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Wednesday, 2 December 2015

Isle of Man Goes Crypto-Crazy

I'm indebted to my colleagues in the Isle of Man for pointing me to the IoM's recent Designated Businesses (Registration and Oversight Act 2015, which imposes various registration and anti-money laundering requirements on distributed ledger technology. Do we have a poster-child for how regulation of new technology can go way too far?

The IoM compliance obligations are aimed at: 
"the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including crypto-currencies or similar concepts where the concept is accepted by persons as a means of payment for goods or services, a unit of account, a store of value or a commodity;"
This seems likely to be counter-productive, to say the least, given that the 'currency' aspect of distributed ledgers is often merely there to reward the 'miner' or processor of transactions or events that occur on the ledger, regardless of whether those events are themselves financial in nature - financial services being merely one of many different potential applications.

So, should every business on the IoM that uses, or might wish to use, distributed ledgers register with the authorities and introduce AML controls on everyone it deals with, just in case? Maybe so...

Two specific points to make:

1. ‘convertible virtual currencies’ are defined more broadly than one would expect:
“including crypto-currencies or similar concepts [neither term being defined, except by what follows…] where the concept is accepted by persons as a means of payment for goods or services, a unit of account, a store of value or a commodity”, 
Most definitions of a ‘currency’ require all these criteria to be met, not just any one of them. Imagine what would happen to the US Dollar, for example, if suddenly it was not accepted as meeting just one of the above criteria...  Indeed, for this reason many people disagree that Bitcoin - the most widely used form of 'crypto-currency' - is still nothing more than a commodity.

In addition, none of the typical exemptions under payment services regulations seem to be imported here. To take but one relevant example: consumer loyalty/rewards programmes are typically exempt on the basis that the rewards are only accepted as a means of payment within a 'limited network'. Do the local authorities really want every business participating in a loyalty scheme on the Isle of Man to register and apply AML controls just because the scheme involves distributed ledger technology? Maybe so...

2.  Similarly, the list of activities that trigger the relevant compliance obligations would seem to cover a vast array of potential services and their providers/users - recognising that these are distributed ledgers to which all computers running the protocol have the same access. Again, just think of consumer loyalty programmes as you go through the list:
the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating...
Even payment services regulation, for instance, exempts technology services that support transactions without the service provider handling funds. And the whole point of the ledger is that no intermediary is actually handling funds - its all happening peer-to-peer amongst machines - indeed perhaps everyone's device is handling the funds. Furthermore, there will be instances where access to a distributed ledger is just one element of a wider system - as in the car-rental example, or tracking shipping containers - and it may not be clear to everyone that a distributed ledger is involved if it's just to share the location or state of a vehicle or container.

Still, the Isle of Man's approach might at least be useful in demonstrating how regulation in this area can go too far...



Monday, 30 November 2015

Better Services For SMEs: Follow The Data

I was at a 'parliamentary roundtable' on Tuesday on the perennial topic of small business banking reform. A more official report will be forthcoming, but I thought I'd record a few thoughts in the meantime (on a Chatham House basis). 

It still seems to surprise some people that small businesses represent 95% of the UK's 5.4m businesses - 75% of which are sole traders - and that they account for 60% of private employment, most new jobs and about half the UK's turnover. So-called 'Big Business' is just the tip of the iceberg, since only they have the marketing and lobbying resources to be seen above the waves. As a result small businesses have long been a blind spot for the UK government - until very recently - and the impact has gone way beyond poor access to funding. It includes slow payment of invoices, the absence of customer protection when dealing with big business and lack of alternatives to litigation to resolve disputes.

What's changed?

A combination of financial crisis, better technology and access to data has exposed more of the problems surrounding SMEs - and made it possible to start doing something about them. And it's clear that legislators are prepared to act when they are faced with such data. The EU Late Payments Directive aimed to eliminate slow payments. The UK has created the British Business Bank to improve access to finance, as well as a mandatory process for banks to refer declined loan applications to alternative finance providers and improved access to SME credit data to make it easier for new lenders to independently assess SME creditworthiness. The crowdfunding boom has also been encouraged by the UK government, and has produced many new forms of non-bank finance for SMEs, including equity for start-ups, debentures for long term project funding, more flexible invoice trading and peer-to-peer loans for commercial property and working capital.  Last week, the FCA launched a discussion paper on broadening its consumer protection regime to include more SMEs.

Yet most of these initiatives are still to fully take effect; and listening to Tuesday's session on the latest issues made it clear there is a long way to go before the financial system allocates the right resources to the invisible majority of the private sector.

A key thread running through most areas of complaint seems to be a lack of transparency - ready access to data. This seems to be both a root cause of a lot of problems as well as the reason so many proposed solutions end up making little impact. But the huge numbers and diversity of SMEs presents the kind of complexity that only data scientists can help us resolve if we are to address the whole iceberg, rather than just the tip. That's surely one job for the newly launched Alan Turing Data Institute, for example, although readers will know of my fear that it seems more aligned with institutions than the poor old sole trader, let alone the consumer. So maybe SMEs need their own 'Chief Data Scientist' to champion their plight?

