IBSi Blogs

In 2021, so much of the attention was focused on collectible NFTs, gaming and the metaverse. Their popularity took many by surprise and benefitted tokens that are linked to these powerful trends. In 2020, decentralised finance was the star of the show before NFTs stole the limelight. The DeFi ecosystem continues to expand and new opportunities open up, despite token performance not being on par with some of the newer use cases.

by Martha Reyes, Head of Research, BEQUANT 

There are several compelling protocols that should not be ignored, such as those that bridge the real-world economy to the blockchain. This can include financing for SMEs or facilitating global trade transactions. While perhaps less attention-grabbing than other token-backed protocols, the total addressable market is vast.

Remittances are one of the most widely known applications

One better-known use case that has risen to prominence is the trillion-dollar money transfer industry. Tokens’ ability to on-ramp any global fiat currency and off-ramp it into another at lower rates than the traditional transfer methods, securely and almost instantly, makes them a real disruptor in an archaic corner of finance. Strike, the company using the Lightning Network on Bitcoin rails, is one of the most successful examples, with entities as disparate as Twitter and El Salvador relying on the technology for international payments and remittances.

Global trade is an even larger market ripe for improvement

The technology can extend to other areas of the old economy. Global trade, a $5.6 trillion market and growing, is one such segment and it’s larger than remittances. Buying goods and services across borders is complex, with lengthy processing times and high transaction fees. It also requires financing, creating barriers for small and mid-size companies.

Businesses can utilize smart contracts on the blockchain, storing agreements and documents and guaranteeing traceability. Smart contracts allow the two parties to specify the terms of an agreement and ensure that those are transparent by virtue of being on the blockchain.

Many other possibilities being explored

In the NFT space, applications are not limited to digital objects but also to physical ones, hence the birth of NFT mortgages backed by real assets or tokenized ownership of real estate and expensive artworks.

Blockchain’s potential is by no means limited to these examples. Others include secure sharing of data such as medical data, music royalty tracking, real-time IoT operating systems, personal identity security, anti-money laundering tracking systems, supply chain and logistics monitoring, voting mechanism, advertising insights, original content creation, and real estate processing platforms.

What makes for a successful project?

When evaluating a project, retail and institutional investors sometimes focus on different properties of a project. Key metrics to keep in mind are the strength of the underlying technology, use cases, total addressable market and adoption trends.

One example is the XDC Network, a hybrid, delegated proof of stake consensus network, with developer-friendly architecture. As a third-generation blockchain, the technology is more advanced than some of the more established blockchains. Bitcoin can handle between 3 and 6 transactions per second, Ethereum’s blockchain can handle 12 to 16, while XinFin’s can handle more than 2000.

A use case is reducing friction and expanding access to trade financing for SMEs and creating yield opportunities for investors. Agreements and documents are stored in interoperable smart contracts, and transactions are settled on the blockchain more efficiently than in the legacy systems. There is also higher security as there is clear evidence and traceability of ownership.  The smart contract transactions feature digital tokens, which represent the value of off-chain, the bank originated assets and can generate yield for investors.

This means that when individual purchases and makes an investment into the XDC token, they are investing in the underlying technology which can be used to develop payment solutions and other blockchain apps.

Fees have also greatly reduced over the span of three generations, from $15 to $0.00001 per transaction, with confirmation speeds cut from 1-60 minutes to around 2 seconds. With an increased capacity and lower fees, the barriers to access the technology fall away. Energy consumption has also been reduced from 71.12TWh on Bitcoin to 0.0000074TWh on the XDC Network.

Many alternative Layer 1’s such as XinFin’s XDC Network, have been developed or are in development to challenge those popular in the NFT and DeFi space that have struggled with scalability issues. Developers are working to increase the number of transactions processed and reduce gas fees, as users have been stung by high costs on the Ethereum blockchain.

Now, blockchains are being developed to be cheaper, faster and more energy-efficient, albeit with compromises on decentralization, to address growing demand. Thus, they are generating interest from individual and professional investors alike. Scalability will unlock important avenues of growth in the digital economy as well as the physical one. It will be an important theme in 2022.

Businesses of every kind have been affected by the COVID-19 pandemic. The banking sector has not been immune: for some banks, the economic impact has been notably acute. In response, the move to online financial services has accelerated at a dramatic rate as a plethora of fintechs, so-called “neobanks” and non-traditional financial service companies, continue to expand their activities. As the payments phenomenon became truly global during the pandemic, Africa has emerged as a new FinTech hub.

by Manoj Mistry, Managing Director, IBOS Association

An increase in investment has led to African FinTech companies expanding their services across the continent. The potential is enormous, particularly in sub-Saharan Africa – a region that has traditionally suffered from limited access to financial services. As Africa’s largest economy with a population of nearly 210 million, Nigeria received more than 60% of Africa’s inbound FinTech investment in 2021. But over 50% of Nigerians do not yet have a bank account.

