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).

Coinbase counsel predicts crypto regs push in 2019

Marcus Hughes, the British lawyer and lead counsel for San Francisco-based crypto exchange Coinbase, predicts that 2019 is going to be the year that we see big changes in bitcoin regulations.

Hughes remarked, “Within the next year or two, we’ll see big developments, and regulation will take shape this year, particularly in Europe.”

He pointed to the fact that the United Kingdom’s Financial Conduct Authority (FCA) is in the process of carrying out a consultation regarding crypto derivatives. This could see a ban on the sale of derivatives based on cryptocurrencies such as bitcoin. Furthermore, the British government has pledged to empower the FCA to oversee all crypto assets.

An article in the UK’s Daily Telegraph at the end of 2018 also revealed that the FCA is investigating 18 companies “in connection with cryptocurrency transactions amid escalating concern over the threat posed by Bitcoin and other digital assets to the integrity of financial markets.” But that is not all: the FCA has opened 67 inquiries since November and is clearly stepping up its scrutiny of all firms involved with crypto in any manner.

Nicky Morgan MP, who hairs the influential Treasury select committee, said, “t is clear that the government and the FCA share the committee’s concerns on crypto-assets, including the lack of regulation, minimal consumer protection and anonymity aiding money laundering … The committee will keep a close eye on these consultations and will continue to press for regulation.”

And the European Banking Authority is calling for standardised regulations for cryptocurrency operations within the European Union. This is to remove the potential for “unfair regulatory arbitrage while protecting bitcoin and cryptocurrency investors across the bloc.”

Hughes said about this scenario: “We could end up with E.U. member states creating their own crypto laws, but it’s certainly possible we’ll get a unified approach in Europe. It would make life for companies like Coinbase a lot easier.”

He also has his own views on the future of bitcoin, which also reflect those of Coinbase: “We need to move beyond the speculation phase of bitcoin and cryptocurrency to the utility phase. The utility phase will mean bitcoin and crypto becomes more widely accepted and understood.”

He also commented on the arrival of institutional investors in the crypto sphere, saying: “I would be surprised if other traditional financial services executives didn’t make the move across to the bitcoin and cryptocurrency world. As the industry matures and is better regulated it will need the talent and experience to manage it.”