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.

"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."

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.   

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.

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;

• The UK government should endow a new Flat Earth Geographical Society;

• 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...

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.

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.  

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.

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!

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.

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).

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...

Acts Are Not Law

Acts are not law, which is why they are called "Acts". They are optional. If you want them to be law, you can agree to them, which makes a contract.  But you don't have to. And even if you do agree (because you made a mistake about your rights, for example) you can get out of that contract by making a complaint. 

So, your local council can give you a parking ticket under an Act, and if you don't agree to it you can just post it back to them with a note saying, "I don't agree," so there is no contract.  If you paid in the past because you didn't know this, you can make a complaint and get your money back.

Same with council tax, and other taxes like income tax. They are just optional requests to pay, and if you've paid by mistake or because you didn't know about this, you can just make a complaint.

This is why Theresa May can take Britain out of the EU any time she likes, because the British parliament only joined under its own Act. There was no contract, because only people in Britain can agree to Acts and the EU is based in Brussels. She says she wants Britain out by March, but really she is just delaying because she's a Remainer and didn't like the vote. She hopes people will change their minds, so we should just have an election to get a government that will take us out.

If you've read this far, then I hope you've felt the same rising sense of panic that I did when some bloke told me the first three paragraphs worth of this horseshit last night (at the end of which he said, "Education is a fine thing, eh?"). The rest I extrapolated based on his special world view, and that of a van driver who told Channel 4 news that Britain could have already left the EU and absolutely must do so by March, "no Article 50, no ifs, no buts". 

It seems most people believe that everything in their head is true. They then look for validation among their family and friends. Their more appealing ideas spread like a virus and are eventually fed back to them in the tabloids and the social media and by politicians who will do anything for more votes, even if it means ignoring the constitution, court rulings they don't like and the rule of law.

We live in an idiocracy. 

Whither the UK's Implementation of #PSD2?

It's still a case of 'hurry up and wait' on the transposition of PSD2 into UK law. 

The Treasury had initially said it would issue the consultation paper on transposing PSD2 into UK law in August 2016, but nothing forthcoming as at 3pm today. In mid-October, the Treasury told a stakeholder meeting at the FCA that the paper was "being finalized" with no public explanation for the delay (though one could readily speculate that Brexit related projects might be a key distraction!). 

Officials have my deepest sympathy, but it's a little more frustrating because the European Banking Authority has moved forward with consultation on certain regulatory standards related to strong authentication and communication amongst PSPs, passporting, authorization and so on.

The EBA's proposed standards associated with authentication, in particular, have drawn a fair degree of criticism from the industry and European Parliament, partly for assumptions concerning the nature of payment initiation and account information services, as well as their inflexibility and the extent to which they perhaps give the incumbent 'account servicing' PSPs more control than PSD2 was intended to allow.  It will be interesting to see whether the concerns are reflected in the next iteration, expected in December/January (although they do not take effect until at least October 2018 to allow for development work).

May Won't Commit #Article50 Suicide

The cost of the Brexit referendum decision has finally begun to erode household confidence, even though Brexit hasn't even actually happened and the worst is yet to come. So you can bet the Tories will be preparing themselves for yet another U-turn as the costs and related uncertainty increase. Even they must now realise that triggering Article 50 would be committing economic suicide, pure and simple, and I doubt that even Theresa May will be fool enough to pull that trigger come her phoney deadline of March 2017. By then all but the most ardent 'BeLeavers' will have come to their senses, and the polls and regional high streets will be fearing the worst. UKIP has already imploded not because it has achieved what it set out to, but because what it set out to achieve has been demonstrated to be a very bad idea.

We know now that the Leave campaign was built on a tissue of lies, from the 'gross' figure of £350m a week, to the promise of extra spending on the NHS, to the idea that the UK can thrive economically on net migration of 100,000 people a year or lose any of the 1.5m EU citizens working in Britain today who would have to leave under the rules applied to non-EU migrants (even plans to publish lists of foreign workers have fallen flat). Indeed, the UK faces having to pay the EU billions for Brexit (at a poor exchange rate), not only to 'true-up' the UK's current EU budget contributions, but also if it is to secure any preferential access to EU markets (although that is not just a question of money, but of free movement of people etc). 

We also know that in reality the EU has no control over the major areas of government expenditure - social welfare, health, education, defence, public order, housing, transport. These are policy areas that the UK continues to screw up all by itself. And it's dawned on the UK's poorest regions that they rely on EU grants that Whitehall will not be set up to maintain after the current EU budget expires in 2020.  