Last year, four African FinTech companies achieved unicorn status with $1bn+ valuations: OPay, a mobile-payments company, which raised funds from investors including SoftBank; Wave, a Senegal-based mobile money network; Chipper Cash, a peer-to-peer payments operator backed by Jeff Bezos; and Flutterwave, which offers payments services to businesses.

If the future of the banking sector in Africa seems promising, then open banking looks set to play a pivotal role, providing third-party financial service providers open access to consumer banking, transaction, and other financial data through application programming interfaces (APIs). As an open-source technology, it allows third-party developers, such as fintechs, to access data held by banks and to develop applications or services based on such data. Through this seamless connection of data, open banking enables customers to access products best suited to their needs, lowering costs, as well as facilitating innovation and inclusion.

Africa’s latent demand for open banking requires the banking sector to adopt fintech solutions. Some of that is already underway. In December 2020, Kenya’s Central Bank released its four-year strategy which highlighted Open Infrastructure as one of its main strategic objectives. In 2019, two large South African banks embraced open banking at the height of the pandemic. The number of South African banks offering open banking services has since grown to six. Meanwhile, South African and Nigerian start-ups TrueID and Okra, respectively, announced they had received significant funding to develop open banking infrastructure.

The UK and EU have already addressed the legislative challenge. At the heart of the Competition & Markets Authority (CMA) Order and the Second Payment Services Directive (PSD2) is customer consent. In Sub-Saharan Africa, the regulatory frameworks that are integral for the operation of open banking in the future, such as data protection laws, have largely yet to materialize.

Meanwhile, a significant part of the population remains unbanked or underbanked across much of the region. Taking South Africa as an example, a great opportunity exists for banks across the continent to become involved in open banking solutions, meeting the needs of the consumers and revolutionising the concept of African banking. African legislators, therefore, need to recognise the enormous potential that open banking creates to facilitate financial inclusion, especially its beneficial impact on access and affordability.

For banks around the world, leveraging an eco-mindset is becoming increasingly crucial as consumers consider their role in environmentally damaging CO2 emissions and climate change. As challenger banks, such as Starling and Monzo, drive up social initiatives and commit to net-zero pledges,  more traditional banks are shifting their public perception of climate change and making investments in greener services.

by Dr Carsten Wengel, Head of Global Sales & Distribution in the Card & Digital Payments Business, Giesecke+Devrient

In fact, the latest research by YouGov finds that 58% of consumers in the USA and 57% in the UK are now willing to spend more on sustainability in the banking sector. Banks are a mirror of the societies they serve, and as a result, they need to decide if they want to be the driver of or driven by the global trend of sustainability. But how best can they achieve this, and which methods can they adopt to win the eco-conscious consumer?

Sustainable banking cards for a sustainable consumer

Over the recent years, more consumers have come to realise their purchasing decisions have the power to impact positive change. As such, they now expect sustainable offerings from any company they engage with. This includes banks too, with consumers increasingly demanding their banks’ support to help them shift to more sustainable payment practices. One way to meet this growing demand is for banks to introduce sustainable banking cards.

Despite a common misconception, banking cards can in fact be environmentally-friendly. They can be made of climate-friendly materials such as renewable plant fibres that are entirely compostable under industrial conditions. Even though the material has similar characteristics and strength to petrol-based plastic, it is nothing like it as no additional greenhouse gases are released during the combustion process. Compared to the production of conventional cards, sustainable banking cards can save up energy and harmful gas emissions of as much as 68%. This can significantly reduce their impact on the planet considering the volumes produced each year.

With 91% of the world’s plastic not yet recycled, sustainable banking cards can also have their bodies made entirely of recycled PVC, driving the circular economy and taking appropriate steps to end planned obsolescence. A smarter use – or re-use – of materials can help reduce waste and pressures on the environment whilst stimulating innovation and boosting economic growth.

It’s not just the physical banking card, however, that should be put through a sustainability check and replacement. Every new card requires a PIN which is often sent to consumers by post, creating more paper waste. Banks should therefore consider an eco-friendlier alternative – a digital way to send PINs. For example, by a text message, QR code or provide secure access to new PIN via the app and multi-factor authentication.

