Reuters reported this week that an agreement to allow London’s financial centre access to EU markets after Brexit is looking very likely to happen, and John Glen (Britain’s financial services minister) has said that he is “extremely confident we will reach an imminent deal”. Britain’s departure from the European Union is said to be the ‘biggest challenge the UK financial sector has faced since the 2007-2009 financial crisis’. This sector is the biggest source of exports and tax revenue, so preserving the existing flow of trade is highly important; Glen also commented that “severing connections to our financial centre is not in the commercial interests of any other European capital”.

The Financial Times has also reported on the ‘lack of big battles over financial services’ during the Brexit negotiations. A short draft text outlining the parameters for a post-Brexit trade negotiation has been drawn up with ease. Equivalence decisions will be used to manage cross-border trade in financial services which makes it easier for non-EU institutions to do business in Europe as long as their home countries are deemed to have similar standards of oversight by the European Commission. This would place ‘no obligations on the bloc to change either existing EU law, or its approach to managing financial services from non-EU countries’.

‘1,300 Brussels businesses are clamouring to join a new regime’ to ensure that they don’t ‘lose access to London if Britain leaves without a deal’, reports the Express. With temporary permission these firms can use the UK derivatives clearing services for three years and can continue to operate in London without impediment. European governments have voiced concerns that if they lose access to London then they will struggle to raise funds.

The Business Times has said this week that ‘analysts expect the currency (pound) to rally further if British lawmakers sign off on any [Brexit] divorce settlement, they foresee the script going awry if parliament doesn’t approve the deal’. This month the pound has gained over 2% to above US$1.30 and over 1% to 87.25 pence per euro. However, “if a hard Brexit happened we could see euro-sterling rising towards parity” commented Jane Foley (Rabobank’s head of currency strategy). A decline in the pound could be sparked if Theresa May is forced to call a second referendum, general election or sent back to the ‘negotiating table’.

The Entrepreneur has reported on the impact Artificial Intelligence will have on employment in the future. Despite the fears of technology ‘creating an ever-growing pool of unemployable humans’, AI can actually increase the productivity and smartness of a worker. Technology is empowering and has been progressing for the last 250 years; in that time ‘U.S. employment has stayed within a narrow band of 5 to 10 percent’ proving that the belief of AI creating unemployment is not true. An example of this is the introduction of ATM’s, which were thought to be replacing jobs, however, ATM’s ‘lowered the cost of opening bank branches’ which resulted in new jobs being created and the requirement for more staff.

A report titled ‘Artificial Intelligence in the UK 2018’ has highlighted that the ‘U.K. has in place sufficient industry and state backing to be a major player in global artificial intelligence’, says the Digital Journal. Due to investment in artificial intelligence reaching £3.8 billion, a figure that is expected to increase, the UK will be able to ‘challenge both the U.S. and China in the global artificial intelligence economy by 2020’. New, larger volumes of data, experts with high-level specific skill sets and the availability of increasingly powerful computer capacity are some of the key factors that have enabled an increase in capability of AI in the UK in recent years.

The International Advisor has informed us that the UK government has launched the National Economic Crime Centre based in the London National Crime Agency headquarters. Their aim is to educate the UK’s private and governmental bodies in how to tackle and prevent economic crime, as well as tackle these crimes and the offenders themselves. Their whole system approach involves co-ordinating tasks and activities among agencies, identifying and prioritising investigations, and also promoting the use of ‘new powers – such as unexplained wealth orders and account freezing orders’.

Forbes also reported on the governments new ‘serious and organised crime strategy’ and revealed that this kind of crime costs the UK £37 billion each year, an ‘increase of more than 54% since 2013’. One of the biggest challenges in fighting organized crime is that they act in a professional manner and are often ‘those at the top’ who can afford the best lawyers and accountants. These criminals are now using ‘complex structures’ such as offshore accounts to slip under the radar, meaning that the traditionally methods of fighting financial crime no longer work and it is also ‘no longer obvious who benefits from the proceeds of the crime’.