The latest specific concerns discussed were as follows:
  • the recent findings and remedies proposed by the Competition and Markets Authority into business current accounts are widely considered to be weak and unlikely to be effective - try searching the word "data" in the report to see how often there was too little available. The report still feels like the tip of an iceberg rather than a complete picture of the market and its problems;
  • austerity imperatives seem to be the main driver for off-loading RBS into private shareholder ownership - the bank pleading to be left to its own devices (not what it suddenly announced to the Chancellor in 2008!) - and trying to kill-off any further discussion of using its systems as a platform for a network of smaller regionally-focused banks (as in Germany);
  • the financial infrastructure for SMEs appears not to be geographically diverse - it doesn't yet mirror the Chancellor's "Northern Powerhouse" policy, for instance - despite calls for bank transparency on the geographical accessibility, a US-style "Community Reinvestment Act" and clear reporting on lending to SMEs by individual banks (rather than the Bank of England's summary reporting). There's a sense that we should see some kind of financial devolution to match political devolution, albeit one that still enables local finance to leverage national resources and economies of scale. Technology should help here, as we are tending to use the internet and mobile apps quite locally, despite their global potential;
  • Some believe that SMEs need to take more responsibility for actively managing their finances, including seeking out alternatives and switching; while others believe that financial welfare should be like a utility - somehow pumped to everyone like water or gas, I assume - indeed regional alternative energy companies were touted as possible platforms for expanding access to regional financial services. My own view is that humans are unlikely to become more financially capable, so financial and other services supplied in complex scenarios need to be made simpler and more accessible - we should be relying less on advertising and more on hard data and personalised apps in such instances.
  • Meanwhile, SME are said to lack a genuine, high profile champion whose role it is to ensure that the financial system generally is properly supportive of them. This may seem a little unfair to the Business Bank, various trade bodies and government departments, but it's also hard for any one of these bodies to oversee the whole fragmented picture. As I suggested above, however, I wonder whether a 'data champion' could be helpful to the various stakeholder in identifying and resolving problems, rather than a single being expected to act as a small business finance tsar. 
 In other words, we should follow the data, not the money...


Thursday, 29 October 2015

Poor Competition In Personal and #SME Banking (and What the CMA Plans To Do About It)

The Competition and Markets Authority has been investigating the state of competition for personal and small business bank customers, and the results are pretty shocking. The full report is here, the summary of findings here and the possible remedies are here.

We have until 20 November to comment on the findings and remedies (email retailbanking@cma.gsi.gov.uk). The CMA's provisional decision on remedies is due in February 2016 and the final report in April 2016.

Most glaring is the fact that 99.9% of all UK businesses are small - over 5 million of them - and the vast majority of them are sole traders. Yet small businesses do not benefit from most of the customer protection and other measures aimed at improving services and increasing competition for personal customers.

You would also think banks would do more to look after small businesses, given they are responsible for at least 5 million self-employed roles, and most new jobs come from that sector. But only 60% of SMEs survive beyond three years and only 40% make it past the five year mark. It's true that no job is for life, anymore, but poor financial services must surely be a factor in such high business death rates.

More has to be done to help this sector thrive. Have your say! 

Saturday, 17 October 2015

Labour's Idealistic March Into Oblivion

So, another political 'party' season slips by and the casual observer would think the Tories' policies must be more or less the right. There are no practical alternatives for anyone interested in the decisions actually required to drag the UK back from the abyss into which it's been staring for decades. Fortunately, that seems to be the majority of voters - the electorate finally understands that the UK reached the limit of taxing and spending sometime in the noughties and it's the Government's job to figure out how to do less of both.

Sadly, the Labour Party is giving up on such tough decisions, preferring the cosy bubble of idealism in which the air is a mixture of moral panic and dogma, and the 'answer' must fit on a placard. 

For instance, this week's 'news' that a single grammar school in Kent is expanding is said to threaten the quality of teaching at every school in the country, and Labour's 'solution' is that all children must go to state school. 

Trident costs too much? Unilateral disarmament. 

Steel plants to close through lack of demand for British steel? Nationalise them.

A living wage? Tax credits.

Unhelpful, impracticable, unrealistic, vacuous, dogmatic twaddle.

And since Liberal Democrat voters decided they, too, are sick of their party having to make the hard decisions, we are left with the Tories having to be their own conscience...  and do all the work.  

Let's hope they get it right - and remember, every country has the government it deserves.


Thursday, 15 October 2015

The Alan Turing Institute: Human-centric?

A slightly dispiriting day at The Alan Turing Institute 'Financial Summit', yesterday, I'm afraid to say. 

The ATI itself represents a grand vision and stunning organisational achievement - to act as a forum for focusing Britain's data scientists on the great problems of the world. Naturally, this leaves it open to attempts at 'capture' by all the usual vested interests, and its broad remit means that it must reflect the usual struggle between individuals and organisations and between 'facilitators', who exist to solve their customers problems, and 'institutions', who exist to solve their own problems at their customers' expense

And of course, it's the institutions that have most of the money - not to mention the data problems - so I can see, too, why the ATI advertises its purpose to institutions as "the convener of a multidisciplinary approach to the development of 'big data' and algorithms". It's true also, that there are global and social issues that transcend the individual and are valid targets for data scientists in combination with other specialists. 

But it was concerning that an apparently neutral event should seem predicated on a supplier-led vision of what is right for humans, rather than actually engineering from the human outward - to enable a world in which you to control what you buy and from whom by reference to the data you generate rather than by approximating you to a model or profile. Similarly, it was troubling to see a heavy emphasis in the research suggestions on how to enable big businesses to better employ the data science community in improving their ability to crunch data on customers for commercial exploitation.  

To be fair, there were warning signs posted for the assembled throng of banks, insurers and investment managers - in the FCA's presentation on its dedication to competition through its Innovation Hub; a presentation on the nature and value of privacy itself; and salutary lessons from a pioneer of loyalty programmes on the 'bear traps' of customer rejection on privacy grounds and consumers' desire for increasing control over the commercial use of our data. The director's slides also featured the work of Danezis and others on privacy-friendly smart metering and a reference to the need to be human-centric.  

But inverting the institutional narrative to a truly human-centric one would transform the supplier's data challenge into one of organising its product data to be found by consumers' machines that are searching open databases for solutions based on actual behaviour - open data spiders, as it were  - rather than sifting through ever larger datasets in search of the 'more predictive' customer profile to determine how it wastes spends its marketing budget.

