Thursday, 21 December 2017

Think Of The #Brexidiots On the Darkest Day Of The Year

How fitting, on the shortest, darkest day of 2017, that we should think of all those Brexidiots who stood in front of that big red bus 18 months ago selling Brexit fantasy snake oil to would-be-Leavers. 

The 'promise' was that Brexit was not only practicable, but simple, low cost, would leave the UK with more money and that trade deals would be plentiful and easy. 

Yet all those snake oil salespeople - the lurkmen, touts and bludgers - have done ever since is submit to every demand the EU has made. Painting themselves and the UK into a corner where it must comply with all EU laws and trade rules but have no say in how they are made.  The member state becomes the vassal state, an EU colony, in the words of Brexidiot Johnson.

Because the UK is definitely the biggest loser out of Brexit.

And that's why 2018 will be the year it is stopped.

Friday, 8 December 2017

Time To End This False Brexit Farce?

As the EU/UK joint report on "progress" makes clear, the parties have done nothing more than agree "in principle” on only three of many, many issues to be resolved if the UK is to leave the EU (and that remains a big “if”). Aside from the ongoing price tag, there are the three aspects worth noting below. But my overriding concern is that the very reasonable steps which people and businesses are already taking to minimise their exposure to the downside (and maximise exposure to the upside) of the Brexit “Black Swan” are probably the main source of lasting damage for the UK, and unless the Brexit process is soon halted that lasting damage will be done. 

The first area of common ground is that if citizens wish to retain their EU rights (with some family members being able to join them), then UK citizens need to be ‘legally resident’ in (another) EU member state, and EU citizens legally resident in the UK, on the date of the UK’s withdrawal. But they may well need to apply for that status, and this opens a chasm of uncertainty. 

After some scary moments early this week, the UK now seems clear that the Good Friday Agreement must remain paramount. That deal was predicated on EU membership, so it's a Trojan Horse for what the “Leave” camp are now calling “Leave in name only” (or “LINO”). There is no clarity at all, for example, on how the absence of a ‘hard border’ between Northern Ireland and the Republic of Ireland can be accommodated in light of typical import/export checks and other constraints between the EU and ‘third countries’ (as the UK will be). My sense is that there could never be agreement on that, the result of which is stated (in para 49) to be that: 
“the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North - South cooperation, the all-island economy and the protection of the 1998 Agreement.” 
The demands from Scotland, Wales and London to receive equal treatment with North Ireland in this respect also seem to be honoured in paragraph 50 of the report. Other provisions suggest free movement of labour will continue, as will free movement of goods ‘placed on the market’ prior to UK withdrawal. There are references to transitional arrangements but no cap on their duration...  Uncertainty abounds.

There is no mention of free movement in relation to any services, let alone financial services - which are a bellwether for the UK economy. Financial passporting was ruled out by Mr Barnier on 20 November, but perhaps it might yet leap out of the Good Friday Trojan Horse. Be that as it may, there is nothing sufficiently certain on this front that should tempt firms which are currently passporting from the UK to delay the process of establishing new EEA passport ‘hubs’ within one of the EU27 countries by March 2019 (or, indeed, EEA firms from establishing a UK presence). Management and staff will also be considering their own personal risks and opportunities related to this, particularly where they might benefit from rights that flow from becoming legally resident in an EU27 member state before the UK’s withdrawal. 

No doubt there are also people and firms in other sectors who will be similarly disinclined to halt or pause their own efforts to minimise their exposure to the downside of Brexit, and maximise their exposure to the upside. It is this risk management activity in the face of continuing uncertainty that seems likely to cause lasting damage to the UK...

Wednesday, 29 November 2017

Brexit Needed Your Fully Informed Consent

In 2016, the Swiss parliament realised the people had made a terrible mistake in a narrow, binding 2014 vote to impose quotas on EU workers.

While Switzerland is not an EU member, it's the EU's third largest trading partner after the USA and China - so more important than the UK on its own - and has a free movement agreement for all EU citizens, meaning EU citizens can live and work there.

The EU was not intimidated by the Swiss vote in 2014. The EU (including the UK, even after the Brexit vote) continued to insist that any attempt to restrict free movement of EU citizens would automatically exclude Switzerland from the EU single market. Imposing quotas would end all of Switzerland's 120 trade deals with individual EU members and result in exclusion from the EU’s chemical regulation, research and education programmes.

So the Swiss parliament decided not to implement the quotas on EU workers. Voters had not been informed of all these consequences of voting to impose the restrictions. Conservative politicians were outraged, but that was felt to be a price worth paying to protect the Swiss economy.

UK citizens are already personally familiar with the need for consent - especially where that is the basis for processing their personal data under the Data Protection Act 1998. Indeed, the UK government was instrumental in developing the new, more stringent General Data Protection Regulation (GDPR), and has committed to retain it post-Brexit

Where consent is relied upon for the processing of personal data, it must be a "freely given, specific, informed and unambiguous indication of the data subject's wishes... a statement or ... clear affirmative action [which] signifies agreement to the processing of personal data relating to him or her."