Such a step towards sustainability can not only be life-saving for our planet, but it can also act as a powerful business tool for banks. In the hands of customers, sustainable banking cards can create a successful brand multiplier effect and help reinforce the bank’s mission, purpose and commitment to becoming more environmentally friendly. Customers will naturally become advocates of sustainable lifestyle banking, helping traditional institutions stand out with their eco-offerings amongst fierce competition.

Joint efforts needed to reduce climate impact

The fight against climate change does not have to be a lonely one for financial services institutions. To ensure greater results and a real impact, banks and fintechs should create fruitful partnerships and in a joint effort, satisfy consumer demand for more sustainable means of payments and offerings. Together they could develop and promote new services that calculate how much CO2 a consumer contributes each time they buy something.

Through an API, for example, banks could integrate such calculations into their digital wallets, which would analyse all types of transactions a consumer completes each month and showcase their carbon footprint through a visual dashboard. This could not only help consumers become better informed but also prompt them to make changes. Sweden-based company Doconomy is one fintech that has been making progress in this area, giving its customers more transparency on how their decisions impact the planet, encouraging them to change their behaviour and practices into more sustainable ones.

Taking the learnings and innovations that fintechs are pioneering, traditional commercial banks should follow their footsteps and build a more sustainable financial services ecosystem in which knowledge and best practice are shared regularly. It is apparent that banks need to become partners, or even drivers of change, however, they can only achieve that with the support of other, more experienced financial institutions to create a strong, reliable and transparent environmental initiative. It could be that through introducing concrete, climate-positive policies in the near future, banks and fintechs will be more encouraged to collaborate and form such a crucial ecosystem, meeting consumer needs for sustainable banking practices and ultimately achieving the international environmental and global warming goals.

Achieving a climate-friendly banking future

Fuelled by consumer demand for a green value proposition, traditional banks have started waking up to the need to act positively when it comes to payment sustainability. Through the introduction of sustainable banking cards, leveraging technology to raise greater carbon footprint awareness amongst consumers and joint actions between all financial ecosystem players, the industry can foster a greener future and make a real, positive difference for generations to come. As banks look to become more competitive and innovative, ensuring sustainable products and services could not only be life-saving for the planet, but also a new, profitable avenue worth exploring.

Online auction platforms have accelerated the digital migration of the art market, which has traditionally been slow to embrace innovation. Whilst this may seem unsurprising amid the headlines of NFTs taking the art world by storm, it is all the more interesting that online auctions have driven the continued robust distribution of physical art.

by Garry Jones, CEO, NovaFori

This rapidly growing technology, therefore, gives us a glimpse of the future of fine art and collectibles, not by dispensing with the physical in favour of the digital, but by uniting the two in a more symbiotic ecosystem that better serves both those who collect works of art and those who facilitate their sale.

Online auctions in fine form

Leading auction houses such as Christie’s have now firmly embraced online auctions, with the pandemic accelerating uptake significantly since the early months of 2020. This has enabled auction houses to retain some semblance of business as usual amid the disruption caused by Covid-19, and now, nearly two years later, online auctions are expected to account for 25% of all art sales by the end of 2021.

Auction houses are clearly not looking backwards, not least because this digital migration of art sales has unlocked a much more extensive geographical and demographic customer base. Online auctions hold far more appeal among younger people, for instance, compared to the financial and environmental cost of travelling to an auction in person.

Moreover, the data-driven insights gained from the most innovative auction platforms empower those facilitating sales to make the most of these demographic shifts. Platforms equipped with a machine learning function, for example, can help auctioneers become attuned to the appetites of registered consumers based on their bidding history, enabling them to set pricing estimates more effectively.

NFTs: An auction(ed) token

While online auctions have helped keep the traditional art market relevant for new audiences, they also allow auctioneers to explore a new aspect of their business which is entirely online: Non-Fungible Tokens (NFTs). As a purely digital asset class, NFTs are only bought and sold via online marketplaces – and the burgeoning popularity of these once-obscure assets has thrust them into the limelight.

Indeed, institutional auction houses have now begun to heed the gradual increase in consumer confidence around this new breed of collectible. Following its landmark sale of digital artist Beeple’s ‘The First 5,000 Days’ in March 2021, Christie’s has now sold more than $100 million-worth of NFTs, not including the recent $29.8 million sale of Beeple’s ‘HUMAN ONE’ artwork.

