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 whic...

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 bas...

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 unsu...

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...

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 structu...

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...

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 y...

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, ex...

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 b...

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 Financ...

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 th...

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...

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...

Perhaps one jurisdiction and a half have actually launched a Central Bank Digital Currency (CBDC). But the second largest economy in the world (China) is now promising to turn its pilot CBDC into a full-fledged digital fiat currency as soon as February 2022. It would be surprising if a member of the G7 – and especially the United States, possessor of the dominant reserve currency of today -did not...

Greengage, which has been active in the crypto-currency markets for the last three years, has set itself a new mission: to become the merchant bank that channels the fiat currency deposits of crypto-currency exchanges to small and medium sized enterprises (SMEs). To that end, it is currently considering whether to pursue a banking licence, which would allow the firm to provide a full set of bankin...

New York-based INX Limited shot to prominence last year when it raised US$85 million in an initial public offering (IPO) that was not only tokenised but, because it was fully registered with the Securities and Exchange Commission (SEC), open to all kinds of investors. This broke with the established pattern of issuing security tokens to sophisticated investors only, placing INX in the vanguard of...

There is no shortage of challenger banks and neo-banks but it is often hard to discern what is being challenged or what is genuinely new. Most are doing nothing more disruptive than creaming off revenues established banks are too lazy or dysfunctional to retain. The character of five-year-old Chetwood Financial is harder to categorise. Its leadership emphasises the personalisation of its products...

Real estate is a primary target for tokenization. Its size and intrinsic illiquidity makes tokenization and fractionalization unusually appealing for owners and developers, and investors are attracted by the opportunity to gain exposure to the asset class at lower cost. So it is not surprising that the real estate sector spawned the flagship tokenization of shares in the St Regis Aspen hotel back...

Projections put the size of the security token markets at US$8-9.5 trillion within just four years. That is bigger than the US$7 trillion invested in the privately managed asset markets that are presently seen at the most promising axis of growth for the tokenization industry. The rewards are easy to list. A lower cost of capital for issuers. Increased liquidity, and access to a wider range of ass...

The wealth management industry is under pressure. Profitability depends on scale, and in the United Kingdom there are more than 27,000 firms vying to advise clients on the management of their savings, from independents with a handful of clients to the wealth management arms of global asset managers and private banks. Clients are increasingly demanding, forcing their wealth managers to invest in te...

Growing institutional interest in crypto-currencies, not least as a hedge against rising inflation, has spawned a range of custodial services to safeguard the private keys without which nobody can access the digital wallet that contains the assets. Hex Trust, the Hong Kong based provider of institutional grade digital asset custody services, was among the first in the field. Since it opened for bu...

It always takes time for revolutionary technologies to establish themselves. Blockchain is no exception. Although the pace of mass adoption is speeding up – the telephone took 70 years to achieve 50 per cent market penetration among consumers, while smartphones managed that in three – blockchain is more akin to a general-purpose technology such as electricity in its ability to transform a wide ran...

Cross-border payments are notoriously expensive. They are also slower, less reliable and less transparent than domestic payments, in which transfers are now (or soon will be) both instant and instantaneously visible. One reason for these inadequacies is that an oligopoly is at work. There are around 25,000 banks in the world, but almost every cross-border payment ends up being handled by just 15 o...

The margin pressure exerted by asset management clients is forcing global custodian banks on to an unsustainable path of rising asset values and shrinking revenues. Tokenization, while rich in opportunity, could exacerbate the problem by increasing asset safety and compliance risks without reducing the need to invest in new technology. Financial market infrastructures reeling under the same pressu...

Data is all about correlation rather than causation. But this is why it is so powerful. In the past, management decisions could be based on whatever the decision-maker deemed to matter.  Now, the causal nature of decision-making is being challenged by a host of correlations. Of no market is this truer than the previously opinion-rich but near data-free zones of workforce management and office...