UK banks operating in post-Brexit EU should apply for an EU Licence In a speech delivered yesterday in London, an ECB executive board member clarified the European Central Bank's position on two post-Brexit issues: the need for an EU Licence to operate in the EU27 and the role of the City of London in the clearing of euro derivatives. On the licence issue , Sabine Lautenschlaeger, who sits on the executive board on behalf of the Deutsche Bundesbank, said: "Our objective is to make the banking system safe and sound. I expect banks seeking a licence in the euro area to meet our standards. There will be no race to the bottom in banking supervision." She added that "banks based in Britain seeking to do business in the European Union after Brexit should apply early — better sooner than later — for a licence to set up actual operations and not 'empty shells'". Ms Lautenschlaeger also noted that she did not see the ECB issuing banking licences to such shell companies. She said that it would look at the number of staff required by banking operations on a case-by-case basis and that she expected applications from many of the 40 banks in Britain that currently serve Continental customers. On the issue of the clearing of euro derivatives , Ms Lautenschlaeger said that ECB consent would depend on whether the new, post-Brexit legal framework would see an unchanged level of involvement for the ECB and ensured financial stability in the euro zone. "This is not about a full ban of back-to-back booking," she said. "We rather aim at ensuring both an adequate local management of all material risks and the resolvability of the euro area entity." She noted that she would certainly not accept banks booking all exposures with the euro area entity "while having their risk management and internal control systems outside the euro area". Focus points The ECB position addresses both formal requirements: the licence and operational ones An actual full-scope servicing of customers is expected to be delivered within the EU27 A regulatory enforcement and on-site oversight within the EU27 is deemed to be necessary The stability of the euro is a clear priority, to be pursued on different grounds The management of counterparty risks and the 'resolvability' within the EU27 are key An arbitrage on domiciling exposures and controls across the Channel is not accepted These comments run along the same lines as the request of the European Competition Authority to sell the MTS as a condition for the LSE-Deutsche Börse merger There is a common stand of the European Institutions (ie, the ECB, the European Commission and the EU Parliament) in addressing Brexit financial regulatory issues
The way Nick Ogden puts it, the move to establish the first new clearing bank in the UK in over two centuries came about by chance, when he asked a regulator: "Why is there no new clearing bank in the UK? Is it for political or regulatory reasons?" The regulator could not offer an answer. "And it turns out that you can't go down to the bookstore and find a book on how to set up a clearing bank," said Mr Ogden. The erstwhile founder of Worldpay began a journey that day whose latest milestone is today's launch of ClearBank , a new "bank for banks" that now becomes the fifth such institution in London. ClearBank has no consumer facing business and will provide "regulated businesses, banks, building societies and credit unions" the means necessary to deliver their own current account services. The new bank says that it will deliver these services faster than the other clearing banks, and will additionally provide core banking services to clients, allowing them to make use of face, voice and palm biometrics. The United Kingdom had sixteen clearing banks in the 1960s but steady consolidation has left the country with four clearing banks, which also happen to control the lion's share of the retail and corporate banking business. London's clearing system, currently controlled by the Big Four banks, is an £82 trillion business, but, like many other banks, is hobbled by legacy infrastructure. Mr Ogden compared the potential impact of his new venture to the impact that the Aldi/Lidl business model had on the British groceries sector. Questioned by Michael Lafferty about the lack of a major British investor, Mr Ogden said that that lack was "good in a strange kind of way. We've ended up with an investment structure that is right for the bank." The management hold a 30 percent stake; the two major investors come from the Czech Republic (Petr Kellner, the billionaire insurer and financier) and Canada (John Risley, businessman and investor). After several years of working off-radar with tech provider Microsoft and domestic regulators, the bank received its authorisation on 15 December 2016. The bank is doing stress testing on its systems and plans to be open for business and take on customers in the third quarter of this year. ClearBank is funded through the next few years, said Mr Ogden, and will not take on new funding until 2021. ClearBank will provide clearing services for building societies, banks and regulated businesses, and aims to get new customers set up on the platform inside eight weeks. He said that all of the major networks were keen to work with the bank. ClearBank is connected to Mastercard, Visa, American Express, JCB, the Faster Payments Scheme, CHAPS and BACS. " The onboarding costs and way we engage with customers is brand new," said Mr Ogden. Key supporters He also remarked that he remained amazed at the level of cooperation from regulators and praised the BoE team, FCA, and PSR. Hannah Nixon, head of the Payments Services Regulator, said the new bank was a major achievement, adding: "It is a real first for a new organisation to gain access to all the UK payments systems at once." Ms Nixon said that with the delivery of several new banking licences, "we've got a positive picture starting to emerge". She was followed by City minister Simon Kirby, who said the announcement was good news for the financial sector, and noted that the main reason ClearBank had received wide support across government and regulatory agencies could be summarised in one word, "competition". Mr Kirby noted that ten new banking licences had been issued in the UK. ClearBank has built a foundational relationship with Microsoft, which will provide the infrastructure for the new institution through cloud-based services along with two physical data centres, with an emphasis on cybersecurity. "We told them what we wanted to do, and they said 'what!?'," said Mr Ogden. However, he remained confident that by using new technology — including cloud-based storage, moated data centres and several layers of biometric security — ClearBank could draw clear of the competition by providing speedy and accurate payment authentication. He noted that Microsoft had made by far the biggest investment in cybersecurity among all of the major tech businesses. Nick Ogden's involvement in online ventures stretches back to Wine Warehouse, Britain's first-ever online shop. He was later part of the team that created WorldPay, a business now boasting four billion pounds per annum in revenue. The web address of the new firm is clear.bank.