The UK's own EU referendum was a non-binding vote and a simple Yes or No to leaving the EU.  No one would argue that any voters were really "informed" as to the consequences of Brexit. Only a few of those consequences are clear 18 months later.  Many people are very angry that they were misled by Leave campaigners who claimed that leaving the EU would be easy, that it would cost nothing, that there would be new trade deals by now and the UK would be able to spend its EU contributions on the NHS instead.

But it is clear that the EU does not feel the need to compromise with the UK - after all it didn't need to for Switzerland.

On this basis, the non-binding referendum vote to leave the EU was not fully informed and Parliament should now now decline to proceed with it. The Article 50 notice to leave the EU can and should be withdrawn.

Wednesday, 22 November 2017

Mau-Mauing The Brexiteers

In 1970 a group of indignant, physically intimidating citizens gathered in San Francisco's Office of Economic Opportunity to confront a useless bureaucrat over the fraudulent failings of the Office's poverty relief efforts. The bureaucrat's initially condescending approach soon turned to humiliation and he ended the meeting with a pathetic promise to call his absent boss for some real answers the following morning. Satisfied with the bureaucrat's humiliation, however, nobody turned up to hear him make the call. 

Re-reading Tom Wolfe's famous article on the confrontation last night, it struck me as something of a parable for the campaign against Brexit, and yet revealed a key difference that firmly points to that campaign's success. 

Wolfe called his article on the confrontation in San Francisco "Mau-Mauing the Flak Catchers" in reference to both the intimidation by Kenya's anti-colonial Mau Mau Uprising and the tendency for public officials and politicians to send an underling to 'catch the flak' rather than face it themselves. He ends it with the observation, however, that the bureaucrats were ultimately successful. The flak catcher caught the flak and everyone went on with business as usual.

Brexit was billed by the Brexiteers as a poverty relief effort, but we've since discovered it was riddled with fraud, from the claims that there would be an "extra £350m a week" to be spent on the NHS, to the claim that the Tory leader could send the Article 50 notice without reference to Parliament, to the claim that the notice could not be withdrawn and the Brexit process stopped, to the notion that the UK would not need to settle its membership tab on the way out, to the claim that new trade deals would be easy... to the now utterly hollow claim that "Brexit means Brexit".

Such lies and misinformation have cast the Brexiteers as very, very low grade officials indeed. Whether or not you applaud their elevation to cabinet minister by a weak (and faux-Remain or closet Leave) Prime Minister, that step has at least highlighted their total and complete incompetence to lead or achieve anything. Years after launching their mendacious campaign to 'free' the UK from some imagined EU 'dictatorship' they are yet to offer any concrete details for an EU trade deal, let alone a 'Global Britain'. They have even failed at the first hurdle, skewered by their bizarre denial that the UK would need to settle its membership bill before leaving. These people are simply living a fantasy.

The indignant citizens actually confronting these bureaucratic flops are an intimidating bunch. They draw strength from representing at least 16 million people, for a start. They also tend to be the very people whom the Brexiteers must have been relying on to actually achieve the impracticable task of unwinding over 40 years of British efforts to make the UK a key player within the European Union. Beyond the disaffected UK civil servants there are millions of importers, exporters, manufacturers and their workers throughout British industry, investors and investment managers, QCs, judges, academics, teachers, nurses, doctors, students... a whole civil society of people who understand how the UK works, the value of its EU membership and that it does not work in isolation and who consider themselves EU citizens as well as UK citizens. They are angry and they are fighting for their rights and in many cases their homes.

But the key difference between the #StopBrexit campaigners and the indignant citizens who gathered in the San Francisco Office of Economic Opportunity in June 1970 is that no one is letting the hapless Brexiteers off the hook.  Unlike short-sighted Leave voters and the dormant botnets of the Leave campaign, their Twitter accounts are very much alive and connected to ongoing investigations, court proceedings, official complaints and petitions. They are relentless in challenging the hollow rhetoric flowing from the Brexiteers. And unlike the Brexiteers, anti-Brexit politicians are not fighting for their credibility - they can safely rely on inertia and the vast weight reality, statistics, events and common sense to expose the Brexiteers' feeble lies and misinformation on a daily basis. They are not satisfied with the mere humiliation of May, Johnson, Gove, Davis, Fox and their supporters and apologists (including the Labour front bench!). No, they are turning up the next day, every day, day after day, demanding answers and an end to Brexit.

Thursday, 12 October 2017

Why Would The #Brexiteers Lie?

Follow the money. 

Years of low interest rates have made investors desperate for higher returns, and volatile markets mean lots of big ups and downs, like the rollercoaster ride we've seen since the Brexit vote and are likely to see for many years as a result. Movement either way is an opportunity for speculators to make money, even if the longer term trend is down. And paying rock-bottom prices for UK assets could mean good profits can be made selling them to predatory trade partners in the future

At any rate, steady as she goes won't cut it for the wealthy investor - which is why "strong and stable" is just another #Brexiteer lie. After all, the wealthy don't have to live in Britain when the going gets tough.

So this is why the Leave campaign was largely funded by 5 wealthy financial investors, and why after the Brexit vote, George Osborne knew it was best to leap into an investment fund manager

And now that Brexit is hitting the buffers, guess what? Legatum, the Tory's hard-Brexit stupidity "think" tank has received £4m from a wealthy investor from New Zealand who Private Eye says made his money "by finding undervalued assets the rest of market ignored – “transition economies or distressed sectors where information is not easily available and standard metrics don’t apply”.