Although some critics have decried the nascent NFT market as a bubble waiting to burst, such a fall in demand may in fact yield a slower, more sustainable level of growth which will facilitate the long-term maturity of the market. Thus, the outlook for NFT sales remains optimistic, and so too does the outlook for the online infrastructure which underlies it.

Growing, growing, gone?

Online auction platforms, therefore, retain considerable scope for growth, far beyond the pandemic which has accelerated the early stages of their development. In fact, a survey conducted in 2020 found that 56% of art buyers foresaw a permanent switch to digital sales. Considering the aforementioned benefits of online auctions for both buyers and facilitators of sales, it is easy to see why this would be so popular.

Moreover, platforms that facilitate online sales, whether the items themselves exist on a physical level or not, will remain viable precisely because of their usefulness for different types of auctions. Their rapid rise is by no means the death knell of the physical art market; it is instead part of the increasing convergence of the physical and digital worlds.

Finally, bridging the gap between the physical and the digital will only grow in importance as in-person auctions return in some form. These will most likely consist of hybrid events, where participants can attend online as well as in-person depending on their preferences. In the uncertain pandemic context, leveraging technology capable of delivering robust buyer and auctioneer experiences will be all the more critical and not just in the art world.

Financial services are increasingly implementing AI technologies in order to help analyse massive volumes of data, identify market trends and prioritise tasks. On top of this, it is being used to identify fraud, personalise the customer journey, as well as cyber security and general risk management.

by Dr Leslie Kanthan, CEO and Co-Founder, TurinTech

The volume of information and data generated by financial institutions is huge, and AI is proving to be a pivotal cog in the sector machine by handling this data more efficiently. 

According to a past Accenture report, banks could increase revenue by 34% by this year if they invest more readily in artificial intelligence. Fortunately, this report also concluded that in general the banking industry and its executives and employees were optimistic and positive about the impact AI could have on their organisation. 

It comes as no surprise that as of February 2022, 56% of financial firms have implemented AI in business domains like risk management and 52% in revenue generation areas.

So where are we today? Is AI just another buzzword or can it really help deliver efficiency and increase productivity in the financial sector? Let’s dive into three important ways AI optimisation can revolutionise the financial sector.

Empowering innovation at speed and scale

Operationalising AI at scale is still a big issue for many companies, with IDC citing only 25% of firms running an AI project having developed an “enterprise-wide” AI strategy and many of these projects are doomed to fail. 

Operating in a highly regulated industry, financial institutions often have to trade-off between model performance and explainability. But this is where AI optimisation can help, which uses AI to optimise model and code, enabling full transparency and explainability, without compromising on the accuracy and running speed of the model.

Unlike other AI automation tools, AI optimisation platforms can help financial firms build custom models with multiple criteria, at scale. What this means for financial services is that these tools can create better and faster algorithms for their unique business problems, optimising business processes efficiently and effectively.

Elevate ESG compliance with greener AI

A Global Data survey reported how the pandemic has pushed ESG executives to increase their focus and action on ESG issues. 

As an industry, it’s time to reconsider our carbon footprint and start to prioritise sustainable change. WWF and Greenpeace report that UK Financial Institutions were responsible for 805 million tonnes of CO2 emissions, almost 1.8 times the UK’s domestically produced emissions.

AI optimisation will be a force for good in meeting sustainability goals, with machine learning models becoming faster, more efficient, and consuming less energy. Green AI ultimately integrates technology and sustainability into a unified ecosystem. 

With more change and uncertainty to come in the year ahead, AI optimisation will be there to support and transform those businesses that are willing to rethink existing processes and agendas. Ultimately every organisation has a responsibility to be contributing positively to the climate crisis, and optimising processes is certainly a step in the right direction.

Accelerate algorithmic trading speed and improve accuracy

According to Coalition Greenwich’s report, 28% of FX executives said they are currently using execution algos, with 51% confirming they intend to increase their use of algos. 

If and when applied correctly, AI can bring impactful benefits to algo trading. Take, for example, a case when a hedge fund’s statistical models are underperforming, unable to take advantage of more complicated patterns in ever-increasing data types and volumes (e.g. Market price and volume data, third party data, proprietary data).

What can the trading team do? 

By leveraging AI optimisation platforms to accelerate the end-to-end trading strategy development process,  they can create dozens of optimal models in days for different prediction needs, such as the price, price percentage change, up/down momentum, on large amounts of data. The fund can then automatically identify the most effective signals among thousands of data features, avoiding spending hours to do so manually. Applying this to the real world can make trading strategy development 25 times faster and increase the annual return rate by 90%. 