And all the 'silly rules' on bananas etc that the Leavers complained about are international trade rules, not attacks on British 'sovereignty'. The UK would still have to play by those rules if it wants to engage in international trade.

Finally, we know that the UK imports more than it exports and that investment in Britain's export opportunities have relied on trade deals that the EU has achieved over decades by offering a market of 500m people - the world's largest economy, the world's largest trading bloc, the world's largest trader of manufactured goods and services and the top trading partner for 80 countries. We've learned that it would take the UK over 2 years to drive its own deals, and it will have to take what's offered because it can only offer a market of 60m - the 21st on the list of the world's most populous countries and right next door to the world's biggest trade bloc. Yet the UK can't even sign any trade deals until it has left the EU, which is scheduled to take two years. So investors would be waiting nearly 5 years to see what returns they might get for investing in British export industries that would be facing their biggest ever test. They would surely invest elsewhere in that timeframe. That would mean insufficient investment for export targets to be met. The trade deficit would worsen as the UK imported more (and at a poor exchange rate). Prices would go up, but incomes would not. The government wouldn't be able to raise more in taxes and wouldn't be able to borrow at low rates anymore (that credit rating is only going one way), so many more difficult spending decisions and cuts would loom.

For Boris Johnson to continue to insist that the UK will achieve better trade deals on its own in these circumstances is the same kind of fraud we saw painted on his big red bus: serving up any old lie that people can use to justify their blind, ignorant, nationalistic fervour, rooted only in the dust of an Empire long gone and, ironically, a genetic hotch-potch that has more in common with the French, Germans, Danes and Belgians than anyone else. It is just vacuous, populist politics, and an exercise in narcissism - like making the decision whether or not to back Brexit by writing his own newspaper articles either way and then taking the course suggested by what he thought was his own better article.

But you can't eat nationalistic fervour. It doesn't make your fuel cheaper or cut the price of whatever else you buy with ingredients that have to be imported. And you won't be able to 'buy British' when the UK, like Switzerland, is forced to open its market for 15 years before bigger trading partners open theirs. Competing home industries will be crushed, along with the related jobs.

So, somehow, the Tories have to find a way to avoid triggering Article 50, and it's my bet they will.

Why Skittles? That's Our US Presidential Candidate Problem.

Little Interest in Pre-Article 50 #Brexit Discussions With British EC Staff?

The crowdfunding campaign against the ban on British European Commission staff, in particular, discussing Brexit plans with UK officials before the UK triggers Article 50 has raised less than a tenth of the £35,000 target from only 109 people, with 18 days to go.

The campaign is intended to attack the ban on all EC staff announced by EC President Jean-Claude Juncker in June: "No notification, no negotiation."

But it seems few people are interested in pushing the issue. Perhaps another reason for doubting that the UK will ever be adequately prepared to trigger Article 50?

Economic Impact of #Brexit (If Any) Is Years Away...

Not a day goes by without someone declaring that the economic  impact of Brexit has been either overestimated or is being underestimated. 

This has to be utter rubbish. 

The UK is still in the EU. Situation normal. Nothing has changed. Changes in the economic data must be due to other causes.

While the impact of the referendum itself - and the related political nonsense - might have affected some figures, I don't see how the actual impact of the UK leaving the EU could be reflected in any way. 

When might any impact be felt, if ever?

Not only is the UK still waiting to decide exactly when to trigger the formal two year 'Article 50' leaving process, but it is also still trying to figure out the list of issues that need to be resolved and the appropriate negotiating strategy and tactics to resolve them favourably (if possible), not to mention how to recruit the people who are supposed to be doing the negotiating. 

Personally, I doubt the UK is capable of getting this done in any conceivable time frame, and to trigger the Article 50 process without figuring these things out would be insane. So it would not surprise me if the UK never actually manages to trigger the Article 50 process (the wisest course). 

Which would mean Brexit itself would have zero economic impact. 

There may be economic volatility while the implications of triggering Article 50 are being worked through, but that would still not really be the result of actual Brexit. The referendum experience has shown that people don't really look beyond the horizon, so they would not be reacting to an actual decision either way, just the trigger decision itself.

If the UK does manage to trigger Article 50, then we would see another burst of economic volatility while everyone digests (the madness of) that decision and what it might mean when the leaving process is complete. The chief issue would be whether the UK would be able to complete the necessary negotiations within the two year time limit, in order to avoid the default trade position (the worst case, unless of course the UK manages to negotiate an even worse set of deals than that - not inconceivable!).

There would then be all sorts of fresh economic volatility during the two year Article 50 period, while everyone reacts to the latest news about each of the trade negotiations might affect them and their sectors. Speculators would have fun, but everyone else would need to wait and see what actually shakes out. Meanwhile, any news about the plight of other EU members and the EU itself would also affect everyone's view.