It's still unclear where the so-called "Institute for Free Trade" got its money, but it has similar hallmarks to the other Brexiteer stunts.

Make no mistake: Brexit is for a few, not the many who are unwitting pawns in their game. 

Monday, 9 October 2017

Are Retailers Prepared For Financial Regulation From 13 January 2018?

Three years after being announced in the UK and I suspect many retailers are still yet to realise that their loyalty/store card programmes will be regulated by the Financial Conduct Authority from 13 January 2018 - likewise across the European Economic Area. 

As the FCA now also explains, retailers who offer such programmes anywhere in the EEA will need to track the annual transaction volumes very carefully, starting with the completely arbitrary and inconvenient date of 13 January 2018. 

If the volume meets or exceeds €1 million (or the GBP or local currency equivalent) in any 12 month period (the first ending on 12 January 2019), the retailer must notify the FCA (or local regulator) within 28 days (by 10 February 2019).  Firms may also choose to register at any time from 13 October 2017.

But be sure of the outcome before you decide whether or not to register!

The regulator must then decide whether the programme is exempt from regulation as an e-money/payment service.  

If the firm fails to notify, it commits an offence under the Payment Services Regulations 2017 (or local equivalent implementing the second Payment Services Directive (PSD2)). 

If the FCA decides the programme is exempt, then it must include the retailer on the FCA's register of 'limited networks', and the name will be added to a central register of all such firms across the EEA.

If the FCA decides the programme is not exempt from regulation the retailer can appeal, but basically this means the firm will have been found to be violating the Electronic Money Regulations 2011 and/or Payment Services Regulations 2017 by issuing e-money and/or offering a payment service without being duly authorised/registered to do so. Major problem!

So retailers really have to decide now whether they should outsource the operation of the programme to an authorised firm (or the agent of one); or seek their own authorisation (or agency registration). Ultimately, they might restructure the scheme to fit the exemption, or shut it down.

Of course, the mere fact that retailers with loyalty schemes have to be mindful of these requirements and go through the process means they are in effect regulated by the FCA. Ignorance, as they say, is no defence.

Tuesday, 19 September 2017

BigTech Must Reassure Us It's Human

Recent issues concerning the purchase of lethal materials online, "fake news" and secure messaging highlight a growing tension between artificial intelligence and human safety. To continue their unbridled growth, the tech giants will have to reassure society that they are human, solving human problems, rather than machines solving their own problems at humans' expense. While innovation necessarily moves ahead of the law and regulation, developments in artificial intelligence should be shaped more by humane and ethical considerations, rather than outsourcing these to government or treating them as secondary considerations.

In the latest demonstration of this concern, Channel 4 researchers were able to assemble a 'shopping basket' of potentially lethal bomb ingredients on Amazon, partly relying on Amazon's own suggestion features or 'algorithms' ("Frequently bought together” and “Customers who bought this item also bought...”), which even suggested adding ball-bearings. This follows the phenomenon that emerged during the Brexit referendum and US Presidential election whereby purveyors of 'fake news' received advertising revenue from Facebook while targeting gullible voters.

Neither business is keen to proactively monitor or police its services for fear of conceding an obligation to do so and rendering itself liable for not doing so where the monitoring fails.

Channel 4 quoted Amazon as merely saying that:
"all products must adhere to their selling guidelines and all UK laws. [We] will work closely with police and law enforcement agencies should they need [us] to assist investigations." [update 20.09.17: Amazon is reported to have responded the next day to say that it is reviewing its website to ensure the products “are presented in an appropriate manner”.]
Amazon makes a valid point. After all, the same products can be bought off-line, yet unlike an offline cash purchase in a walk-in store, if they are bought on Amazon there is likely to be a digital 'audit trail' showing who bought what and where it was delivered. Indeed, it's conceivable that Amazon had alerted the authorities to the nature of the items in Channel 4 researchers' shopping basket and the authorities may have allowed the session to run as part of a potential 'sting' operation. It is perhaps understandable that neither Amazon nor the authorities would want to explain that publicly, but it would be comforting to know this is the case. Channel 4 is also somewhat disingenuous in suggesting this is an Amazon problem, when less well-resourced services or other areas of the Internet (the 'dark web') may well offer easier opportunities to purchase the relevant products with less opportunity for detection.

At any rate, the main difference, of course, is that no one from an offline store is likely to help you find missing ingredients to make a potentially lethal device (unless they're already part of a terror cell or perhaps an undercover operative) - and this is the key to Amazon's enormous success as a retail platform. It's possible, however, that a helpful employee might unwittingly show a terrorist where things are, and Amazon might equally argue that its algorithms don't "know" what they are suggesting. But whether it's because of the 'promise' of the algorithms themselves, there is a sense that the algorithm should not be vulnerable to abuse in this way.