The bottom line

Through the use of AI technology, the financial sector is able to significantly improve its performance and revenue in more ways than one. McKinsey estimates that AI could generate up to $1 trillion additional value annually for the banking industry globally.

Furthermore, in today’s constantly evolving landscape, staying innovative and agile is crucial. Having technology that not only empowers this change and innovation at scale but compliments it with ESG  considerations will be of huge importance to the sector moving forward. Vital innovation is required to be implemented at speed and scale in order to keep up with competitors, which can be achieved through the implementation of AI. 

As cryptocurrencies become ever more mainstream, blue-chip names are anxious not to be left behind in the crypto stampede. With Goldman Sachs predicting that bitcoin will increasingly compete with gold as a store of value, banks and major corporates are eagerly seeking to extend their crypto footprint.

by Manoj Mistry, Managing Director, IBOS Association

The most recent big name to join them is the Canadian arm of KPMG, which recently announced that it had added ethereum (ETH) and bitcoin (BTC) to its balance sheet, making it the first of the Big Four to invest in decentralised digital currencies.

By doing so, the accounting giant has joined legions of crypto investors worldwide. According to Statista, the global number of Blockchain wallet users has already surpassed 81 million with some analysts estimating that the total figure now exceeds 200 million. Figures published by the Financial Conduct Authority (FCA) estimate that there are around 2.5 million cryptocurrency owners in the UK.

KPMG’s strategic decision can be interpreted as a reflection of the market’s direction of travel: an explosion of investor interest in crypto and increasing participation in other blockchain technologies, such as NFTs (non-fungible tokens) and decentralised finance (DeFi) technology, that has simply become too big to ignore.

The managing partner at KPMG’s Canada office, Benjie Thomas, was distinctly upbeat when he announced the move. “This investment reflects our belief that institutional adoption of cryptoassets and blockchain technology will continue to grow and become a regular part of the asset mix,” he said.

A few weeks later, KPMG Canada went further: buying a World of Women NFT (Woman #2681) for a reported 25 ETH (US$73,000), acquiring an Ethereum Name Service domain name – a tool that makes cryptocurrency addresses more user-friendly – and minting kpmgca.eth.

KPMG is not alone. Many banks have also recognised cryptocurrencies as a maturing asset class: 55 per cent of the world’s 100 biggest banks by assets under management are now investing directly or indirectly in companies and projects related to cryptocurrencies and blockchain, according to Blockdata.

In allocating bitcoin and ethereum to its corporate treasury, KPMG also follows in the footsteps of major companies such as MicroStrategy, Square and Tesla, which are now holding crypto on their balance sheets. Tesla’s CEO Elon Musk has been a keen advocate of crypto, having publicly stated that his personal portfolio includes bitcoin, ethereum and dogecoin. Meanwhile, Tesla’s most recent accounts reveal that the company held almost $2 billion worth of Bitcoin holdings last year.

The absence of specific regulation is arguably part of crypto’s appeal. But as the combined market value of all cryptocurrencies breached the $2 trillion mark in 2021, financial markets and investors knew that key global regulators were set to respond to what they perceived as high levels of risk.

UK regulators have set the rhetorical pace. The FCA and the Bank of England have both cautioned investors in uncharacteristically strong language to help them appreciate the risks: fraud, hacking, money laundering, sanctions risks, as well as general market and credit risks.

In the US, Treasury Secretary Janet Yellen has repeatedly suggested that fundamental questions exist about the legitimacy and stability of cryptocurrencies and that the US should implement an appropriate regulatory framework.

Despite these siren voices, bespoke regulatory regimes for crypto have not yet been put in place on either side of the Atlantic, although it can only be a matter of time before they are.

Canada also has no crypto-specific regulations. Instead, cryptos are regulated under the country’s securities laws – part of the mandate of Canada’s 13 securities regulatory agencies (SRAs), established by ten provincial and three territorial governments.

Not considered legal tender under the Bank of Canada Act, cryptocurrencies are classified as a commodity rather than money, while Canadian securities laws treat cryptos as tokens, classifying them as securities.

But Canada’s regulatory framework is distinctly more supportive of crypto than the US, which may have been a driver for KPMG’s local move into crypto. Notably, the Canadian Securities Administrators (CSA) allow financial innovations to test the waters for a designated period of time, during which they are exempt from the compliance rules under existing securities regulation.

The CSA is also breaking fresh ground in defining the contractual right to custodied crypto assets as a security, making Canada the first jurisdiction in the world to do so. This potentially puts Canadian crypto players on a path to experience the type of regulation that is not yet seen elsewhere.