It is believed that ‘advances in technology will continue to transform serious and organized crime’ so a new approach and strategies must be adapted by all in order to solve the problem.

A rapidly increasing number of ‘family offices’ or private investment vehicles are being set up in Hong Kong and Singapore, reports Channel News Asia. The wealthy are targeting ‘greater investment diversification’ and the personalisation of this service, alongside being able to have a ‘bigger say in their wealth management’, makes these family offices a highly attractive option. “Offshore Chinese wealth will continue to grow, so family offices business is going to be a multi-year trend” said Ivan Wong (head of investment services and product solutions for Asia Pacific at HSBC Private Bank). It has also been revealed that between 2015 and 2017 the number of family offices in Singapore quadrupled.

The Out-Law has reported on the new measures of cryptoasset regulation that have been released by the Securities and Futures Commission (SFC) in Hong Kong. ‘Firms managing funds which solely invest in cryptoassets that do not constitute securities or futures contracts but which distribute them in Hong Kong’ will now be required to undergo a licensing regime. Also, firms that are ‘already licensed to manage portfolios including securities and/or futures contracts in Hong Kong will also be subject to licensing conditions’ if they ‘intend to invest 10% or more of the gross asset value (GAV) of the portfolios under its management in virtual assets’. As well as this, fund distributors that wish to distribute in Hong Kong will require a broker’s license, and the SFC has set a number of “principle-based” terms and conditions that licensees must meet. An example of these conditions is that cryptoasset portfolios can only be invested in by “professional investors” and retail investors are only now able to invest in mixed portfolios.

Reuters have reported that the UK and EU have ‘made progress on a deal to give London’s dominant financial centre basic access to EU markets after Brexit’. The deal would be based on the existing system of ‘equivalence’ in regards to access to financial markets. However, a spokesperson for Theresa May has said that these reports are just speculation and that they plan to go past the existing regimes. The European Commission has also commented that ‘a future financial services agreement would be discussed only after a Brexit divorce deal has been finalised’. Many global banks have already begun reorganising some operations in preparation for Britain’s departure in March and many of the top bankers believe that Brexit will weaken London’s position as the world’s biggest international financial centre.

Australian banks with operations in the UK are also putting in plans to increase their presence in European financial centres according to the Business Insider. The Commonwealth Bank of Australia (CBA) has applied for a banking licence in Amsterdam and set in place motion plans to base around 50 staff there. They will be focused on the European ‘passporting’ operations, a system by which ‘banks are able to operate across EU borders while possessing just a single banking licence’. The UK will lose these passporting rights as a result of Brexit. The CBA’s plans are in place to ensure limited disruption to existing business and employees whilst still providing the best service to their customers.

The Coin Telegraph has reported that ‘UK businesses and analysts have hit back at government plans to regulate cryptocurrencies and the related technology’ and critics have commented on this as a ‘very blunt approach’. Caution has been urged about overly far-reaching regulation in a joint report by the British Business Federation, Novum Insights and TodaQ. FCA chairman John Griffith-Jones added that cryptocurrencies have the ‘potential of causing consumer harm unless brought within the regulatory perimeter’.

According to the Financial Times, Valdis Dombrovskis has said that UK derivatives clearing houses will be available to companies on a temporary basis in the event of a no-deal Brexit, with a stress on the strictly short-term nature of this relief. He has also commented that the EU has ‘all necessary tools to act quickly in order to ensure no disruption in central clearing’. The Bank of England has warned that moving derivatives clearing from the UK at a short notice could be very costly for EU companies. Also mentioning that £41tn of derivatives contracts are potentially at risk from Brexit.