Similarly, in the case of Facebook, the social network service has become a raging success because it is specifically designed to facilitate the exchange of information that generates passionate connections amongst like-minded people far more readily than, say, the owner of a bar or other social hang-out or a newspaper or other form of traditional media. Equally, however, Facebook might argue that the helpful algorithms aren't actually "aware" of the content that is being shared, despite use of key words etc. Meanwhile, WhatsApp seems to have declined to provide a terrorist's final message because it could not 'read' it (although the authorities seem to have magically accessed it anyway...).

Just as we and the online platform owners have derived enormous benefit from the added dimensions to their services, however, we are beginning to consider that those dimensions should bring some additional responsibilities - whether merely moral or legal - possibly on both users and service providers/developers.

In many ways the so-called 'tech giants' - Apple, Amazon, Alphabet (Google), Facebook and others - still seem like challengers who need protection. That's why they received early tax breaks and exemptions from liability similar to those for public telecommunications carriers who can't actually "see" or "hear" the content in the data they carry. 

But while it's right that the law should follow commerce, intervening only when necessary and in a proportionate way to the size and scale of the problem, the size and reach of these platforms and the sheer pace of innovation is making it very hard for policymakers and legislators to catch up - especially as they tend to have wider responsibilities and get distracted by changes in government and issues like Brexit.  The technological waves seem to be coming faster and colliding more and more with the 'real world' through drones and driverless cars, for example. 

The question is whether these innovations are creating consequences that the service providers themselves should actively address, or at least help address, rather than ignore as 'externalities' that government, other service providers or society must simply cope with.

The tech giants are themselves struggling to understand and manage the scale and consequences of their success, and the relentless competition to attract the best talent and the race to push the boundaries of 'artificial intelligence' sometimes presents as a declaration of war on the human race. Even the government/university endowed Alan Turing Institute seems to consider the law and ethics as somehow separate from the practice of data science. Maybe algorithms should be developed and tested further before being released, or be coded to report suspicious activity (to the extent they might not already).  Perhaps more thought and planning should be devoted to retraining commercial van and truck drivers before driverless vehicles do to them what the sudden closure of British coal mines did to the miners and their communities (and what the closure of steel mills has done since!).

In any event, the current approach to governance of algorithms and other technological leaps forward has to change if the 'bigtech' service providers are to retain their mantle as 'facilitators' who help us solve our problems, rather than 'institutions' who just solve their own problems at their customers' expense. They and their data scientists have to remember that they are human, solving human problems, not machines solving their own problems at humans' expense.

[update 20.09.17 - It was very encouraging to see Channel 4 report last night that Amazon had promptly responded more positively to researchers' discovery that automated suggestion features were suggesting potentially lethal combinations of products; and is working to ensure that products are "presented in an appropriate manner". The challenge, however, is to be proactive. After all, they have control over the data and the algorithms. What they might lack is data on why certain combinations of products might be harmful in a wider context or scenario.]

Thursday, 7 September 2017

FinTech: BIS Shakes The Banking Snow Globe - Anything Could Happen, Nobody Blamed

At least 17 years too late, the Bank for International Settlements (the central bank for central banks) has become very concerned about the impact of technology on the finance world. So concerned, in fact, that it has... produced a report for comment by the end of October.  Cue another vast exercise in global regulatory group-think...

The scenario is already amusing, but the report is laugh-out-loud material. It argues persuasively for every possible outcome, like some management consulting report on e-commerce from the early days of the Internet. Some banks will survive, others won't, for at least 10 significant reasons. Choose your bank, take your pick. Though in reality every bank is probably subject to all 10 in some way or other. 

Recommended actions are lofty and bland. They do not herald a departure from "same business, same risks, same rules" mantra that got the banking industry (and the broader regulated finance sector) into the current mess, nor any realisation that "fintech" doesn't represent the "same business" in the first place. In fact, we heard all the same stuff from central bankers back in April.

Never mind the obvious overall conclusion that the sector as a whole is doomed to wither for being glacially slow to adapt, brittle, hidebound and herd-like. Even central banks and BIS itself are clearly at risk. Maybe that's why some of them (and securities regulators) have now resorted to banning "initial coin offerings" of digital currencies without even being able to coherently explain why. The lack of self-awareness is hilarious. 

Anything could happen, but rest assured none of the this lot will be blamed.

Wednesday, 2 August 2017

Pesky EU Wants UK Banks Etc To Cut Cross-border Payment Fees

Not content with getting the Brits a better deal on mobile roaming charges and otherwise standing up to BigBusiness, the EU now wants to cut fees for non-Euro cross-border payments and currency conversion. The European Commission is inviting answers to two questionnaires by 30 October 2017 on awareness of the high fees and potential solutions, including whether consumers are being steered toward more costly currency conversion options at check-out.

Of the non-Euro countries in the EU, only Sweden chose to follow Eurozone countries by ensuring its banks and other payment service providers charge the same for cross-border and domestic funds transfers involving Swedish Krona. The other non-Euro countries have allowed "very high" charges for non-Euro cross-border transfers. 

The Commission wants to cut those charges and help consumers choose the best conversion rate when offered the chance to pay in a different currency at check-out.  

Remittance costs must also come down to less than 3% to meet UN Sustainable Development Goals.

The Commission's first step is collecting the views of consumers and industry experts on awareness of high fees and potential solutions. It also wants to know whether consumers are being steered toward more costly currency conversion options at check-out; and how long it might take for real-time exchange rates and price quotes to be introduced.