Like other cryptos, bitcoin and ethereum are regarded by investors as speculative assets. Beyond their inherent volatility, KPMG’s decision to add digital assets to its balance sheet creates other potential risks including anti-money laundering (AML) and the future of tax reform.

For the partners of KPMG Canada, there are also compliance considerations. These extend to areas for which banks are typically responsible: security and AML checks. Notably, the International Financial Reporting Standards (IFRS) has no specific provisions that detail how to account for cryptocurrencies.

Big corporations’ involvement in crypto is both exciting and welcome. Having crossed that investment Rubicon, however, they will have to implement and maintain effective regulation and supervision in order to prevent white-collar crime, money laundering and cybersecurity breaches, among other issues.

Cryptocurrencies are one of the biggest Ponzi schemes in history. More stringent regulation and the rise of state-backed digital currencies look set to cause the speculative market for cryptocurrencies to crash. Within a few years, all non-state backed cryptocurrencies could reach their true monetary value: zero.

by Bambos Tsiattalou, Partner at Stokoe Partnership Solicitors

Although cryptocurrencies are still involved in white collar crime, the writing is on the wall for them. Dedicated regulatory regimes for cryptocurrencies are now being developed worldwide. The European Commission has launched a proposed regulatory regime for cryptoassets. The US Senate looks set to require cryptocurrency exchanges to report the details of each transaction. This is expected to be in force by 2023. In the meantime, regulators are making greater use of their existing powers to regulate cryptocurrencies. For example, the UK’s the Financial Conduct Authority (FCA) was appointed as the major regulator of the cryptocurrency market in January 2021.

Perhaps the greatest long-term threat to cryptocurrencies is the creation of state-backed digital currencies. China is now trialling its digital Yuan. The EU is considering a digital euro.  The chair of the Federal Reserve calls its proposed digital dollar a “high priority project”. These will have both the security of blockchain and a stable value.

Despite these developments, for now, cryptocurrencies continue to provide opportunities for criminal activity, including white collar crime. The global cryptocurrency market is now worth some US$1.5 trillion annually. New types of cryptoassets and cryptocurrency exchanges launch regularly.

The determination of global leaders to regulate cryptocurrencies should not be underestimated.  Ransomware attacks are now a geopolitical issue, with many linked to Russia. Russia has been accused of involvement in attacks such as the 2020 SolarWinds attack. The 2021 G7 meeting issued a final communique that promised that the G7 nations would collaborate “to urgently address the escalating shared threat” of ransomware attacks. The greater anonymity of cryptocurrencies facilitates ransomware attacks.

Frauds involving cryptocurrencies, such as the PlusToken Ponzi scheme, have cost billions internationally. The PlusToken fraud defrauded investors of an estimated $2.9 billion. Cryptocurrencies have facilitated money laundering on a global scale. Until serious regulatory regimes are put in place globally, the use of cryptocurrencies in white collar crime looks set to continue. In 2020, in the UK alone, around £113 million was lost in fraudulent cryptocurrency investments.

A great deal of white collar crime goes beyond money laundering and relates to the cryptoasset markets themselves. It involves misrepresentations regarding the value, stability and viability of cryptoassets and related financial instruments.

People are lured into investing online in cryptocurrencies or their derivatives. This is despite the clear warnings issued by regulators such as the FCA. The FCA’s clear advice is that “Cryptoassets are considered very high risk, speculative purchases. If you buy cryptoassets, you should be prepared to lose all your money.”

The appetite for cryptocurrencies is rarely dented by their remarkable volatility. Earlier this year, the cryptocurrency Ether dropped 22% in a single day while Bitcoin lost over 40% of its value in a single week. The FCA has thankfully now banned the sale of crypto derivatives to consumers on the basis of its “concerns surrounding the volatility and valuation of the underlying cryptoassets.” Yet UK consumers can still buy them internationally online.

The UK has no regulatory regime dedicated to cryptocurrencies as of yet. However, the FCA has become active in regulating the cryptocurrency market. Firms must now register with the FCA before operating in the UK. Cryptoasset platforms which registered with the FCA in December 2020 were able to continue to offer services in the UK under a Temporary Registrations Regime while the FCA assessed their application. However, many applicants have been abandoning their applications to the FCA, due to difficulties meeting the anti-money laundering requirements.

