Brexit brings FUD to finance

Brexit is like a long-running soap opera, or a comedy. At times it has come close to being a ‘real life’ version of ‘Fawlty Towers’, the comedy series starring Monty Python’s John Cleese as the ‘Little Englander’ manager of a seaside hotel. It has also resembled a Monty Python sketch, as the Dutch prime minister Mark Rutte, suggested.

But, while we may look on with our mouths wide open in shock at the shambolic mess at the Mother of Parliaments, there are of course serious concerns about the effects of the endless delays. Just yesterday the leaders of the EU 27 granted the UK a further extension until 31st October to sort it out. Is it going to be enough, UK businesses are asking, and they are more fed up with the uncertainty about the future of the UK and its future trading relationship with the EU than many others. And, understandably so. Over the past few months we have heard any number of stories about how the loss of the Single Market and a Customs Union will impact on British businesses in the manufacturing sector, and the automobile industry has already taken a hit, albeit for other reasons as well as Brexit. However, the UK economy relies much more heavily on service industries, especially financial services.

Money is flowing back to the EU

Since the UK voted to leave the EU in June 2016, the passporting rights of the City’s institutions has been of concern. There have been many warnings that the biggest players would decamp to Paris, Frankfurt or Dublin, but so far this hasn’t happened in a major way. However, we have seen money flow out of the UK to the EU. For example, Frankfurt Main Finance noted that it would be moving $800 billion back to Germany this year. And it is estimated that a trillion dollars worth of assets have been relocated from the City to other EU countries.

As Roger Aitken writes for Forbes, the chaos has had a “chilling effect” on financial institutions. How can they plan for the future, or introduce new strategies, when they have no idea what is looming around the corner? As he says: “With no clear framework for how cross-border transactions and interactions will be coordinated in the aftermath of any exit, the desire to take any risks is entirely absent.”

It’s an opportunity for some

Yet there are those who see Brexit as an opportunity. Asaf Elimelech, CEO of trading platform Plus500, which provides online trading services with contracts for difference (CFDs) has noted: “Brexit may be an unwelcome distraction in political terms, but it has been a fertile source of CFD trading opportunities for customers.” However, his seems to be a lone voice in the wilderness.

By contrast, EverFX, the official sponsor of Sevilla FC, has put a halt to its application for a Financial Conduct Authority (FCA) licence that would allow it to operate in the UK. Its CEO George Karoullas

said: ““The whole Brexit debacle has spread a feeling of uncertainty across all industries and economies in Europe, and the trading vertical is not an exception. We consider the U.K. one of the most lucrative, interesting, and challenging markets in the world, and were thrilled at exploring what it has to offer.”,

For now the uncertainty potentially continues until the end of October. The City’s financial institutions have no clearer view of whether they will be able to maintain passporting rights that allow EU firms to have a single license in an EU country and apply it across the region’s Single Market without further approval hurdles, and until that is resolved, we can expect to see hope fade and fear increase amongst the financiers and bankers. The drastic effect that Brexit is having, and will continue to have for some time, on the British economy cannot be underestimated, yet the Leave Voters still think it will all be just fine. Perhaps they should reflect on the fact that the rest of the world sees it very differently, and so does business, which is living with fear, uncertainty and doubt (FUD).

UK’s FCA opens up sandbox for more play

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In a week where the British government is losing Cabinet ministers on an almost daily basis as a result of party in fighting over the Brexit negotiations, making the pound sterling plunge in value, the UK’s financial regulator, the Financial Conduct Authority (FCA) has taken a bold step forward in recognising the potential of blockchain-based startups.

The FCA started a regulatory ‘sandbox’ some time ago in 2016 and it has just added its fourth cohort of startups to the process. The FCA received a total of 69 applications to participate in the exploration, and this week it has added 11 of the 29 successfully accepted applicants.

In its announcement regarding Cohort 4, the FCA revealed, “Applications came from a diverse range of firms operating across the financial services sector including in areas such as consumer credit, automated advice and insurance.”

The FCA also said, “We have accepted a number of firms that will be testing propositions relating to cryptoassets. We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.”

The startups in Cohort 4

One of the businesses in this cohort is 20/30. This London based financial firm is using the DLT to allow “companies to raise capital in a more efficient and streamlined way,” and it is partnering with the London Stock Exchange and Nivaura. According to the FCA’s press release, 20/30 will be issuing an equity token on the Ethereum blockchain. Capexmove, also in this new cohort is offering a similar service.

Another that stands out is called ‘Chasing Returns’. This startup is described as “Psychology-based risk platform that promotes good money management discipline and improves outcomes for customers that trade Contracts for Difference (CfDs). It acts like a digital coach, encouraging adherence to money management and risk exposure levels.”

While for those people with ID problems, ‘Community First Credit Union’ offers an “Initiative to facilitate creation of an identity token that supports customers who lack traditional forms of ID, in order to assist them in accessing bank account services in the UK.”

The latter perhaps answers the issues that many British immigrants have faced recently, most notably those who arrived from the Caribbean on the ‘Windrush’ and in recent months have found themselves at risk of deportation, because of lack of documentation establishing their British citizenship and right to stay.

The FCA has chosen a fascinating selection of startups for Cohort 4 and indicates its willingness to be open-minded and inclusive when it comes to envisioning a future for blackchain-based businesses. It certainly seems to be making better progress with blockchain than the government is with Brexit.

Economic Predictions And Trends For 2017

Trend watching, especially when it comes to what is happening in the economy is always interesting, sometimes very exciting and occasionally a bit of a let down. In 2017 we’ve been highly focused on political news, and the new trend of what is fake and what is not, and the economies have been in something of a state of flux as a result, but here are some directions that we’ve been going in that may continue into next year.

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American expansion

The soothsayers predicted that the sustainable expansion seen during the Obama era would suddenly see expansion with the election of Trump. Was that because he is a businessman rather than politician? Perhaps, but Donald’s big boom hasn’t yet happened, although there is some growth.

The Brexit Effect

Many foresaw that the UK leaving the EU would bring uncertainty to the UK economy, and guess what, it has done just that. Every time a statement is made from Downing St. about the state of the exit negotiations, the markets either have a moment of hope, or take a nosedive. Expect to see more of this.

The EU

Euro-sceptics said that the Netherlands, France and Germany would surprise everyone with a vote against membership of the EU. So far, elections in France and the Netherlands have shown strong support for the EU and it is now hard to imagine that Germany will show any inclination to leave.

Chinese stability

China’s economy is looking increasingly stable and its deflation pressures are easing. Lowered interest rates will ease the country’s high debt levels and this helps the global community as well.

Watch Trump

It has been quite a year of watching Trump and what he tweets, and then watching how stock markets and other governments respond. He was very bullish about China and imposing high tariffs on their goods during his election campaign, but so far any anti-trade action has been subdued, perhaps due to the fact he is now more preoccupied with North Korea. But Trump and China is still one to watch.

Interest rates

As predicted in 2017, the USA has hiked interest rates twice this year so far. This is a show of confidence in the U.S. economy thanks to a rise in employment levels. Will this continue? We have yet to see. The UK by contrast has been extremely cautious with its interest rates and a speech by Mark Carney, Governor of the Bank of England on 19th September 2017, suggested that any rises would be “limited and gradual.” This gave sterling a very slight advantage over the dollar during trading following the announcement, and the pound has been bouncing up and down all day and the FTSE 100 went into the red. What will happen with sterling and the dollar by December is the question everyone would like an answer to.

Higher stock prices

In 2017, stock prices have looked extremely solid and have followed an upward trajectory as predicted in 2016. We can expect to see this continue into 2018.