Personally, I don't find much inspiration in the goal of enabling banks, insurers and other financial institutions to unite the data in their legacy systems to improve the 'predictive' nature of the various models they deploy, whether for wholesale or retail exploitation, and I'm sure delegates faced with such missions are mulling career changes. Indeed, one delegate lightened the mood with a reference to 'Conway's Law' (that interoperability failures in software within a business simply reflects the disjointed structure of the organisation itself). But it was clear that financial institutions would rather leave this as an IT problem than re-align their various silos and business processes to reflect their customers' end-to-end activities. There is also a continuing failure to recognise that most financial services are but a small step in the supply chain, after all. I mean, consider the financial services implications of using distributed ledgers to power the entertainment industry, for example... 

When queried after the event as to whose role it was to provide the 'voice of the customer', the response was that the ATI does not see itself as representing consumers' or citizens' interests in particular. That much is clear. But if it is to be just a neutral 'convenor' then nor should the ATI allow itself to be positioned as representing the suppliers in their use and development of 'big data' tools - certainly not with £42m of taxpayer funding. 

At any rate, in my view, the interests of human beings cannot simply be left to a few of the disciplines that the ATI aims to convene along side the data scientists - such as regulators, lawyers, compliance folk or identity providers. The ATI itself must be human-centric if we are to keep humans at the heart of technology.


Monday, 5 October 2015

Building Societies Abandon The Lending Code

A new version of the Lending Code has been released, simply omitting the name of the Building Societies Association which has ceased sponsoring the farcical idea that UK retail lenders should be allowed to regulate themselves.

Banks and credit card issuers still think it's a good idea though...


Wednesday, 30 September 2015

Heap's Giant Leap!

Another great discussion about distributed ledgers, this time focused on the music sector, hosted by the Copyright Hub at the Digital Catapult. A quick summary of the discussion along Chatham House lines to protect the innocent.

By now it's clear that people in different sectors are encountering very similar issues that might be solved by distributed ledgers, but each sector tends to have a different set of priorities that might mean one is faster to take advantage of the technology. The fact that the first solutions have been alternative currencies tells you that proponents of distributed ledgers are not shy of a challenge. Now music is to get the same treatment with key events this Friday and Saturday night featuring the release of Imogen Heap's song "Tiny Human" into a distributed ledger for 'hackers' to attempt to spoil the party, followed by a live Saturday night post mortem on what could be improved. No doubt future events will try to perfect the process.

Why music? 

The problems in the music industry (and most other segments of the entertainment market) are pretty well-rehearsed, with just about every stakeholder group (except the consumers, these days) split over whether digital technology is helping all the participants strike the right bargain or robbing them blind. The revenue flows (or lack of them) have been the subject of constant disruption from internet technology, with the advent of P2P file-sharing via Kazaa in 2001 and rewards-based crowdfunding through Artistshare in 2003.

But bigger obstacles to reaching a better settlement for all concerned lie in the notorious lack of data about who really created and/or worked on various tracks and albums; or even about what's really in many 'back catalogues'. Then there's the secrecy surrounding licensing/royalty deals and the snail's pace of royalty collection/distribution - not to mention who sampled what; whether a performance and related video was a private family affair or an attempt to build a public-facing YouTube channel; hacking digital rights management software; and file-sharing. 

A lot of these issues go away if you just focus on creating and dealing with new music in a more efficient way. And few of these issues are exclusive to music itself. They relate to any item whose status changes a lot and where a multitude of different parties are affected but find it hard to get all their systems and processes to talk to one another. 

So this seems another case for getting everyone's machines to share a single view of a marketplace that avoids 'capture' by any single intermediary. In fact, the 'ledger' they all share becomes that intermediary. In that case, all the participants' machines running the same ledger protocol would be able to see and agree who created which music in its myriad iterations and remixes; who has the various types of rights to exploit or consume the various versions; who owes what to whom; and even make payments in the ledger currency.

Will it work? There's only one way to find out - hence Imogen's giant leap on Friday night.

I reckon it'll be all the rage this Christmas ;-)


Thursday, 24 September 2015

This Is Not The Time To Let Bank Management Off The Hook

The CEO of UBS yesterday joined other wolves in sheeps clothing big bank leaders in calling for freedom to make 'honest mistakes' (last year it was the crew at HSBC!). 

This is just a confidence trick. After all, the word "mistake" covers many different types of sin and bank culture doesn't seem to distinguish between honest and dishonest ones, as Andrew Hill of the FT has pointed out. He also cites a memo from JP Morgan's CEO as warning against descending into "a culture of back-stabbing and blame" - but from what I understand that's exactly the culture that already prevails, at least amongst rival managing directors. Emails disclosed in numerous scandals reveal that these are dog-eat-dog environments, full of perverse incentives, where everything from taking the credit for other people's efforts to fiddling records to incurring the odd regulatory fine are just speed bumps along the road to fees, profits and this year's bonus.

Ignorance of exactly what is going on at operational level is another aspect of this confidence trick. Recently, the CEO of government-owned RBS told John Snow of Channel 4 News that he "didn't know" whether there were other major scandals waiting to break. I guess it's a tricky question to answer, but it does highlight the conclusion from the Parliamentary Commission on Banking Standards that these banking groups appear to be beyond management control, enabling those at the top tend to avoid culpability. Remember, too, that many of the recent scandals, like currency market rigging, arose well after the start of the financial crisis. So nothing has really changed since the aptly nick-named 'noughties' (lest we forget Bobby "Dazzler" Diamond's immortal words in 2011!).

And to suggest that regulation might mean big banking groups will tend to take less risk in doing things that customers care about, like lending to small businesses or paying higher returns on savings, is poppycock. They aren't bothering to do this anyway. They just want the freedom to make more money for management, and possibly shareholders. They are simply not customer-led businesses.

For all these reasons, the bank CEOs should continue to be roundly ignored.


Guest Post at Open Identity Exchange - A Pragmatic Approach To Distributed Ledgers


The post appears here.