The FCA has not been sitting on its hands while it assesses applications. In June, it banned the cryptocurrency exchange Binance from conducting regulated activities in the UK. The FCA’s head of enforcement and market oversight, Mark Steward has admitted that 111 unregistered cryptocurrency providers were operating in Britain and that “they are dealing with someone: banks, payment services firm, consumers”. This is a pointed warning to those banks and other white collar service providers involved.

The British legal system has proven itself adaptable to the rise of cryptocurrencies. In 2019, the English High Court considered whether cryptoassets could be legally regarded as property. The case of AA v Persons Unknown [2020] 4 W.L.R. 35 involved an application for a proprietary injunction to recover Bitcoins, which had been extorted during a ransomware attack on a Canadian insurance company. The company’s British insurer paid q ransom of $950,000 in Bitcoin through an expert intermediary. At the time this amounted to 109.25 Bitcoins.

The consultants who had made the payment found the extorted Bitcoins at a cryptocurrency exchange.  They discovered that 96 of the 109.25 Bitcoins were still in an account and asked the High Court to grant a proprietary injunction to recover them. The English High Court held that Bitcoins were “property” under English law and granted the injunction.

The court favourably cited the UK Jurisdiction Task Force’s report entitled “Legal statement on cryptoassets and smart contracts”.  The report concluded that cryptoassets have the legal characteristics of property and that their novel technological features did not prevent them from legally being property. This judgment brings cryptoassets within the purview of the English courts.

Regulators and the courts are actively using existing laws to tackle cryptocurrencies and white collar crime. State-backed digital currencies look set to arrive in tandem with a coming wave of regulation which will tackle the misuse of crypto assets. These developments will create a perfect storm that will sweep away cryptocurrencies as we have known them.

People will be much more likely to place their trust in a digital dollar or a digital euro instead of a cryptocurrency like Dogecoin – which literally started off as a joke. It may well also end up as one.

A day in the crypto market is often the equivalent of a week in real life, due to its volatile, unpredictable nature. So what could a whole new year bring to the big table?

by Vlad Faraon, CBO and Co-founder, Coreto

Plenty of changes, we hope, as cryptocurrencies are now becoming mainstream. But their popularity doesn’t come without risks. The crypto market value blew past $3 trillion, according to CoinGecko pricing, but the scams are on the rise as well. In just 6 months, between October 2020 – March 2021, over 7,000 people lost more than $80millions by investing in altcoins according to The Federal Trade Commission (FTC). The amount was 10 times smaller in the previous year.

Despite its rapid growth and severe caveats, the crypto transactions aren’t currently regulated by the Financial Conduct Authority (FCA) or covered by the Financial Services Compensation Scheme. This means that the industry is a minefield, full of unethical players. Under these circumstances, people should never invest more than they’re willing to lose.

This month, regulatory agencies issued a joint statement driven by the concern that ‘the emerging crypto-asset sector presents potential opportunities and risks for banking organisations, their customers, and the overall financial system.’ The Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) analysed various issues regarding crypto assets and are aiming to provide coordinated and timely clarity. They believe that it’s necessary to use a common vocabulary, identify the key risks and analyse the applicability of existing regulations and guidance. This sets expectations for more consumer protection and a standard the whole industry can adhere to.

In addition to this, the OCC published a letter about how national banks and federal savings associations should implement safety measures before undertaking certain cryptocurrency and stablecoin activities. They suggested controls that include engaging with their supervisory office to show written notification of their proposed activities, alongside the criteria that the OCC will use for the evaluation, with a view to providing a supervisory non-objection.

All this progress is welcome, as at a macro level they’re meant to protect the interests of the investor. But the way things developed with the US Securities and Exchange Commission (SEC), which has the same goal, makes us want to take this with a pinch of salt.

On one hand, the SEC is looking after people’s money, but on the other, it wants to make the market more efficient. Catering for both is a challenging job, and some might say that it became too protective as an institution and got in the way of progress. See what happened to Basis, for example, designed to keep its price stable. This would have been an innovative solution for the crypto space, coming from a place of accountability and transparency. The project was however shut down because of strict, old regulations applied to a novel system. In its desire to go after scams, frauds and manipulative activity, it discourages entrepreneurs from launching new projects. This is one of the reasons why London, not New York, is the centre of fintech investments now.

With the industry’s rapid advancement there is a growing need for regulations that are agile and flexible. As the SEC might be directing its enforcement actions against DeFi, NFTs and even stablecoins, revising its modus operandi is required sooner rather than later.