Of course, if the leaving process were completed, there would be reactions to how the various deals actually unfold and whether they would be extended or renegotiated. But that position would be the 'new normal', so not really Brexit related at all.

Britain's Emigrants Queue For Ex-EU Handouts

As the final echo of the Vote Leave battle bus dies away amongst the villages and byways of England's south west, a strange chant rises in its place. Jacob Rees-Mogg MP, Conservative Party spokesperson for South West England, pauses in his piece-to-camera for a German film crew investigating Roman tin mines, listens, then shakes his head. "Never mind," he says to the director. But as the crew ready themselves for a re-take, a battered green Land Rover draws up and a familiar local official emerges. 

"Not now, Arnold."

But the man steps forward, flat cap held nervously in front. A faint breeze brings with it the hum of "We want our grants!" and catches the man's exposed comb-over so that it stands up like a horse-hair plume on a Roman soldier's helmet.

"Beggin' your pardon, sir."

The Germans begin filming.

"Not now, I say."

"It's about the three fifty million, sir."

"Yes, yes," Rees-Mogg snaps, trying to focus on the camera. "Boris has it in hand."

"That's what we're worried about, sir."

Rees-Mogg waves him away. "It's a figure of speech, man. Can't you see I'm working?"

"Not all of us are lucky enough to have jobs, sir."

"Look, we have years to worry about that, but a week to complete this film about the region's economic heyday before the funding from Brussels runs out. We can discuss it later." 

"That's not what the gentleman from the Commission used to say - "

"Go away! Please!"

"- he were very responsive."

Rees-Mogg heaves a sigh and says to the German. "Sorry, we can edit all this out."

"The Cornish are restless, sir," Arnold persists. 

Rees-Mogg sighs again, "It was ever thus," he says, partly for the German director's benefit. "Look," he says, turning to Arnold, "Explain to them that it was written in letters three feet high and thirty feet long that all the money would be spent on the National Health Service. So if they want their share, they should jolly well get sick."

"I could tell 'em that, sir. But I don't think they'll be very pleased."

"Well, then they can call Boris."

"Yes, sir."

"Now go away."

"Yes, sir."

"Forever."

Little Britain Votes To Leave

In the worst act of vandalism since the Visigoths sacked Rome in 410, the UK has been ripped out of the European Union by regional voters, led by a trio of politicians that caricaturists could only dream of who perpetrated a campaign that "descended into dishonesty on an industrial scale". 

Yet the Brexit map of the UK shows that those who voted for Britain to leave the EU are not only among those who were the net beneficiaries of EU funding, but are also utterly dependent on the areas that voted to remain to negotiate the terms of Brexit and to plug the regional funding gap that the EU money filled: the 'Leave' campaign demanded that Britain's contribution to the EU be diverted into the black hole that is the NHS budget and that is exactly where it will disappear.

All the facts and projections labelled as 'doom and gloom' now loom as reality. 

Forking The DAO - Robin Hood Update

No, this is not science fiction: the Ethereum world really has been rocked by financial scandal, and has less than a month to resolve it.

It's very hard to explain this situation simply to fans of financial scandals who may be less familiar with cryptotechnology.

In essence a bunch of people ('curators') got together and created - or curated - a new type of open association, which they christened a Decentralized Autonomous Organization, and this first example “The DAO". 

The DAO is built on a new type of cryptographic software platform called a 'distributed ledger' or 'blockchain', in this case known as Ethereum. Such ledgers typically have their own virtual currency, in this case called 'ether'. 

The DAO's rules are in written in software code, so it is in fact a computer programme (or application or 'app'). The DAO is designed to be controlled by investors who use their 'ether' to buy DAO 'tokens' that entitle them to vote on the The DAO's affairs - the main issue being how the DAO should invest the 'ether' it raises through selling 'tokens' to investors, who can also start mini-DAO or 'child DAOs' to focus the investments. By last week the The DAO had raised $60m worth of ether at the going exhange rate.

You can maybe see what's coming...

A savvy participant noticed that The DAO would allow any participant to start a 'child DAO' under their own control and drain 'ether' from The DAO into the child DAO without bothering any of the other participants. 

So they did. 

Cue outrage!

The other participants and 'curators' now say this move was an "attack" that exploited a 'vulnerability' arising from a 'mistake' in The DAO's code. As a result, a 'soft fork' has been imposed by the DAO's 'curator' for 28 days, effectively freezing the child DAO and the ether within it. Many of The DAO's participants want to see the soft fork become permanent - or a 'hard fork' (this saga is providing endless scope for unfortunate puns). Yet The DAO web site's makes it very clear that the code is the sole contract governing The DAO (though what contractual significance The DAO's web site has is therefore questionable).  At any rate, The DAO clearly allowed what in fact happened.