"British consumers are very pleased to be ripped off when making payments abroad, and are jolly well thankful that our banks and other financial institutions are free to make as much money as possible at their expense. They can't wait to be rid of all this EU meddling in our affairs," a Tory spokesperson probably said.

Tuesday, 1 August 2017

"Fee Banking", Not "Free Banking": The Shameful Overdraft Saga Continues

Readers will recall that UK retail banks are self-regulated when it comes to overdrafts. They lost control of deposits, savings and payments in 2009, but kept control of lending (bizarrely, given the over-extension of credit in the lead up to the crash). They continued to battle savagely against the OFT's attempt to assess the 'fairness' of their overdraft charges for many years before finally offering to charge a bit less in late 2009. By 2013, however, the banks felt the heat was off, and were congratulating themselves on having found "no breaches" of their own Lending Code. Yet in 2014, the FCA found that "overdraft prices were high, complex, confusing and poorly understood". Now a new report reveals:
"Not only are unarranged overdrafts expensive, but in many cases they cost significantly more than [payday] loans. Many consumers are also unaware either that they have used an unarranged overdraft or of the cost implications even if they do."
The FCA's latest analysis suggests there are about 42m current accounts, about 27% of which are in arranged overdraft for 1 to 12 months (staying within a pre-set credit limit) while 10% operate as unarranged overdrafts for 1 to 12 months (no right to be overdrawn at all or in breach of the credit limit). The FCA's analysis "shows that a quarter of people that used unarranged overdrafts used them in four or more months during 2016. Nearly 10% of unarranged overdraft consumers used them for 10 or more months."

The banks' Lending Code does not require a creditworthiness assessment, yet the FCA found that "overdraft users typically have lower credit scores than consumers with current accounts... [and] consumers using unarranged overdrafts have noticeably lower credit scores than the overall population of current account and overdraft users." The FCA adds that it is "concerned that consumers who repeatedly using unarranged overdrafts are being given access to a service that seems unsuitable for them, and which may be contributing to potential financial distress."

This sounds like a clarion call to the claims management industry 
to switch from seeking refunds of PPI premiums
to seeking refunds of unagreed overdraft charges.

No doubt the banks will continue to resist interference with their dastardly overdraft arrangements, claiming that it would mean the end of "free-banking" (which industry insiders refer to as "fee banking" because banks rely on fees arising from the mismatch between actual customer needs and poorly aligned/understood products).

Banks claim that overdrafts are a feature of current accounts, so the FCA should wait to see how the recent attack on those by the competition regulator pans out before taking further action.

But, as the figures show, not all current accounts come with an overdraft, although my sense is that overdrafts are actually a side-effect of shortcomings in banks' legacy technology - the systems can't maintain real time balances, so the bank has no way of knowing the actual account balance or whether an overdraft limit will be breached when each transaction comes through. But that's the banks' problem.  Overdrafts do constitute a form of "credit", whether they are "arranged"  or "unarranged" and the fact they are still self-regulated as 'lending' speaks volumes (current accounts are regulated as "payment accounts" under the Payment Services Regulations).

Lloyds has already lost its nerve, however, and moved to a new charging structure that the FCA says "does not allow a consumer to use unarranged facilities and does not charge a daily fee if they do."

The banks certainly have plenty of cause for alarm. 

In 2014, the FCA took over regulation of the comparatively tiny 'payday lending' market - 1.6m customers borrowing £3bn at its peak in 2013 - and imposed rules that reduced volumes by 42%. But in this case, the FCA is sounding the death knell of unarranged overdrafts entirely:
"Based on the evidence we have to date, we believe there is a case to consider fundamental reform of unarranged overdrafts and consider whether they should have a place in any modern banking market."

Thursday, 20 July 2017

All Hands On Deck: UK Sailing Close To #PSD2 Deadline

The UK government has just announced its final approach to implementing the new Payment Services Directive (PSD2), along with the final version of the Payment Services Regulations 2017 that will apply from 13 January 2018. So firms don't have long to figure out whether they fall within the definitions and, if so, how to apply and comply. 

The FCA is expected to finalise its guidance and application forms by September, and can only begin accepting applications for authorisation/registration from 13 October 2017. That only leaves 3 months for the FCA to authorise/register firms who offer the newly regulated 'account information services' and 'payment initiation services' or who are losing their exemptions, as briefly explained below.

Payment initiation services

What constitutes a PIS is quite complex, but firms who are broadly in that space (including payment gateway providers) are perhaps more aware of the scope of their activities and the challenge ahead - although those relying on an exemption need to check their assumptions.  