Thanks to OIX for the opportunity to support the initiative.


Tuesday, 22 September 2015

How To Pay A Spanish Speeding Fine From The UK


There seem to be a lot of grumpy tourists surfing the web after their holidays in search of a method to pay their fines. Strangely, the Spanish don't make it easy! I finally cracked it and share the steps below, some of which were the result of a call to the Spanish authorities on the number given on the fine notice, but the links came from surfing the net. Please take care when using the links/urls to ensure you are on the official pages! 
Click here: https://sedeapl.dgt.gob.es:7443/WEB_Sanciones/jsp/sincertificado/identificacionPagador.jsf [note this is reached via https://sede.dgt.gob.es/es/tramites-y-multas/alguna-multa-en/pago-de-multas/ , which in turn is reached by clicking the union jack “Is there a fine?” link at http://www.dgt.es/es/].

When the online form comes up, complete as follows:
Under "Document type", click the drop-down menu and click “passport”

Under "Document number", type 000000 - six zeros

“Date of the Report” means the date at the top of the fine notice in the box marked “Fecha Denuncia”

“Record Number” means the number in the top right of the fine notice in the box marked “N. Expediente” – with all dashes and dots removed

For the amount, you must put the total amount of the fine, not the discount for early repayment - the site will then calculate any discount and display it in the next screen, which will also give you the opportunity to pay by debit/credit card.
Drive safely ;-)


Thursday, 23 July 2015

What (The Hell) Is A Smart Contract?

Another good meeting of the BitcoinBlockchain Leadership Forum today, with the focus on practical use-cases for distributed ledgers and grasping at the nebulous concept of 'smart contracts' (links are to my own recent posts on these topics). 

In particular, we saw good, productive tension between Bitcoin blockchain purists who are intent on coding pretty much every element of a transaction into the blockchain; and those who see distributed ledgers as (also) playing a more limited role as just one layer or component in a broader array of gadgetry involved in any contractual scenario.

In my view, both approaches are valid but which 'wins' will depend on the use-case. And the development of the Internet demonstrates the technology will be used in ways no one intended anyway.

So, for my money, the definition of a 'smart contract' needs to be very broad, and I've suggested:
"an agreement performed via any number of applications, devices, networks and messages, which may involve entries in a distributed ledger."
This definition flows partly from a great discussion I had with Alex Amsel of Bitshake recently. I made the point that distributed ledgers seem most useful where a specific item is somehow dealt with or used very frequently and by many people or entities. Alex added a third condition: the participants are running different proprietary software, operating systems and/or devices - in other words they have an expensive interoperability challenge.

So a 'smart contract' might just be written in Word format, or html, and not embedded in a distributed ledger at all. But the subject matter of the contract - the rights to play a song, or rent a shipping container or space on a truck - might be 'hashed' into the ledger, and users' machines could interact using that hash, triggering instructions to pay the contractual amount to a certain account. Multi-factor authentication as one step in the contractual process (e.g. identify checks for anti-money laundering) is another example.

At the forum, there was mention of locating, booking and paying for a car space as another example. This was dismissed by lots of people who said you can already do this without a distributed ledger - the parking space is already entered in the systems of the council's chosen payment service provider. But that means I need to know which municipality I'm in to find the right payment app, download it and register a payment method before paying (I changed cars recently, so I have to re-do all that). And that inaccessibility is partly a function of having to cover the cost of expensive proprietary systems. But if parking spaces were 'hashed' in an openly accessible public ledger, couldn't our smartphones find and pay for them using that code and our own chosen payment method?

Anyhow, the point is not that we necessarily need distributed ledgers to pay for parking or any other specific use-case, but that once people begin using distributed ledgers more widely, tons of other apparently trivial uses become feasible and worthwhile. Conversely, a comparatively trivial but widely shared use-case might unleash more widespread adoption, as happened with text messaging (I'm not suggesting that parking will do it, by the way).

Of course, Bitcoin users will be screaming at their screens by now, if they've got this far. They'll be shouting that Bitcoin has already unleashed distributed ledgers. 

They're probably right.


Wednesday, 15 July 2015

1001 Use Cases For Distributed Ledger Technology...

Virtual currencies are so last year. This year is about all the other uses for the underlying technology - the blockchain and other distributed ledgers.  

The number of use-cases is starting to snowball with every discussion about scenarios in which a certain item is dealt with many times by many parties. That's because it will be more efficient and cost-effective for the item to be represented by a 'hash' in the ledger, and each transaction related to that item to be 'hashed' so they are available to any computer running the same language/protocol, rather than dealing with that using 'old' technology. Even though the ledger is openly accessible to everyone's machine, confidentiality can be guaranteed using encryption, so that only those computers with the right private key could unlock the hash and see the details.

Here are a few of the ideas, some of which are definitely being kicked around and most of which involve smart contracts, e.g.:
  • freight, transport, logistics - e.g. booking space in shipping containers, long-haul trucks and aircraft, and keeping track of the delivery items themselves;
  • tracking, controlling autonomous vehicles/devices;
  • switching to the best tariff minute to minute for services related to cars, homes, devices like insurance, gas, electricity, phone contracts;
  • renting hotel rooms, accommodation;
  • tracking and paying royalties for music, films etc;
  • something I'm working on that it's not my place to disclose;
and on, and on.

In other words, distributed ledgers as a platform will have the same horizontal impact as the Internet,  mobile networks and the smartphone. The ledgers won't necessarily replace any of that, but will be an important layer, enabling all sorts of applications and devices to 'run' off the recorded transactions and related events.

Worth giving is some thought - just keep a good old fashioned pen and paper handy to jot down the flow of ideas ;-)

Tuesday, 7 July 2015

#LOBOs The Wolves That Stalk The High Streets

'Lobo' is Spanish for 'wolf'
Last night Dispatches updated us on the LOBO crisis that's savaging the UK's local government budgets. 

