This week’s round up of news for the compliance, risk and legal sectors in financial services.
Reuters reported this week that an agreement to allow London’s financial centre access to EU markets after Brexit is looking very likely to happen, and John Glen (Britain’s financial services minister) has said that he is “extremely confident we will reach an imminent deal”. Britain’s departure from the European Union is said to be the ‘biggest challenge the UK financial sector has faced since the 2007-2009 financial crisis’. This sector is the biggest source of exports and tax revenue, so preserving the existing flow of trade is highly important; Glen also commented that “severing connections to our financial centre is not in the commercial interests of any other European capital”.
The Financial Times has also reported on the ‘lack of big battles over financial services’ during the Brexit negotiations. A short draft text outlining the parameters for a post-Brexit trade negotiation has been drawn up with ease. Equivalence decisions will be used to manage cross-border trade in financial services which makes it easier for non-EU institutions to do business in Europe as long as their home countries are deemed to have similar standards of oversight by the European Commission. This would place ‘no obligations on the bloc to change either existing EU law, or its approach to managing financial services from non-EU countries’.
‘1,300 Brussels businesses are clamouring to join a new regime’ to ensure that they don’t ‘lose access to London if Britain leaves without a deal’, reports the Express. With temporary permission these firms can use the UK derivatives clearing services for three years and can continue to operate in London without impediment. European governments have voiced concerns that if they lose access to London then they will struggle to raise funds.
The Business Times has said this week that ‘analysts expect the currency (pound) to rally further if British lawmakers sign off on any [Brexit] divorce settlement, they foresee the script going awry if parliament doesn’t approve the deal’. This month the pound has gained over 2% to above US$1.30 and over 1% to 87.25 pence per euro. However, “if a hard Brexit happened we could see euro-sterling rising towards parity” commented Jane Foley (Rabobank’s head of currency strategy). A decline in the pound could be sparked if Theresa May is forced to call a second referendum, general election or sent back to the ‘negotiating table’.
The Entrepreneur has reported on the impact Artificial Intelligence will have on employment in the future. Despite the fears of technology ‘creating an ever-growing pool of unemployable humans’, AI can actually increase the productivity and smartness of a worker. Technology is empowering and has been progressing for the last 250 years; in that time ‘U.S. employment has stayed within a narrow band of 5 to 10 percent’ proving that the belief of AI creating unemployment is not true. An example of this is the introduction of ATM’s, which were thought to be replacing jobs, however, ATM’s ‘lowered the cost of opening bank branches’ which resulted in new jobs being created and the requirement for more staff.
A report titled ‘Artificial Intelligence in the UK 2018’ has highlighted that the ‘U.K. has in place sufficient industry and state backing to be a major player in global artificial intelligence’, says the Digital Journal. Due to investment in artificial intelligence reaching £3.8 billion, a figure that is expected to increase, the UK will be able to ‘challenge both the U.S. and China in the global artificial intelligence economy by 2020’. New, larger volumes of data, experts with high-level specific skill sets and the availability of increasingly powerful computer capacity are some of the key factors that have enabled an increase in capability of AI in the UK in recent years.
The International Advisor has informed us that the UK government has launched the National Economic Crime Centre based in the London National Crime Agency headquarters. Their aim is to educate the UK’s private and governmental bodies in how to tackle and prevent economic crime, as well as tackle these crimes and the offenders themselves. Their whole system approach involves co-ordinating tasks and activities among agencies, identifying and prioritising investigations, and also promoting the use of ‘new powers – such as unexplained wealth orders and account freezing orders’.
Forbes also reported on the governments new ‘serious and organised crime strategy’ and revealed that this kind of crime costs the UK £37 billion each year, an ‘increase of more than 54% since 2013’. One of the biggest challenges in fighting organized crime is that they act in a professional manner and are often ‘those at the top’ who can afford the best lawyers and accountants. These criminals are now using ‘complex structures’ such as offshore accounts to slip under the radar, meaning that the traditionally methods of fighting financial crime no longer work and it is also ‘no longer obvious who benefits from the proceeds of the crime’.
It is believed that ‘advances in technology will continue to transform serious and organized crime’ so a new approach and strategies must be adapted by all in order to solve the problem.
A rapidly increasing number of ‘family offices’ or private investment vehicles are being set up in Hong Kong and Singapore, reports Channel News Asia. The wealthy are targeting ‘greater investment diversification’ and the personalisation of this service, alongside being able to have a ‘bigger say in their wealth management’, makes these family offices a highly attractive option. “Offshore Chinese wealth will continue to grow, so family offices business is going to be a multi-year trend” said Ivan Wong (head of investment services and product solutions for Asia Pacific at HSBC Private Bank). It has also been revealed that between 2015 and 2017 the number of family offices in Singapore quadrupled.
The Out-Law has reported on the new measures of cryptoasset regulation that have been released by the Securities and Futures Commission (SFC) in Hong Kong. ‘Firms managing funds which solely invest in cryptoassets that do not constitute securities or futures contracts but which distribute them in Hong Kong’ will now be required to undergo a licensing regime. Also, firms that are ‘already licensed to manage portfolios including securities and/or futures contracts in Hong Kong will also be subject to licensing conditions’ if they ‘intend to invest 10% or more of the gross asset value (GAV) of the portfolios under its management in virtual assets’. As well as this, fund distributors that wish to distribute in Hong Kong will require a broker’s license, and the SFC has set a number of “principle-based” terms and conditions that licensees must meet. An example of these conditions is that cryptoasset portfolios can only be invested in by “professional investors” and retail investors are only now able to invest in mixed portfolios.