Account information services

The new “account information service” basically involves providing information from one or more payment accounts held by the user with one or more other payment service providers. Initially, the list of services the government said might constitute account information services included some services of a much broader nature:
"• price comparison and product identification services;
• income and expenditure analysis, including affordability and credit rating or credit worthiness assessments...
[and] might include accountancy or legal services, for example”.
The government says it has heard the concerns that its interpretation was too broad and overlooked the requirement that a service must be conducted 'by way of business' in its own right, rather than merely as an ancillary part of a wider service. Examples of services that the government says that respondents were concerned about include:
"banks’ corporate functions; price comparison websites; accountants; financial advisors; legal firms; and Credit Reference Agencies (CRAs). Many of these services are currently provided via a contractual relationship between service providers, users, and ASPSPs, often referred to as Third Party Mandates (TPMs)."
The government now confirms, however, that:
"many uses of these mandates are likely to be outside of the scope of the PSDII. Examples could include power of attorney, where the services are unlikely to be undertaken ‘in the course of business’."
In addition, the FCA has already suggested this narrower view, based on the 'business test' in its own consultation on how it proposes to supervise PSD2.

Some narrower exemptions

Commercial agents can no longer act for both payer and payee. 

Firms operating gift card and other loyalty schemes not only face a stricter test of 'limited network', but must also notify the FCA if the total value of transactions executed over the preceding 12 months exceeds the amount of 1 million euros, and the FCA must then decide whether the exemption criteria. There is no allowance for transition if the service does not meet the exemption.

Technology service providers are no longer exempt if they also offer the newly regulated account information services or payment initiation services.   

Monday, 5 June 2017

The Cat Is Out Of The Bag: The EU Bars UK Financial Outsourcing

A key EU financial authority has asked EU regulators to be strict on UK firms seeking to escape the impact of Brexit. The concern is that having lost their EU passporting rights, desperate Brits will try to get authorised in Europe but continue to rely on UK managers and operations
"UK-based market participants may seek to relocate entities, activities or functions to the EU27 in order to maintain access to EU financial markets. In this context, these market participants may seek to minimise the transfer of the effective performance of those activities or functions in the EU27, i.e. by relying on the outsourcing or delegation of certain activities or functions to UK-based entities, including affiliates. It is therefore necessary to ensure that the conditions for authorisation as well as for outsourcing and delegation do not generate supervisory arbitrage risks."
ESMA even proposes a Cat o' nine tails set of 9 "principles" to prevent UK firms making the best of Brexit: 
  1. No automatic recognition of existing financial firm authorisations;
  2. Authorisation processes by the EU27 should be "rigorous and efficient";
  3. Regulators must verify the objective reasons for relocation;
  4. Regulators should avoid "letterbox" entities in the EU27 - the EU firm must perform substantial activities;
  5. Outsourcing and delegation to third countries (like the UK) is only possible under strict conditions;
  6. Substantive decision-making must occur in the EU, especially over outsourced activities;
  7. There must be sound local governance of EU entities, by resident directors/senior managers;
  8. Regulators must have the resources and data to effectively supervise and enforce EU law. 
  9. ESMA is watching and will co-ordinate to ensure adequate and consistent supervision. 
Of course, the UK could retaliate with red tape of its own. Brexit is also a challenge for 8,008 EEA firms that hold 23,532 passports (about 3 each) to cover their UK offerings.

Thursday, 25 May 2017

The Official Monster Raving Loony Party Is Too Normal

The OMRLP is short of candidates. Only 12 Loonies have been nominated for GE2017, the fewest since 1987. The problem is that nothing seems whacky anymore. Satire and irony are dead. There’s no competing with the idiocy of the major party manifestos, as the party political machines inhale more and more data from a population hooked on the Daily Mail.

"Shit in, shit out," as a data scientist might say, if quotes from such 'experts' were allowed.

But they're not, which is how Trump got to the White House and why Theresa May was there to sort of hold his hand. 

The "truth" is that the OMRLP could romp home in this election. It just needs to become truly loony. Here are some genuinely ‘strong and stable’ foundations on which to build: 
  • Every university that accepts UK government funding must offer Creationism as a degree course, and as a compulsory module in Archaeology, Anthropology, Education, Geography, Geology, History, Medicine, Physics, Theology and Veterinary Science;
  • All aircraft flying into or from the UK should be fitted with a ChemTrail monitor to measure the quantity of mind-control chemicals they are adding to the atmosphere (ignore these people);
  • All academic research grants should be awarded by a simply voting majority of all the UK's local councillors.
Of course, the OMRLP must also recognise that it is competing with the sheer mendacity of mainstream politicians. It should therefore utterly fail to deliver on any of these cast iron commitments. This will inspire hope that they'll manage it next time, and guarantee progressively more electoral success at GE2018, GE2019, GE2020...

Wednesday, 17 May 2017

The Long, Slow Death of UK Party Politics

Every day brings a new low as the UK's political 'leaders' scrape the bottom of the pork barrel for yet another populist gimmick to distract voters from the litter of broken promises and the stench of rotting bureaucracies. While covering the 1972 Presidential campaign, Hunter S. Thompson wrote:
“The main problem in any democracy is that crowd-pleasers are generally brainless swine who can go out on a stage and whup their supporters into an orgiastic frenzy—then go back to the office and sell every one of the poor bastards down the tube for a nickel apiece.” Fear and Loathing on the Campaign Trail '72
He must be howling in his grave.

At some point, you might think, the vast majority of their supporters will see that the Tory-led Brexit is a road to nowhere, or that the UK cannot possibly finance Labour's latest manifesto anymore than it could in the 1970s. The centre ground will re-open to any political party desperate enough to seize it. Politics will be about solving the root causes of genuine problems, rather than dogma and dog whistles for the nostalgic party faithful.