Not only have councils lost the estimated £500 million in instant profits pocketed by the banks who lured them off long term, low rate loans to 'more flexible' terms; but they're also left with higher interest bills that have resulted in more spending cuts or higher borrowing.

Everyone still involved seems to deny there's a problem, of course, but the data speaks volumes and some of the poachers-turned-gamekeeper have been willing to spill the beans. 

It's worth noting that the banks paid commissions to 'brokers' who brought in the business. Whether those commissions were or should have been disclosed is one issue; and whether the brokers also paid a cut to others is another. You'd think that Clive Betts MP (Lab), Chair of the Commons' Select Committee on Communities and Local Government, might include those items on his agenda - assuming he can get past the sad fact that allowing local governments to deal with the banking wolves in the first place was a Labour initiative.

It's also important to note that all of this only came to light through the tenacity of researchers armed with Freedom of Information requests, the results of which were handed to Dispatches. While hunting down any miscreants is an important step, requiring greater transparency on the sources and terms of local government borrowing in future might also help avoid another mauling. 


Friday, 19 June 2015

Video Did Not Kill The Radio Star

So many highlights from the past few days at the SCL's Technology Law Futures Conference on 'Keeping Humans at the Heart of Technology', available online soon, but a favourite quote is that "video did not kill the radio star" (with apologies to the Buggles). 

A more fulsome report will no doubt be available shortly. In the meantime, we should all be thinking about the responsible development of 'artificial narrow intelligence' in the context of social care, driver-less cars and other autonomous vehicles (not to mention surveillance and warfare, to the extent we can influence that!). 

If we can insist on adequate transparency and appropriate rules governing risk and liability in the context of these types of projects, then maybe we'll be in good shape to deal with 'artificial general intelligence' when that comes, as well as the potential for artificial superintelligence beyond... [drum roll]... The Singularity.  

Or we could simply fade away as the machines take over.

It's up to us.

For now.


Sunday, 3 May 2015

Banks Make A Mockery Of Their Self-regulatory #LendingCode

Readers may still be surprised to hear that Britain's retail banks remain self-regulated when it comes to their lending activities.

That means it's the job of their own Lending Standards Board to check that subscribers are complying with the self-regulatory Lending Code, not the Financial Conduct Authority (although there is a 'memorandum of understanding' between the two bodies written on the back of an envelope somewhere).

Of course, the Lending Standards Board tends to give its own members a clean bill of health...

Which is puzzling, because the LSB has just made the rather unfortunate discovery after reviewing complaints procedures that there is "mixed evidence to indicate that issues, once identified, [are] being reviewed specifically against the requirements of the Code."

In other words, the banks are blowing raspberries at the Code.

So, um, how could the LSB have given the banks a clean bill of health before now?

Does the FCA care? Or, in regulatory speak, "Quis custodiet ipsos custodes?"

It's been a farce from the very beginning.


Saturday, 2 May 2015

2015: The Year Our Political Class Went Rogue

April passed in stunned silence on this blog because I was waiting patiently for the UK General Election to get real.

Instead, our political classes went rogue.

Today, all the way from Greece to Scotland, there are no politicians who believe it is their job to ensure that society lives within its own means.

James Palumbo hit the nail on the head in his article for the Evening Standard this week. "In place of facing hard truths, our leaders offer unaffordable and undeliverable promises." The Institute of Fiscal Studies promptly confirmed it.

You might think our politicians went rogue years ago, and some of them did. But I think the last coalition was formed by people in such a deep state of shock at how badly the New Labour machine had transformed Britain's economic plight that they were genuinely committed to ensuring the country did not go broke. 

Since then, the endless process of distraction, deception and spin has meant that even the dreaded Tory machine has realised it can 'extend and pretend' just like the Greeks. 

These days nothing in politics is real. The same effluent is cycled from the pollsters to the media to the party machines, out the mouths of candidates and canvassers and into the eyes and ears of the deceived, who feed the same crap back into the polls. Every 'issue' - from health, social welfare and education to immigration, foreign aid, devolution and higher taxes for 'non-doms', 'mansions' and foreign corporations - is debated on the utterly false assumption that the country can finance whatever policy is touted.

If you thought Gordon Brown has had a rough ride, just imagine what will happen to the Prime Minister in charge when the truth really dawns.


Sunday, 29 March 2015

Is There Really A Single EU Market?

Some sobering figures from the European Commission for single market fantasists enthusiasts (as if Greece wasn't sobering enough).

EU cross-border services account for 4% of all online services, as opposed to national services within the US (57%) and in each of the EU member states (39%). 

15% of EU consumers bought online from other member states, compared to 44% who bought online nationally, with online content seeing double-digit growth.

Only 7% of SMEs sell online across EU borders - and it costs an average of €9,000 to adapt their processes to local law in order to do so. 

The cost/price of delivery is (obviously) cited as a major problem, as well as differing VAT arrangements. But suggested solutions seem to ignore these and other key barriers to cross-border retail that have been cited in previous market studies, such as lack of marketing strategy, preference for national brands, language barriers and local employment law challenges. Presumably, that's because the Commission can do little to address such fundamental practicalities. Instead, they want to focus on:
  • stronger data protection rules;
  • broadband/4G roll-out;
  • use of 'Big Data' analytics; and
  • better digital skills amongst citizens and e-government by default.
The sense of futility that permeates such reports by Eurocrats only emphasises the fact that the law follows commerce; it doesn't catalyse markets.  

Yet, ironically, in areas where commercial and consumer pressure to enable cross-border activity is emerging, such as crowdfunding and crypto-technology, we find European institutions taking an unduly restrictive approach.

When will they simply get out of the way?


Who Is Late In Paying Our #SMEs £41bn?!