While policy-makers are slowly devising their roadmaps to a healthier ecosystem, the industry could regulate itself by relying on trust and knowledge. The harsh reality is that in the crypto space there are many bad actors. We believe there is little to no chance that there are retail investors out there who didn’t experience scams or at least somebody trying to scam them. For the retail investor to have more confidence in this space, there is a high need for a tracked record system for projects, influencers, and anyone with a voice in this space. We can’t trust someone with our investment decisions just because they have a big following. Retail investors shouldn’t base their confidence on that. It’s important to understand that a tracked record of past performance, immutably stored on the blockchain, is a step forward towards building the trust bridge in 2022.

The same trust and knowledge lie at the heart of Coreto, our reputation-based research hub, which is a secure environment for crypto communities. Here, members have to prove their influencer status by building a history of accurate analysis and market predictions. This will elevate critical thinking, reasoned argument, shared knowledge, and verifiable facts. Only when they’ll have a good enough reputation score will they be able to influence the newcomers, and also monetise their knowledge. This is significantly different from what happens currently online, with some so-called crypto influencers misleading masses into faulty investments and then fleeing the scene. This creates a win-win situation: the goodwill influencers will be able to shine on a digital stage, while the community will be able to make more educated investment decisions.

If we all remain loyal to these guiding principles – trust and performance – the whole crypto community can benefit and evolve from it.

Adopting digital identities could provide a significant boost to not only the future of open finance, but also across the economy more broadly.

by Brian Costello, VP Data Strategy, Envestnet | Yodlee

One challenge that is evident following the introduction of Open Banking in the UK is consumer hesitancy to share financial data, which is required to access the Open Banking-powered products and services the consumer wants or needs. For the next step beyond Open Banking – open finance – to be a success the industry needs to overcome the data sharing trust challenge to unlock the benefits personalised open finance services can provide.

To show the scale of the challenge, an independent survey of UK adults, commissioned by Envestnet | Yodlee, found that two-thirds of consumers in the UK would find it easier and desirable to view all of their financial information in one place, highlighting the huge demand for open finance. However, when it comes to actually sharing the data, the challenge presents itself. While more than a third of respondents said they would be willing to share their financial data, which would enable these kinds of services, a similar number said they would not be willing to, and a quarter were uncertain.

Open finance stands to benefit everyday users in many ways. The Citizens Advice Bureau noted that in the UK, consumers are overpaying £3.4 billion in key areas including mobile, broadband, home insurance, cash savings and mortgages. A well-managed open finance initiative has the potential to drive innovation in financial wellness platforms, helping users understand their financial behaviours and how they could make improvements. This would also enable accessible financial advice, as advisors are able to gain a view of a person’s overall financial picture in a fraction of the time it currently takes.

Transparency and control are two key principles for any data sharing economy, and therefore essential for an effective and safe open finance environment. As it stands, users are required to grant separate consents to both the recipient and provider of their data, and sometimes to a third party as well. Though these levels of protection are laudable, the current user experience is highly procedural and can confuse the user to the point they abandon the consent experience. The requirement to grant multiple consents is at odds with the user experience of trying to achieve a singular cohesive outcome.

Could digital identities simplify the consent process and align consent with desired outcomes?

The UK’s National Data Strategy found that for data to have the most effective impact, it needs to be appropriately collected, accessible, portable, and re-usable. However, achieving this would likely involve enabling consumers to provide more overarching consent for data-sharing, whilst still maintaining stringent protections and avenues for redress. This is no easy feat, and there is still discussion between regulators and the industry on the best ways to achieve this.

The ideal situation is a single digital identity artifact with consent attributes that provides all parties in the data sharing transaction with enforceable evidence of the user’s explicit instructions. Once a digital ID is verified, data-sharing consents attributable to a person’s digital identity could enable them to assign consent to multiple parties involved in the data sharing process without experiencing the confusion and disruption that the current user journey typically entails.

Beyond simplifying the user journey, standardisation of certain consumer consents could enable users to incorporate ongoing consents to their digital ID, which would enable them to give permission to share their data with organisations in real-time or when they were not active in the user experience.

Another option is to leverage the current system of federated identity management providers by having those data providers become the sole identity provider for the transaction.  The Global Assured Identity Network is proposing just that, with ambitions to open the framework up across all sectors.

While this is a great opportunity with many upsides, there are many things standing in its way encompassing technical infrastructure, regulations, and conflicting points of view.

Provided there was a regulatory framework in place, these ongoing consents could also enable users to automatically share their data with new providers under specific circumstances. These sort of outcome-focused smart consents would enable many consumers to benefit from the data sharing economy and reap enormous benefits, without needing to engage too heavily with the procedural elements of data sharing.