But any such moments of truth are a long way off, and by then the surrounding alternatives will be so bad that voters will have lost all perspective, anyway.

UK politics and its beleaguered public services will have to descend into total chaos before there'll be any meaningful change.

Saturday, 22 April 2017

EU Looks To CrowdInvesting To Plug Post-Brexit SME Capital Gap

The European Securities and Markets Authority (ESMA) has responded to an EU consultation on capital markets with a plea for the European Commission to focus on small businesses and investment-based crowdfunding; as well as more joined up regulatory supervision and more efficient collection of financial reporting data.

Recommendations include lighter information and reporting requirements for SMEs seeking to raise money; and EU regulation of crowd-investing to enable cross-border funding on a consistent basis.

ESMA says that only 10 of the 28 current EU member states reported the existence of regulated investment-based crowdfunding (in debt securities and equities/shares) in their territory - 99 platforms (up from 46 in 2014), of which 30 are based in the UK (up from 26 in 2014). France (23), Italy (17) and Germany (13) are fast followers. Only 12 platforms use a passport - based in either the UK or Finland (which has a total of 5 platforms). 

The various platforms are listed in the Appendix to the ESMA response. There is also a high level comparison of the various differences in terms of initial capital requirements; instruments and structures; remuneration models/levels and how these align with the interests of fundraisers/investors.

Volumes are not mentioned, but given that over half the platforms in 2014 were based in the UK, then it's likely they are still responsible for most of the volume. And the fact that ESMA bothers to push the sector at all suggests that those volumes are significant.

So this focus is not only an admission that Brexit creates a big and important capital-raising gap to fill, but it's also a big endorsement of the UK crowd-investment sector.  

Thursday, 30 March 2017

The Great Reform Bill: #Brexit Stitch-Up Begins

Brexiteers moaned that the EU gave us too much red tape, and promised there would be less of it.

Now they introduce the deceptively titled "Great Reform Bill" which simply translates all the red tape into UK law

This 'gold-plating' is precisely how the UK has created a rod for its own back for decades.  In fact, it's busy doing the same thing with the new Payment Services Directive (PSD2).

EU courts do not intepret the law to the letter. They consider a law's purpose when applying it. 

But UK courts interpret UK law to the letter. 

UK courts are entitled to take a purposive interpretation to EU law, but tend not to do so once the EU law has been absorbed into UK law.  

So, the UK will actually have a worse form of red tape after Brexit than it does as an EU member.

Wednesday, 29 March 2017

May Commits Political Suicide

Well, I thought she would've U-turned, but there you have it. The UK's un-elected Prime Minister has pressed ahead with the Tories' plan to leave the EU without knowing the terms and in defiance of all danger signals.

Leave voters will be as quick as anyone to blame this cabal of Little Englanders for any bad news to follow, even though they knowingly sacrificed their economic future for illusions of 'border control' and 'sovereignty' that will disappear as quickly as the offer to spend "savings" of "£350m a week" on the NHS. 

No wonder the Tories are declining to call an early General Election!

Wednesday, 25 January 2017

Should Parliament Perpetuate The #Brexit Scam?

The Supreme Court judgment on the UK Government's plans to ignore the constitution is a good read. 

The Government's case was that "the 2015 [referendum] Act was enacted on the assumption that the result of the referendum would be decisive."  

Er, that's it.

That was plainly not the case, merely outrageous political positioning by the Brexiteers.

The Supreme Court judgment explains why the referendum could not be decisive (at paras 91-92) and why the 2015 referendum Act was flawed (at 118-119).  

Basically, if the Tories had wanted the Brexit referendum to be decisive (i.e. for Brexit to proceed immediately on a 'Yes' result), they would need to have included in the 2015 Act the detailed changes to the law to permit that to happen.  The 1975 EC referendum Act, for example, had no such details and was therefore properly presented by ministers at the time as being only advisory. They knew that more complex legislation had to follow if the UK were to join. Indeed, so did Cameron's government. The Supreme Court found that in 2011 the government had agreed with the proposition that "Under the UK’s [constitution] Parliament must be responsible for deciding... action in response to a referendum..." (see para 125).

Clearly, the Brexiteers concluded they had little chance of being able to frame the necessary detailed legislation to leave the EU, and just wanted to snatch a quick result. So they decided to copy the original 'simple' EC referendum Act of 1975 and claim (however wrongly) that the referendum on this occasion would be decisive. Others clouded that issue by 'promising' to abide by the outcome, even though the referendum result could only have political significance, rather than any legal status. They then drove around in their big red bus, blithely misleading people about the alleged benefits, and dismissing expert analysis of the major problems associated with leaving the EU.  No doubt they did this in part to secure their own electoral future(s), but you can tell from where they are now that the lead Brexiteers were not roundly congratulated by their Tory colleagues for their conduct and its consequences.  As the Supreme Court noted (at para 124):
"...the referendum of 2016 did not change the law in a way which would allow ministers to withdraw the United Kingdom from the European Union without legislation... unless and until acted on by Parliament, its force is political rather than legal."
The question now is whether Parliament should perpetuate the scam. 