In an attempt to eradicate late payments to small businesses of approximately £41bn, the government has proposed that, from April 2016, large listed companies will have to report twice-yearly on: 
  • their standard payment terms;
  • average time taken to pay; 
  • the proportion of invoices paid within 30 days, 31-60 days and beyond agreed terms; 
  • amount of late payment interest owed/paid; 
  • incentives charged to join/remain on preferred supplier lists; 
  • dispute resolution processes; 
  • the availability of e-invoicing, supply chain finance and preferred supplier lists; and 
  • membership of a Payment Code.
A copy of the simple but effective sample report is attached to the government's announcement.

Not only should this data result in the naming and shaming of late payers, but it should also further define and foster growth in the market for discounting these invoices, to help fund the growth of the affected SMEs.

Monday, 23 March 2015

8 Financial Services Policy Requests - Election Edition

If you've been lumped with the job of writing your party's General Election Manifesto, here are 8 financial policies to simply drag and drop:

1. Remove the need for FCA credit-broking authorisation just to introduce borrowers whose finance arrangements will be 'exempt agreements' anyway - it makes no sense at all;

2. Remove the need for businesses who lend to consumers or small businesses on peer-to-peer lending platforms to be authorised by the FCA - again, it makes no sense, because the platform operator already has the responsibility to ensure the borrower gets the right documentation and so on; an alternative would be to allow such lenders to go through a quick and simple registration process;

3. Remove the requirement for individuals who wish to invest on crowd-investment platforms to certify that they are only investing 10% of their 'net investible portfolio' and to either pass an 'appropriateness test' or are receiving advice - it's a disproportionately complex series of hoops compared to the simplicity of the investment opportunities and the typical amounts at stake;

4. Focus on the issues raised in this submission to the Competition and Markets Authority on competition in retail banking, particularly around encouraging a more diverse range of financial business models;

5. Re-classify P2P loans as a standard pension product, rather than a non-standard product - the administrative burden related to non-standard products is disproportionately high for such a simple instrument as a loan;

6.  Reduce the processing time for EIS/SEIS approvals to 2 to 3 weeks, rather than months - investors won't wait forever;

7.  Reduce the approval time for FCA authorisation for FinTech businesses from 6 months to 6 weeks; alternatively, introduce a 'small firms registration' option with a process for moving to full authorisation over time, so that firms can begin trading within 6 weeks of application, rather than having to spend 3 months fully documenting their business plans, only to then wait 6 to 12 months before being able to trade - others entrepreneurs and investors will stop entering this space;

8. Proportionately regulate invoice discounting to confirm the basis on which multiple ordinary retail investors can fund the discounting of a single invoice - it's a rapidly growing source of SME funding, simple for investors to understand and their money is only at risk for short periods of time.


Tuesday, 3 March 2015

Artificial Intelligence: The Control Dichotomy

Professor Nick Bostrom delivered an inspirational speech for the SCL last night on "Superintelligence: a godsend or a doomsday device", although few would have found it reassuring - it is certainly conceivable that machines could become more intelligent than humans and that humans might not be able to control them. But these are still early days, he stresses. Regulating the development of artificial intelligence at this point risks halting progress. There's a lot more work to do to really understand how artificial intelligence will develop beyond playing old video games better than humans or recognising an image as the picture of a cat. We need to consider how the technology could help avert our extinction, as well as how it might wipe us out. Yet Nick also warns that it will take far less time for computers to exceed human level machine intelligence than to reach it in the first place. So we need to start work on the control mechanisms for the development and use of artifical intelligence, without regulating the industry out of existence: the control dichotomy.

Nick suggests that the guiding principle should be that of "differential technological development" - diverting resources away from technologies and their application which could cause human extinction while focusing on those which will either help prevent our demise or will facilitate the expansion of the human race throughout the cosmos.

But how do we distinguish between helpful and harmful technologies and their application? 

As Nick points out, it's tough to think of any human invention that is inherently 'good'. He mentions many things, from gun powder to genetic engineering, and I think we can throw in the wheel and the Internet for good measure. All these things are used by humans in bad ways as well as for the greater good. But I think what horrifies us especially about the idea of Superintelligence or 'The Singularity' is that it will be machines, not bad humans, who will be using other machines against us. And while we have lots of experience in dealing with evil humans, even our top minds admit we still don't know much about how machines might act in this way or how to stop them - and what we humans fear most is the unknown. 

You'll notice I haven't said 'evil' machines, since they might not be operating with any evil 'intent' at all. Human extinction might just be a mistake - 'collateral damage' arising from some other mission. For instance, Nick suggests that a particular machine left to itself in a given situation might decide to devote itself entirely to making paperclips. So, presumably, it would not bother to put out a fire, for example, or free a human (or itself) from a burning building. It might leave that to other machines, who might in turn have chosen their own narrow objective that involves ignoring people's screams.

Here's where I struggle with the notion of Superintelligence. In fact, as someone who hates being pigeon-holed into any single role, I think a machine's decision to only ever make paperclips might be fabulously logical and a brilliant choice for that machine in the circumstances, but it makes the machine as dumb as a post. For me, Superintelligence should involve a machine being able to do everything a human can and more

But that's beside the point. Knowing what we know already, it would be insane to ignore the paperclip droid and wait for artificial intelligence to develop a machine more capable than humans before figuring out how we might control it. Nick is right to point out that we must figure that out in parallel. In other words, the concept of human control has to be part of the artificial intelligence programme. But it won't be as simple as coding machines to behave protectively, since machines will be able to programme each other. For instance, Nick suggests we could put the machines to work on the control problem, as well as on the problem of how to ensure the survival of our species. AI labs might also pay insurance premiums to cover the damage caused by what they develop. He was less certain about what we might do to constrain developments that occur in the context of secret defence programmes or intelligence gathering, but he seemed confident that we could at least infer the pace of development from the results, and be able to consider how to control the wider application of those developments. Mmmm.