It's ironic that the self-styled "attacker" has resorted to lawyers and is threatening court action to protect his/her/their financial gains. But it would be a fascinating case to run, and a real-world judgment on the issues (applicable law, jurisdiction, whether there was a mistake for which relief could be given etc.) could actually be very helpful to the development of distributed ledgers and the applications that run on them.

23 June:

Meanwhile, the parties are battling it out in a cryptographic re-enactment of Robin Hood (or Barbarians at the Gate?). So-called 'white hat' hackers (claiming to be 'good actors') attempted to secure the remaining ether in The DAO in other child DAOs but the 'attacker' joined them as well.

But is either set of participants 'right' or 'wrong', 'good' or 'bad'? Are they not simply competing in any fashion that The DAO allows?

Would you do business with The DAO or its 'children'?

Would you be happy for The DAO or any child DAO to be an investor in your business? 

Watch this (cyber)space!

Further reading:
Frances Coppola has written a great piece for Forbes.
Introduction to the DAO.
Open letter from "The Attacker".
DAO Wars: Hacker Counter-Attacks and Infiltrates the Robin Hood DAOs

European Privacy Regulators Now Not Happy With US #PrivacyShield

It all seemed to be going so smoothly for US policy-makers when the gathering of the EU's privacy regulators (the Article 29 Working Party) issued a draft review of the US Privacy Shield in February. But the final report means the champagne will remain in the bottle for sometime yet.

Basically, the regulators found the Privacy Sword Shield is hard to read, unclear, inconsistently worded, inconsistent with the new General Data Protection Regulation, does not provide equivalent protection, makes it too hard for foreigners to get redress, the proposed Ombudsman will be neither independent nor adequately resourced; and does "not exclude massive and indiscriminate collection of personal data originating from the EU"!

Meanwhile, data transfers from the EU to the US are still okay to take place under the existing data transfer mechanisms ('standard model clauses' and 'Binding Corporate Rules').

Pity Mr Schrems who managed to overturn the 'Safe Harbor' but leave us even less protected than before!

There's No Single Market For Consumer Finance: What Next?

Perhaps it's not what the European Commission intended, but its green paper on retail financial services is a great explanation of why there is so little cross-border activity in consumer finance: 3% for payment cards, current accounts and mortgages; 5% for loans (less than 1% between Eurozone countries!) and only 3% of gross insurance premiums. For a very long list of reasons, it's just not practicable for most retail financial services providers to operate across EU borders, as the EC has known since at least 2007. Could it be time, therefore, to scale back EU requirements for firms that only focus on their national market, so consumers have a clear choice between national and genuinely cross-border suppliers and products?

The Commission concedes that its vast, confetti-like attempt to harmonise EU financial regulation  has proved futile in catalysing a single retail finance market, yet it continues to ask what more can be done.

One issue in particular that the Commission is huffing and puffing about is 'geo-blocking', the use of technology to identify and block or re-direct consumers based in certain countries.

But the Commission's own findings are that few players have the resources to focus on cross-border markets. Suppliers who do target multiple countries typically use separate local operating entities to deal with all the problems listed in the green paper, so they don't even properly qualify as 'cross'-border. At any rate, how can you force a Spanish motor insurer to sell policies to Germans if it simply can't afford to administer claims in Germany? How would that be in the policyholders' interests? Even assuming the focus solely on Spanish customers is the supplier's own choice, rather than due to some legal restriction, wouldn't requiring the firm to deal with Germans or Swedish consumers put it at risk of going bust, leaving the whole market to a few big players who can afford to serve customers everywhere?

In its response to the green paper, the UK's Financial Conduct Authority quite rightly urges caution on the economic impact of more (futile) regulation, as well as careful analysis of consumer needs and behaviour before churning it out. The FCA points out that existing regulation must be allowed to 'bed-in' before assessing its real impact; and the Commission needs to consider that EU consumers are not some amorphous clump of flesh waiting eagerly for Greek insurance policies homogeneous, but diverse in their needs and behaviours - so a 'one-size-fits-all' approach won't be universally acceptable and risks crushing local financial services that are working well.

The FCA hints at the idea of a range of EU-approved products that might be provided by any EEA firm to any EEA consumer in a standard way, though this still begs the question whether the providers are able to manage this operationally. 