Minister Phillip Hammond has pledged that ‘fiscal buffers’ would be in place to deal with the ‘potential chaos’ of a no-deal Brexit in March. These will act as a reserve of borrowing power against fiscal rules, so that the Minister can support the economy for the upcoming months or years if needs be. Hammond also told Sky News that a no-deal scenario would need a different approach in terms of the budget and strategy for the future.

Computer World UK has reported that Hong Kong finance professionals require new digital skills due to digital transformation and automation. A survey conducted for the report found that new skills required included data forecasting, financial analysis, data analysis, financial reporting and financial decision-making; however, nearly nine in 10 employers are confident that they can teach these skills. It is expected that no workplace will look the same in 10 years so it is essential that ‘training and professional development programs are an integral part of a company’s long term strategy to equip their staff with the skills of the future’.

This week Forbes reported on how the UK government is using Artificial Intelligence to identify welfare and state benefit frauds. Over the last year the Department for Work and Pensions has been releasing algorithms in order to track down large-scale corruption of the program from criminal gangs. Benefit fraud cost the department ‘nearly £2.1 billion in 2016’ rising by £200 million in just a year. These algorithms look for patterns in claims, and if flagged as suspicious, a human investigator takes over to conclude if it is in fact fraudulent.

The use of AI means that ‘billions of items of data can be quickly reviewed’ and this effort ‘protects taxpayers’ money’ and gets the benefits to those who need it most. Other algorithms have also been used to scour social media accounts in order to uncover inconsistencies in the claims that people make for benefits.

CNN Business has informed us that Royal Bank of Scotland has taken a £100 million earnings hit due to Brexit. The uncertainty of companies’ ability to do business across the new borders has caused them to establish a branch elsewhere in the EU (Amsterdam) in order to safeguard their business. These decisions by RBS are because of the ‘more uncertain economic outlook’ following Brexit and they highlight that ‘a messy departure from the European Union would greatly harm the UK economy’.

The first Bitcoin ATM operator has been granted a virtual currency licence by the New York State Department of Financial Services, announced DFS this week. Coinsource operates ‘40 kiosks in New York and over 200 machines in 18 other states’, and these allow people to pay for or exchange bitcoin for cash by scanning their mobile wallet. Mario Vullo, DFS Superintendent, said that this approval is a ‘further step in implementing strong regulatory safeguards and effective risk-based controls’ while encouraging ‘growth of financial innovation’.

The Financial Times has reported that ‘most countries do not regulate businesses that operate as virtual asset service providers’ nor ‘impose measures to prevent money laundering or terrorist financing using virtual assets’. Virtual currency and assets are highly attractive to criminals and terrorists due to their anonymity, speed and global reach; they have also been used to pay human and drug traffickers. The G20 called on the Financial Action Task Force in July 2018 to clarify and amend the organisations standards as they apply to virtual assets and related providers. This work is essential in order to make the international financial system safer.

The Independent has reported that four in ten UK companies will be forced to trigger their contingency plans if no clarity is given on the Brexit deal. In a survey by the Confederation of British Industry they found that 80% of companies think that Brexit has already had a negative impact on investment decisions. A reluctance to invest could have a knock-on effect for jobs, wages and living standards as less money would be available for vital public services. ‘Almost a fifth of firms have said they have already been forced to trigger contingency plans’ which includes cutting jobs, relocating production and services overseas and stockpiling goods. The EU’s chief negotiator Michel Barnier is ‘still not sure’ that a withdrawal agreement will be reached, and this uncertainty is draining investment from the UK, negatively affecting 8 in 10 businesses.

The Office of National Statistics has published a report showing that cybercrime has fallen by 30% in the past year. However, this isn’t necessarily a true reflection on the current threat that we are all faced with. ‘All other indicators are that cybercrime is on the increase’ and it is claimed that ‘fraud and computer hacking are ten times more common than burglary’. Smash and grab antics, such as billions of phishing messages, make up the majority of cyberattacks; and we all have to seriously start thinking about cybersecurity by being vigilant online, careful with what we share and avoiding clicking on unknown links, otherwise cybercrime will continue to rise.

