommon, a partner at Bonnard Lawson, a law firm specialising in Fintech and Blockchain in Switzerland. Hosted on Acast. See acast.com/privacy for more information.

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.