There is much hand-wringing about the 'will of the people' (well, 52% of them, anyway) but little apparent appetite among MPs for recognising that the 48% were not fully informed and calling a halt to plans to trigger Article 50 unless and until the government can explain the detail.  MPs are best at ducking issues, not addressing them.

But the fact that Brexit continues to divide the country should tell them all they need to know: when in doubt, don't do it.  They might vote it through, but no one will thank them for the consequences.

Wednesday, 11 January 2017

Meet The Schadenfreuders

As the majority of voters in the western liberal democracies - ironically labelled the "liberal elite" - work their way along the 'change curve' after shocks like Brexit and the rise of Corbyn, Trump and others, their initial shock, denial, anger and blame is giving way to resignation and acceptance... and with it a little pleasure at the growing misfortunes of the 'winners'.

I'm the first to admit that the premise of "Lipstick on a Pig" was that 'people power' would be wielded more wisely than the power of the institutions they topple.  Yet I also pointed out that we are badly short of scepticism, that democracy should be a messy process, and that greed and stupidity are still winning. Pragmatism, after all, is not a destination but represents the constant struggle of "intelligent practice versus uninformed, stupid practice".

So it's all part of the familiar trends toward greater personal control that the Brexiteers can't agree what Brexit means; Corbyn is not proving the electoral champion that his supporters had believed; and Trump has had to concede that the US will in fact pay for any 'Wall' along its southern border, in the hope that Mexico will pay later... 

In other words, the recent populist 'victories' have merely wrung the same old institutional failings out of the same old political parties. And those who fell for the latest examples of 'stupid practice' will need to learn that lesson before we will begin to see the triumph of intelligent practice from genuine 'facilitators'. 

The question is how many more opportunities for schadenfreude there will be in the meantime...

I love the Germans. They've got a word for everything (as Nigel Farage will surely know).

Tuesday, 10 January 2017

Rolling Out The #Brexit Pork Barrel?

While Brexit confusion continues to reign, most people seem focused on how the UK plans to negotiate with the EU, rather than what the government plans to do for those in the UK who will suffer.

Size matters in trade negotiations, and it's clear that the EU and many other trading partners will simply set their own terms in any deal with Little Britain. 

That's why Theresa May keeps using the weasel words 'the best possible deal'. She doesn't know what terms will be offered and won't be able to change them anyway.

That's also why, when faced with acting as the Tories' human shield in such futile discussions, the UK's chief negotiator quit.

So it's the resulting domestic negotiations over who bears the impact of Brexit which should be occupying most people's attention now. 

The Tories may have blundered into Brexit, but they regard continuing anti-EU sentiment and the total meltdown among opposition parties as a vast political opportunity.  Word has it they've come up with a political list of about 50 sectors and related regions, ranked by how badly they'll be affected by Brexit and their need for pork barrelling financial support if the Tories are to win the next General Election:
216... "Lord Bridges confirmed the Government was carrying out such an analysis. The Government had looked at over 100 production sectors. It had then consolidated its analysis into 51 sectors, taking into account “the size and contribution that each of these sectors makes to the economy”, and “the way those sectors are treated in EU law and how future negotiations might bear down on them”. The 51 sectors were not necessarily “the most important or the biggest”, but focusing on them had helped the Government to get the information into “a manageable format”" [emphasis added]
Car makers/workers are clearly very high on the list, for example, because they employ a lot people (soon to be robots anyway?) assembling cars from imported components, so they were urgently promised total government support.  Since Leavers are against even remaining in the EU Customs Union, that open promise means taxpayers will pay the car makers' additional import/export costs - which could be a lot of pork from the barrel a big subsidy. 

Now that the lid is off, you can bet that plenty of others are rushing to Downing Street (by car, not train) for their share, hence the Tories desire to avoid a 'running commentary' on their Brexit plans.  They'll want to 'hold all the cards' and 'keep them close to their chest' - setting the lobbyists against each other and distracting everyone else by re-announcing old trade deals and hinting at 'negotiations' with Brussels.

Meanwhile, Rome will continue to burn as the domestic issues queue up like so many strike-bound trains and A&E patients. But the Tories will blame the EU for those, too, just as they did with their 'promise' to "spend the £350m a week on the NHS".  Rest assured it'll be the EU's "harsh trade terms" that are the cause of all the May-hem...

In fact, I'm sure the Tories hope they'll never have to mention an opposing political party again.  From now on it'll be the Tories v Brussels, and any potentially shaky non-beLeavers will simply get a little meat from the barrel see the benefits of "the best possible deal for Britain".

Or will they?

The biggest challenge to the Tories' plans is hard economics, not Brussels or the Corbynistas. There's been 'no money' available in the UK public sector since 2010. So a worse trade deal with the EU means having to find extra money for the pork barrel to compensate those hit by Brexit.  

But writing blank cheques to uncompetitive industries is not sustainable, and certainly won't go down well with pesky foreign bondholders or the IMF. Remember 1976 and the eventual battles with the coal miners? Or the fury over the bank bailouts? If you're looking for a current case study, keep your eye on developments in Greece.

So maybe those hoping for a bit of R&R by topping the Tories' Brexit Pork Barrel Support list should indulge in a little "Relocation and Retraining" instead...

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