The Financial Times has this week informed us that the Royal Bank of Scotland has set aside £2bn for small businesses due to the uncertainty around Brexit. The money is set to be used to provide trade finance, term finance and increased liquidity services for small firms that rely heavily on EU labour markets. The bank has said that they will be contacting approximately 2,000 existing RBS and NatWest customers that they think will benefit from this service. The £2bn RBS fund will be added to an existing £1bn ‘growth funding’ programme that was announced earlier in the year.

The Financial Times has also reported on a former compliance officer of UBS, Fabiana Abdel-Malek, who will stand trial for 10 counts of insider trading later this week. She is taking the stand alongside Walid Choucair whom the Financial Conduct Authority accuses of using the inside information passed to him by Fabiana to place trades in stocks, resulting in a profit of over £1m. Both defendants deny the charges and could be facing a maximum seven-year jail sentence.

In the UK’s financial market, suspicious trades have reached their highest level in eight years, and the FCA is currently investigating 87 live cases. An unfavourable comparison with the United States, who’s main securities regulator raised only 41 insider-trading cases last year.

‘Gender inequity in the financial services industry is so severe that nearly nine in 10 women expect tending to family obligations will hurt them career wise’, reports the Payment Source. From a survey conducted by Visa and Money2020, there was an overall finding that men are more likely to have an ‘outsized positive view on progress in gender inclusion’. An example of this being that 68% of men predict the number of women in senior levels will increase over the next few years, but only 45% of women have agreed with this. It was also found that only 62% of the female respondents would feel welcomed back into their role after maternity leave, and that only 28% said they feel that men and women are equally paid for the same job in their company.

‘The survey showed a persistent gap in the perception of inclusiveness within companies and the pace of change’, despite a large amount of research showing that more diverse companies perform better. This survey is anticipated to be completed annually in order to track whether the industry’s talk of change is resulting in a more inclusive environment.

LATTICE80 has announced the expansion of its Fintech Hub to Hong Kong and it will also host the Blockchain Accelerator Program to support the United Nations’ 17 Sustainable Development Goals (SGDs). The company is the world’s largest fintech hub which connects Fintech Startups, Financial Institutions & Corporates, Government Institutions and the Public. Joe Seunghyun, Co-founder and Founding CEO of the company commented ‘We believe Hong Kong is the right place to be a connection point for Belt and Road Initiative. Hong Kong, being a traditional financial and trading hub to connect Asia and Europe, has the world’s best exit market and access to global investors that budding fintech and blockchain startups would look for’.

David Wagner at Forbes has this week reported on how LinkedIn accounts could threaten company’s compliance strategies. As even larger amounts of information are being inputted into LinkedIn, some of which falls under current or upcoming regulations, companies should be managing their accounts to ensure that this asset does not become a liability. LinkedIn now contains ‘reams of potentially sensitive and regulated information’ that should be preserved in an archive for both legal and compliance reasons. Company’s should look for strategies that make their compliance more efficient, while encouraging employees to continue using LinkedIn, instead of putting strict limits on its use. ‘Better compliance management isn’t only about appeasing regulators; it’s about keeping costs in check, ensuring operational efficiency and maximising the value of all communications’.

Microsoft has announced plans to sell artificial intelligence and other technology to the US Military. City A.M. reported that the race between the US and China to build next-generation security technology has sparked the debate about AI use in the military. The CEO of Amazon has also shown his support for the US military and his company are the favourites for a cloud computing contract with the Pentagon, alongside Microsoft. A number of people are however opposed to tech companies having an involvement in the military and federal law enforcement.