I guess it's possible that those able to target cross-border markets would benefit from some kind of voluntary EU-cross-border safe harbour scheme that enables them to adopt the same approach to marketing, contracts, customer service, complaints handling and enforcement and so on throughout their target market(s). It could even be very a attractive product in some national markets that are currently under-served or where consumers are being fleeced.

But that's more or less what the current regime allows, yet few firms are bothering to do it: the whole point is that we know it is futile to impose a cross-border scheme on firms and consumers who just want to focus on their own national, regional or local market.

Which begs the question: rather than add more regulation, why not allow member states to scale back EU requirements for firms that wish to remain nationally focused? This would allow further differentiation between national and cross-border suppliers and products, presenting consumers with a clearer choice to make.

Of Brexit, Red Tape and Light At The End Of The Eurotunnel

A pragmatic approach to the Brexit debate is to ask whether withdrawal from the European Union would solve enough root causes of Britain's problems to make up for the inevitable disruption.

But we are yet to see that level of analysis, and I doubt we ever will.  

That, and the fact that opportunists like Boris Johnson are able to swing their booms from one side of the debate to the other in the hope of catching any old puff of political wind, tells me the UK's membership of the EU is just a political issue, unconnected to anything 'real'.

One thing that is clear, however, is that cutting the ties with Brussels will not automatically cut the UK's source of red tape: Britain is expert at producing its own. You only need to look at the NHS, the social welfare 'system', the Home Office or education to see how much of a mess the UK is capable of making on its own turf; and its approach to implementing EU law is similarly self-defeating...

Generally speaking, you might say that 'an Englishman's red tape is a Frenchman's business plan'. The English common law principle is that 'the law follows commerce' and we should be able to get on with something until the law forbids or restricts it; while civil law dictates that an activity is not lawful until the state says so. Another difference, somewhat surprising in light of the first, is that the common law system is based on literal interpretation; while civil law is interpreted on the basis of its purpose - the spirit rather than just the letter - and this is how EU law is interpreted by the European Court of Justice.

While the EU's civil law countries rely on EU regulation to tell them more or less how to act, the UK has not coped with this distinction very well. Firstly, the UK's attitude to EU membership means that it misses opportunities to influence the favourable development of EU law in the first place - the UK always seems to be on the back foot. Then, once EU laws are passed, the UK suffers from a policy of 'gold-plating' directives by simply copying them word-for-word into its own national laws which are interpreted literally under common law principles rather than reflecting the purposive interpretation that civil law member states adopt. So the UK creates several rods for its own back.

While it is said that the English courts do (or should) adopt a purposive approach when interpreting national legislation in areas covered by EU law, in practice this opportunity is not widely embraced either by officials or the legal and regulatory community. Once any awkward or confusing EU requirements are transposed into national law, everyone in the UK seems doomed to take them literally.

The result is a system that pushes the burden of resolving any EU regulatory awkwardness or confusion off the public sector's plate and onto the private sector (and, ultimately, the consumer or citizen). A recent case in point include the UK's approach to implementing the Payment Accounts Directive. There are others too numerous to mention.

I do have a little sympathy with the UK's approach to the EU legislative process. It is outnumbered by civil law countries who may not appreciate or respect the more reactive common law approach.  It is also tempting to avoid the expense in time and resources required to continually debate with EC officials whether UK regulation reflects the purpose of EU directives, rather than the letter. But this doesn't bother Italy, Germany, France or the other countries higher on the league table of those failing to implement European laws.

Maybe you could say this failure to navigate the EU legislative process is a reason to leave the EU, but it seems pretty feeble for the UK to lose the benefits of membership due to a political problem of its own making. At any rate, if UK ministers and officials would only take full advantage of the opportunity to resolve any problems in the formation of EU laws in Brussels and take a purposive approach to enacting them nationally, they would surely reduce any adverse impact on the wider UK community from laws that might be unduly restrictive.

Meanwhile, ironically, the EU authorities are beginning to take a more common law wait-and-see approach to regulation, having realised that regulation won't catalyse cross-border markets that don't already exist. Contrast the futile approach to consumer credit with the more cautious approach to regulating crowdfunding and virtual currencies/distributed ledger technology.  

In other words, the UK seems keen to leave when there may be light at the end of the Eurotunnel.

Distributed Ledger Technology: Cutting Through The Hype

A busy start to 2016 has meant the blogging has suffered, but I have at least co-written an article with Susan McLean of Morrison & Foerster that cuts through the hype around blockchain and other distributed ledger technology (DLT). 

The article includes updates on a range of DLT initiatives across numerous business sectors; various policy and regulatory responses; as well as some thoughts on the challenges involved in implementing DLTs.

You won't be able to put it down! ;-)