At any rate, Nick also warns that we need to be careful what we wish for. Mandating human survival in a prescriptive way - even a specific biological form - would be a bad move, since we should not assume we are in a position to foster positive human development any more than the Holy Office of the Spanish Inquisition. Better to embed positive human values and emotions or, say, entertainment as a feature of intelligent machines (although I'm guessing that might not go down well with the jihadis). From a phyiscal standpoint, we already know that the human body won't do so well for long periods in space or on Mars, so some other version might need to evolve (okay, now I'm freaking myself out).

To retain a sense of pragmatism, at the end of the speech I asked Nick what he would recommend for our focus on 'Keeping Humans at the Heart of Technology' at the SCL conference in June. His tip was to consider which of the various types of control mechanism might work best, recognising the need to avoid constraining the positive development of artificial intelligence, while ensuring that we will be able to keep the machines in check if and when they become smarter than us.

No pressure then...


Tuesday, 17 February 2015

Will Machines Out-Compete Humans To The Point of Extinction?

I've been a bit absent from these pages of late, partly pulling together SCL's Technology Law Futures Conference in June on 'how to keep humans at the heart of technology'. As I've explained on the SCL site, the conference is part of SCL's effort to focus attention on that question all year, starting with a speech by Oxford University's Professor Nick Bostrom on 2 March: "Superintelligence: a godsend or doomsday device

In other words, last year was when the threat of "The Singularity" really broke into the mainstream, while this year we are trying to shift the focus onto how we avert that outcome in practical terms. 

My own book on how we can achieve control over our own data is still ping-ponging between agent and publishers, but will hopefully find a home before another year is out - unless, of course, the machines have other ideas... 


Monday, 2 February 2015

Humans, Not Big Data, Must Benefit From Opening Up The Banks

One of the 'good news' items in last year's Autumn Statement was the endorsement of an Open Data Institute report on how innovators could make better use of bank data on our behalf (instead of on the banks' behalf). Last week, the Treasury followed up with a call for evidence "on how best to deliver an open standard for application programming interfaces (APIs) in UK banking and... whether more open data in banking could benefit consumers."

This is important, because enabling our own machines to start crunching our financial data on our behalf is key to humans winning the race against Big Data.

'Open data' involves enabling public access to data by connecting data sets using uniform resource identifiers ('Linked Data') and publishing data about them in machine-readable formats. While the government and other public institutions have done a good job of opening up public data sets so far, our private institutions are lagging behind, as discussed here. That's because they benefit from making sure we know less than them about our own requirements - 'information asymmetry'.

The Midata initiative was the first to aim at restoring the balance in favour of consumers, by taking aim at energy utilities, telecoms providers and banks. Now the energy companies face being opened up like so many tin cans by smart metering, while the telecoms market looks like it will go from bad to worse. Banks have also proved a tougher nut to crack. Yes, some people can download their current account data via internet banking. But in addition to consumers, there are 4.5 million small businesses out there that need a hell of a lot more than that. So far, it's taken regulatory action just to start the process of improving access to small business credit data and making a market in rejected small business loan applications. Now the Treasury is trying to force the pace on the technology necessary to support all that.

The ODI's recommendations for opening up banking are: 
  • banks should agree an open API standard to support third party access to bank data - basically firms that can help you make sense of the data (but Big Data firms will try to persuade you to share it with them too);
  • independent guidance should be provided on technology, security and data protection standards that banks can adopt to ensure data sharing meets all legal requirements; 
  • an industry wide approach should be established to vet third party software applications and publish a list of vetted applications as open data - this would allow visibility of firms that are acting on consumers' behalf and those who are not;
  • standard data on Personal Current Account terms and conditions should be published by banks as open data; and 
  • credit data should be made available as open data.
My main concern is that requiring agreement on 'standards' as a precondition for opening up banking will enable the banks to delay the whole process by a decade - as they did with Faster Payments. As was recommended by the security working group in the Midata initiative, I would prefer to see banks required to immediately make their data available to each consumer/SME in whatever open format the banks choose, while adhering to common data security protocols, and leave it to the open data community to figure out how to re-format and display whatever rubbish they dish up.

Apart from complaints by the banks, Treasury officials expect to hear positive contributions from consumer groups, other financial services providers, financial technology firms and app and software designers.

Let's not disappoint them. This is a good opportunity to ensure the government clears the way for innovation that puts you and me at the heart of financial services, without mistakenly creating further barriers in the process.


Friday, 23 January 2015

The P2P Jobs Market

The UK has an army of 4.6 million self-employed people, according to the Office of National Statistics - the largest it's been since we began recording such figures 40 years ago. That's 15% of the UK workforce. Even more significant is that 732,000 of the 1.1m people who have found work since early 2008 are self-employed. Fewer people have been leaving self-employment for employee roles over the past five years than used to be the case. Perhaps that's because of the recession. But over that period numerous services have emerged to support self-employment, and it seems possible that we'll see an even greater shift towards that way of working in the future.

So, who are the self-employed, and how do they find work?

The largest increase in self-employment since 2008 has been among 'managers, directors and senior officials'. But, hey, every self-employed person might claim to be a manager. So it's more noteworthy that the top 3 self-employed roles of 2014 have been building trades, cab drivers/chauffeurs and carpenters. The figures also show that professional and technical occupations are heavily represented.

How do these people find work?

No doubt word of mouth has a lot to do with it. But we've also seen a rise in the number of online marketplaces that match self-employed people with those who need work done. Indeed, TaskRabbit, a leading US marketplace, chose London as testing ground for a more automated model that it later rolled out in the US to replace its initial manual auction service. While TaskRabbit currently seems to cover the broadest range of services, there are many other such marketplaces in the UK, such as RatedPeople, Trustatrader, MyHammer, MyBuilder, TradeAdvisor, Checkatrade and so on. Note that Amazon has launched a 'local services' offering in the US, which suggests it may one day do so here.