Several of the ideas floating around in their own orbits last year look set to link up in 2017: the cashless society, universal basic income, the rise of the robots and the digital (gig) economy. All of these topics are being chewed over at dinners in Davos this week — though the assembled great and good will doubtless be noting that broad swathes of the public, even in places like the US and the UK, have decided that the globalist agenda of the Davos tribe is not in their interest. The rise of the robots Let's start with the rise of automation, artificial intelligence, and the software revolution. It's a topic, after all, that has been central to human thinking all through the 20th century, and the dystopian future of robot domination has been broadly explored in films from Metropolis (1927) through to Terminator (1984). Robot-human interaction has also featured in recent movies such as Robot and Frank , about a retiree who reluctantly accepts a robot to help him get around ("That thing's going to murder me in my sleep"), and Ex Machina , a movie which frightens the viewer through its canny look at the sort of opt-in surveillance that we all participate in every time we log on to a computer. Robot and Frank is a fairly benevolent look at the robot future, and is more sympathetic to what we can call a Japanese approach. For a fascinating glimpse into the relationships of humans and robots in that country, take a look at the documentary The Human Robot . For all the anxiety about mass immigration generated by Donald Trump's campaign and many Brexit supporters, few people to date have been complaining about the hundreds of robots imported from places such as China and Japan that have been taking a lot more jobs than human immigrants. Yet public opinion is beginning to take seriously the robot threat. The Rise of the Robots by futurist Martin Ford was the FT's book of the year in 2015, tackling the themes of automation and artificial intelligence. The book concludes that there's no stopping this trend, and that the best response to unstoppable automation worker-displacement is Universal Basic Income. The claim that all of these old jobs will be replaced by new jobs for robot maintenance workers and content curators is implausible. It's worth remembering that there's two distinct classes of robots. We're used to physical robots, whether that's a Terminator or a robot busily attaching car doors in an automobile plant. It's the new wave of software robots replacing white-collar jobs that's generating anxiety among professionals. The gig economy The rise of the freelance economy has been a feature of the last decade, and the tech press is full of writers marvelling at taxi-app Uber. Otherwise sober bank executives have been arguing for the last two years that they want to be more like the multi-billion dollar-losing transport business that epitomises digital disruption and the gig economy. But, for many people, automation and the digital disruption celebrated by the tech elite means losing your job — while being told that the new 'gig economy' will leave them lots of free time to, for instance, stay healthy and earn money by driving an Uber or delivering dinner on a bicycle to one of those people lucky to still work at a bank. But workers are fighting back, realising that most societies (with notable exceptions such as Germany) are not well set up to offer pensions or health insurance to the self-employed. While Uber and Airbnb use regulatory arbitrage to gain custom, workers are pushing back, with the courts in the UK and Denmark most recently taking issue with Uber's definition of itself as a digital platform. So, how can governments deal with a future where we're likely to have more and more freelance and self-employed people, along with the ranks of unemployed? How about a guaranteed income for all? Universal Basic Income Although promoted lately as a left-wing concept, the idea of automatic income payment to all can be traced back to Milton Friedman's Capitalism and Freedom , where it took the form of a "negative income tax". The notion has come of age recently, with Switzerland running (but widely rejecting) a referendum on the concept last summer and Finland proceeding with an experimental pilot. As Euronews reports: "Finland will be the first to conduct a UBI experiment on such a scale. The two-year pilot scheme will provide 2,000 25- to 58-year-old, unemployed Finnish citizens with a monthly basic income of €560 replacing their other benefits. They will continue to receive the UBI even if they find work." Some people are asking awkward questions, such as 'where is this money going to come from', but their number is small. Clearly it's going to have to come from somewhere, and most likely that means cutting existing public services. As online magazine FurtherField notes, Friedman envisaged that such a payment would allow the elimination of social welfare programmes and returning to 19th century-style provision of welfare by charities and philanthropists. The article quotes libertarian Charles Murray: "The first rule is that the basic guaranteed income has to replace everything else — it's not an add-on. So there's no more food stamps; there's no more Medicaid; you just go down the whole list. None of that's left. The government gives money; other human needs are dealt with by other human beings in the neighbourhood, in the community, in the organisations. I think that's great." A country with a universal basic income is likely to fiercely resist immigration, because word will travel