The Irish Times has reported on low levels of diversity being a major problem with banks and other financial services firms. A lack of diversity among key decision makers and at senior levels creates risks and inhibits necessary culture change. When similar people in similar situations are given similar information, they are likely to make very similar decision and this type of ‘groupthink contributed to the depth of the financial crisis’ as well as the many conduct scandals that followed. Gender diversity is only one aspect of diversity but remains a very important one. Women are seriously under-represented at senior levels across all financial services, and at the end of 2017 men had been appointed nine out of 10 of these influential positions. ‘The financial services industry needs to be in a position to attract, retain and harness the talent and contributions from the broadest possible range of staff to innovate and compete’.

The Times of India has reported on a rise in job frauds that has led to police requesting job portals to display a disclaimer at the bottom of their homepage, warning people about such frauds. S Harinath, assistant commissioner of Police (Cyber Crime), Rachakonda, has said that ‘Most of the big firms post vacancies on their websites. Jobseekers should not believe what the caller is saying and check with the company HR’. These fraudsters rent a small place and hire people to go through various job portals, they extract the contact details of jobseekers and later send them fake emails ‘offering’ them jobs. From examples, a consistent trait of these frauds seems to be asking for money for a phone interview, one victim is reported to have lost Rs 5.5 lakh which equates to roughly £5,600.

Similarly, the Irish Independent have reported that cyber criminals are using social media to hack into bank accounts. According to the head of the Garda National Cyber Crime Bureau, ‘criminals are using social media to check when customers are contacting banks about problems, and then posing as the bank in order to hack into people’s data’. De Supt Michael Gubbins is expecting that cybercrimes will become increasingly hard to detect in the coming years, an example could be due to the increase in use of fileless malware, that sits on the computer’s RAM making it harder to detect. Also, the increasing usage of cryptocurrencies has seen a new type of cybercrime emerge in the form of ‘crypto-jacking’, whereby hackers infiltrate a computer and use it to attempt to steal the user’s digital currency. As a result of this, De Supt Gubbins is urging people to make sure they stress-test their cyber-security systems on a regular basis.

This week the journal Asia Asset Management informed us that the ‘Regulators in Singapore and Indonesia have signed a memorandum of understanding that is aimed at sharing trends in financial technology and fostering innovation in financial services’. They are also set to create a framework in order to help fintech firms better understand the regulatory regime and opportunities available in each jurisdiction. This pact will promote joint innovation between both countries and also give the Southeast Asian neighbours an opportunity to learn and collaborate on building the ‘future of finance’.

Alliance News has reported of the disruption likely to be caused by a no-deal Brexit and that a ‘failure to reach a withdrawal agreement could impact on trillions of pounds of financial contracts between the UK and EU’. One of the main concerns is what would happen to the continuity of cross-border financial contracts between the UK and EU as the majority of these are incredibly important insurance and derivatives risk management tools. Conor Lawlor in response to this has said that a lot of these contracts will not fall away because they are essentially still based on commercial or corporate law and that intervening in those contracts is difficult to do as it would be considered a regulated activity. The best case scenario would be increased costs, however, at the worst case it would mean that businesses can’t function because the counter-party cannot intervene and make the contract work as it should.

Another concern of a worst-case scenario no-deal Brexit is that paying out some pensions could become illegal. The Association of British Insurers has warned that a ‘no-deal scenario would leave insurance contracts in ‘legal limbo’, with firms unsure if they could legally pay claims for contracts drawn up before Brexit, which would be paid out in EU countries’. This issue could affect pensioners living in countries with insurance-based pensions.

The Guardian reported this week that the use of Artificial Intelligence within the company Amazon has been scrapped, due to the results of selecting workers based on their CV’s consistently discriminating against women. This decision has highlighted an important factor about machine learning being that no matter how fast they learn, they can only learn from the data presented to them, and if this reflects historic patters of discrimination then the results with perpetuate this. The program at Amazon was taught to discriminate against women from the records of job applicants that had been previously hired; ‘the machine behaved as though being female were a sign on inferiority, just as the industry it learned from had done.’ Machine learning and the use of AI can expose prejudices embedded in our use of language that we may not have noticed before. Therefore, it is essential that moral and legal responsibility be attached to the human parts of the system and that the companies, people and government be held accountable for the consequences of its use.