The prevalence of cab drivers amongst the self-employed may help explain the growing number of taxi apps and car-share services.

Meanwhile, SchoolofEverything (a client of mine from 2007, on the back of my experience of P2P lending), enables anyone to make money from giving lessons in almost anything you could think of (...no, not that).

At any rate, the growth in both the number of self-employed people and the services that help them find work, suggests that self-employment could be an even more popular model in the future. The rise of the P2P economy?


Thursday, 15 January 2015

Another Hung Parliament, Please

With the UK general election looming in May, I thought I'd declare my apolitical hand: I'm hoping for another 'hung' Parliament and a coalition government.

I've been a fan of the idea since the opportunity presented itself in the last general election. I think the beast has worked pretty well for the pragmatic amongst us, and is well suited to dealing with the nasty challenges ahead. As I hoped in April 2010, politicians on both sides of the coalition have had to behave much more reasonably and responsibly in seeking solutions to the root causes of our problems than their party-political dogma would have otherwise dictated. This has spiked the guns of an extremely dogmatic opposition. And even the media's doom-mongering about instability and chaos has proved groundless. Sure there have been U-turns and major disagreements between the coalition parties, but the democratic progress should be dynamic, open and messy - not engineered, top-down, by a party leader with a Whip.

The same form of government is needed over the next five years because the long journey out of the tunnel has barely begun. That light up ahead is not looming economic recovery, it's an on-coming train laden with vast public sector debt, slowing Chinese growth, savagely low oil prices that might rebound higher than before, the Russian Problem, insanity in Greece, negative real interest rates and a stagnant Eurozone. Oh, and a new global financial crisis, as Hank Paulson infamously forecast in 2010:
"...We'll have another financial crisis sometime in the next 10 years because we always do.""
The public finances are still in a parlous state. So all the UK political parties face the need to cut public spending, whether they like it or not. Raising expenditure is out of the question, because it would mean borrowing more - and higher taxes won't bring in any more money. The total UK tax receipts have hovered at or below 40% of GDP for over 40 years. We're bumping along the ceiling, people! Raise taxes, the economy grinds to a halt and the best you'll get is 40% of a smaller pie. Cut taxes to around 35% of GDP,  the economy roars into life and you get a smaller slice, but of a much bigger pie.

But, hey, if you think the UK should drift into the next financial crisis with even higher debt and taxes, why not simply move to Greece?

What's left to cut? There's no end to it: we need our politicians and civil servants to remain focused on making the public sector more efficient, by removing waste and insisting that services be designed to operate more efficiently in future, particularly in the major spending areas. The defence budget, for example, is a rounding error on a more efficient tax and benefits system and a leaner, better co-ordinated public health and social care sector (20% of hospital beds are occupied by people who aren't even sick!). Money could also be saved by addressing root causes instead of their many symptoms. For instance, would more social housing have helped ease the pressure on first-time buyers, avoiding government subsidies to them and pre-empted the policy battle over immigration levels? Similarly, we must continue financial reforms to increase the sources of funding and the range of payment services for consumers and small businesses (who create half of all new jobs) because the economy is still too dependent on a few major banking groups who remain a millstone around the country's neck.

Some people will say this is dry, boring and unimaginative. But if you want entertainment, head to the movies. 

Others want something to believe in. For instance, they accuse David Cameron of lacking political ideology or a 'pattern of belief', an '-ism'. Yet they claim that his "legacy will be a collection of tactical manoeuvres, with as many prominent surrenders as victories." Apparently these people have never heard of pragmatism. But they've also unwittingly hit on the benefit of the hung Parliament in restraining coalition parties from implementing their more extreme policies. By contrast, the 'believers' expect us to cling to the idea that Ed Miliband is "in politics for the right reason" (just the one?) or "propelled by something more noble than the salvation of his own skin", which you could choose to mean anything that gets you through the day. But beware words like 'right' and 'noble'. They are the cloaks of dogma and moral panic - rallying cries for the likes of Tony Bliar's weird crusade or Gordo's crash, in which Miliband (and Balls) played key roles - not to mention the ballooning cost of the Security State. So, actually, if we believe anything in this vein, then it's surely that such 'noble' ambitions make Labour governments the kind of luxury that only a much wealthier country could afford

But, who knows, maybe being trapped in a coalition would even convert Ed to pragmatism.

Whichever way you look at it, we need a government that's forced to focus on resolving the root causes of society's actual problems - not one driven to distort the facts to suit its own dogmatic solutions. And my sense is that only another hung Parliament will ensure we get it.


Tuesday, 13 January 2015

Feeling Down? Try #FoxNewsFacts

Source: Bipartisan Report
By now you probably know that Fox News broadcast claims by a so-called 'terror expert' that - among other bizarre claims - the UK city of Birmingham is 'totally Muslim' and non-Muslims 'don't go there', when Muslims only represent a quarter of the population, according to the BBC. Clearly an idiot. Fox actually had several goes at this - note the 'expert' is wearing a different shirt/tie combination in the two clips below. The 'expert' has since apologised and admitted to being completely wrong, though I'm not sure the anchors have apologised for their part in it. Sky News tried to clean up the mess for the Murdoch Empire by interviewing the 'expert' afresh, but it just got worse as he likened listening to his own erroneous comments to "being waterboarded"

Of course, this isn't the only instance of bizarrely ignorant claims, opinion or commentary on Fox News, and I can't work out who's worse - the Fox News anchors or the so-called experts they interview.  You can judge for yourself by following the #FoxNewsFacts hashtag on Twitter. It's hilarious, if you can fight the urge to panic over how many stupid people might actually believe this crap. I do wonder whether US foreign policy - amongst other things - might be rather different if Fox News viewers were given the actual facts, rather than this trash.

One day, we might even find out.



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