pretty fast if one country starts handing out money to every resident. Perhaps the disappearance of state services would discourage such migrants? If that doesn't work, it's likely that any universal basic income would be distributed solely as digital money. Welcome to the cashless society. Going cashless It's no surprise that Harvard University tends to produce ideas that rapidly enter mainstream conversations, and last year the primary example was Prof. Kenneth Rogoff's book The Curse of Cash . For most people, having cash is a kind of blessing, so Rogoff's title is throwing off all kinds of signals. The curse, according to Rogoff, is that cash is used by criminals and drug smugglers, and ordinary people should have no need for large-denomination bills. Says who, one wonders? The Swiss pay for their cars with cash, and not in coins. Germans like to stash cash at home in the form of €500 notes. Cash allows privacy and discretion in spending. This proposal was taken seriously by Indian PM Narendra Modi, who announced that the replacement of old notes with new notes would filter out billions of illegally earned cash. (The population then returned almost the entire tranche of notes, largely disproving that theory.) Mr Modi disregarded Rogoff's suggestion that a transition to cashless society should take place over ten or fifteen years. There's much that's laudable about the Digital India initiative, but India simply doesn't have the infrastructure in place to leap into the digital age in the space of a few months. However, cashlessness is pretty much a fait accompli in some places, such as Sweden and Denmark, where the infrastructure for payments is solidly established, and almost every merchant will accept cards. Global private equity funds such as Bain and Advent are heavily invested in card processing, seeing large potential in emerging markets for a great rise in card payments. A cashless society will intersect with the big data giants and solidify the power of data-gathering behemoths Google and Facebook in the West and their counterparts to the East. Will all privacy go out the window with cashless societies? That notion is at the heart of the current battle between the US and the EU over data privacy: Brussels is forcing Silicon Valley to hold data on European citizens on servers physically located in Europe. In an age of digital convergence, the sovereignty of nations takes on additional importance. The rejection of globalisation signalled by Brexit and the Trump Presidency is telling us this also. Beware of those who insist that software will eat everything, including borders.
Handelsbanken is a great firm, which nonetheless confounds its Nordic competitors . It's a dinosaur whose only customers are old people, mutters one competitor; it's so digitally backwards that customers are offered swipe cards, says another, shaking his head. Decentralised? All decisions come from Stockholm, opines a third. A fourth critic suggests that new Basel III rules on capital floors might hit Handelsbanken hard. Yet those same competitors cannot deny several facts about...MORE
The payments industry needs to keep a close eye on Amazon as the firm continues to build revenue, rearranging industries at will as it powers towards dominance. Say what you like about Amazon, but one cannot accuse them of not being innovative. Now it is moving into the bricks-and-mortar grocery business, with an audacious plan to drop the actual checkout. Shops without checkouts: of all the strange stories in 2016, this one turns out not to be fake. In a breathtaking...MORE
Global credit card profits continue to climb according to Lafferty profit pool data, reaching an estimated $141 billion in 2016, up from just $35 billion in 2010. While this performance is partly explained by an unwinding of the effects of the global financial crisis, the growth has been sustained, albeit at lower levels, in recent years. There have been two key drivers of this growth; firstly, there has been a dramatic fall in loss rates on credit cards. In 2010, eight...MORE
The world's great automobile manufacturers are becoming greatly dependent on the world's great (or at least large) technology companies. The payments business is sitting at the intersection where those industries meet. Several recent developments suggest that this intersection is going to be a crowded place, especially when machines (cars) start paying for services automatically. Back in the 1980s, David Hasselhof — aka Knight Rider — gained fame acting as the driver...MORE
November 9, 2016 will forever be enshrined as the seminal moment in the history of India's payment Industry. It was on this day that the prime minister declared that 500 and 1000 rupee notes were to be removed as legal tender. It gave rise to a new term 'demonetisation' that continues to haunt the lives of those who live in the country. Before the second Wednesday of last month, India's move to digital/electronic payments was a slow trot — plastic cards accepted at 1.3 million...MORE
It's not too long ago that only major businesses would think of ordering goods and services from China. The genius of Jack Ma's Alibaba was to first bring the Chinese supply network into the orbit of small businesses, and from then into the reach of individual shoppers from the West and the rest. It's a mark of how far we've come that online shoppers are now as comfortable ordering online from China as they are ordering online from the US. That's among the big findings in...MORE
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