Smart Brief has described the challenges faced in fintech regulation and reported on the discussed topics of the Fintech Ideas Festival Policy Series in Washington, D.C.

Craig Phillips, counsellor to the secretary of treasury has said that there has been an ‘increasing number of nonbank financial institutions since 2008, and he thinks innovation will continue to accelerate’. Paul Watkins, head of Consumer Financial Protection Bureau’s Office of Innovation explained that they are revising their trial disclosure program in order to encourage disclosure. ‘Groups will be able to apply for trial disclosure so that multiple companies can share initial costs’, and in order to keep federal regulations from hindering state efforts to promote innovation, there will be an involvement of state senators to fast track federal approval for organisations that are already approved through state programs.

Innovation in financial technology is an important goal for the US but regulatory uncertainty is currently a considerable challenge for fintechs. OnDeck’s Christian Spradley added that ‘there’s an educational gap between what fintechs can do and what regulators understand’ which causes frustration on both sides. An easy to understand source of information has been called for by FS Vector’s John Collins, as well as an open dialogue between all parties to create a ‘culture of compliance’.

The Insurance Journal has reported that London is still attracting financial services investments despite the cloud of Brexit. Last year London secured 55 inbound foreign investment projects, almost double the amount than Dublin, Paris, Frankfurt and New York. Catherine McGuiness, city of London policy chair, has said that ‘The UK leads the world when it comes to exporting financial services and we have a number of strengths that appeal to investors’. However, the foreign investment flow can quickly shift so it is important to secure a positive Brexit deal in order to provide confidence for the sector. To date, the tally of financial jobs that have moved to new EU Brexit hubs from London has been much lower than initially expected after Britain voted to leave in 2016.

RANE has announced the results of the 2018 RANE Compliance Survey this week, it was designed to ‘gauge perceptions of how important specific compliance and culture elements are to developing an effective compliance program, and measure how well their companies are aligning themselves to these rankings’. The results of the survey show a divide between what companies perceive to be important and how they rate their corporate culture on these factors. Each factor in the survey received a higher average importance score compared to the average rating assigned by respondents and the biggest difference was the importance of corporate culture and its effectiveness in practice. Serina Vash, Executive Director GRC at RANE commented on the findings of the survey and said that it ‘highlights that leadership integrity is a key factor in both creating a positive corporate culture and contributing to an effective compliance program’. A lack of confidence in leadership and management matters can pose significant operational, reputational, financial and human resource risk.

International Investment has reported that over two million Hongkongers have been affected by cybercrime this year, and that the number of fraudulent banking websites in Hong Kong has seen a rapid increase. In August this year there were 15 reports of cybercrime incidents, compared to only two cases in the same month a year ago. Police figures also show that in the first year such offences started to be tracked (2005), 653 cases were recorded, this number skyrocketed to 5,939 in 2016, with HK$2.3bn lost that year.

Hong Kong’s rate of cybercrime was higher than Japan (18%) and Singapore’s (33%) last year; and at least 2 million internet users were a victim of cybercrime, losing $28 on average and spending 19 hours trying to fix the problem.

Binance has signed a deal with AML compliance firm Chainalysis, to better ensure meeting anti-money laundering and know-your-customer requirements. Coin Geek reports that Chainalysis expects many other cryptocurrencies to follow in Binances footsteps to build a world-class AML compliance program that both builds trust with major financial institutions and satisfies global regulators. They also claim that their software (Chanalysis KYT), which works by ‘pattern recognition, proprietary algorithms and millions of open source references to identify and categorize thousands of cryptocurrency services to raise live alerts on transactions involved in suspicious activity’, is the only real-time transaction monitoring solution for cryptocurrencies. The company has over 150 worldwide clients including global law enforcement agencies and regulators.