UK Government: Gamble All You Like, But Don't Invest

You've got to wonder about priorities at the Department of Culture Media and Sport. They allowed UK bookmakers to harvest £46 billion through betting machines last year - not to mention the bingo and lotteries freely advertised on TV - while computer games companies complained they can't offer shares to fans who crowdfund games development. 

Consider this from today's Telegraph:

• Britons gambled £46 billion on betting terminals last year, an increase of almost 50% in four years.

• Gamblers lose up to £100 every 20 seconds on the fixed odds machines.

• 588,000 under-18s were stopped when they tried to enter a betting shop last year, six times as many as 2009, and 27,000 people were challenged once they had placed a bet.

• Bookmakers made profits of £1.55 billion from the terminals between April 2012 and March 2013.

Meanwhile, even though the FCA has said that ordinary folk will be able to invest to fund the development of a computer game, for example, they must first certify that they will not invest more than 10% of their 'net investible portfolio' and either seek financial advice or satisfy an "appropriateness test". That's because they say investing is risky for consumers... 

Compared to what?!

Image from RoehamptonStudent.com. 

Dirty Data

Westiminster recently feigned shock and horror that the UK's coppers cook the crime figures. But Simon Jenkins says we've known for years that the numbers are meaningless and they should be banned as "they spread confusion and fear".

But 'plod' is not alone in mis-classifying, mis-recording, ignoring or otherwise presenting data in a way that suits himself. We've had many financial trading scandals where banks apparently had no idea of the exposures they faced, either because transactions were concealed or perhaps no one was looking hard enough - the global financial crisis was a function of poor due diligence.

A possible root cause of the problem is that humans are involved too early in the data collection and reporting processes. Rarely are we responding to the 'raw' data, as opposed to figures that have been 'gathered' and 'rolled up' through a series of other people's filters, manipulations and interpretations (which are often taken out of context). It's puzzling why regulators' systems don't receive a feed of the actual trades straight from bank trading desks - or from peer-to-peer lending or crowdfunding platforms - rather than relying on periodic reporting of summary data.

Maybe GCHQ can help...

At any rate, we should focus more on 'clean' mechanisms for capturing and presenting raw data rather than someone else's interpretation of it.

Image from TraceyNolte.
 

Do TV Advertising Rules Limit Economic Growth?

There has been plenty of research into the alleged effect of TV sex and violence on human behaviour, but how does TV adversely impact our economic behaviour? 

This issue was recently highlighted by the FCA's proposed new rules on crowdfunding. Left in isolation, the current restrictions on financial promotions suggest the State would prefer us to play bingo or buy lottery tickets than invest the same small amounts in funding the growth of each other's businesses. 

The FCA is right to point out the risks of investing in start-ups, but it should compare those risks to the risks consumers face when putting their money into other products that are more freely advertised.

We rely on small businesses for over half of all new jobs and a third of private sector turnover. Yet, those small businesses struggle for funding while over half of the UK's adults engage in regulated gambling that is designed to cost consumers far more than they 'win'.

It may be true that over half of business start-ups fail within 3 years, but they still employ at least one person in the meantime. And maybe more of those businesses would survive if we lent them some of our bingo money, or bought their shares with at least some of the money we chuck away on the ponies. Better that the money goes in wages, and the goods and services that small businesses typically buy, rather than simply to line the pockets of the bookies - and you have the chance of getting a decent return on small business loans, or if you happen to invest in the businesses that succeed in the longer term. 

No doubt someone will raise the moral panic about 'good causes' being starved of lottery money if we don't allow the promotion of that form of gambling. But I'm not talking about any ban on advertising lottery or bingo etc., just a relaxation of rules on the promotion of productive financial instruments (though it would be more efficient to simply donate a third of your lottery money directly to good causes on a crowdfunding platform than to wait for it to filter through the books of a lottery operator).

Ads for apparently 'safe' bank savings products are not helpful here, since savings rates are low and banks are not focused on lending to small businesses. We have over £200bn sitting passively in low interest bank deposits, yet banks' savings rates are below the rate of inflation, and banks only lend £1 in very £10 to SMEs. The Financial Services Compensation Scheme might protect your deposit if the bank goes under, but that's another cost that consumers end up paying for, and it won't protect the value of those deposits against inflation. Stocks and shares ISAs and pensions are similarly 'passive' investments in financial assets, rather than productive ones.

The highly restrictive approach to financial promotions has neither prevented financial scandals nor created a sound financial system - two of many reasons why people have resorted to lending directly to each other, or investing directly in each others' projects and businesses. So why not allow these new alternatives to be promoted more openly - at least to the same extent as riskier, non-productive activities like playing bingo or buying lottery tickets?

We need to move away from rules that dictate what we can do with our money, to rules that enable a fully informed choice from amongst all the options. 

At any rate, the State should certainly not create a situation where the money-related messages which the average TV viewer receives do not include investing directly in the productive economy.

Image from RoehamptonStudent.com.

Six Years On And Pragmatism Has A New Frontier

I see this blog has reached the ripe old age of six, so I felt compelled to squeeze in at least one post to celebrate.  

It's fitting that the reason for my absence has been the need to get to grips with the FCA's proposals to regulate P2P lending and investment-based crowdfunding - not to mention the revelations concerning the Chairman of the Co-op Bank. After all, this blog set out to chart the rise of facilitators who help us wrest personal control of our day-to-day lives from the one-size-fits-all experience imposed on us by our institutions. Rumbling the 'Crystal Methodist' marks the continuing plunge of faith in those same institutions, while the decision to finally let the 'crowd' into the regulated financial markets shows that even Parliament recognises you and I are better off dealing with each other directly than simply entrusting our life's savings to the banks and investment funds.

Of course, these are just a few examples of the punishment being doled out to our financial institutions. And they aren't the only ones under pressure from the trends sweeping society, as we struggle to figure out a more sustainable form of capitalism. All our institutions, from the BBC to the Police to the Church, unions, political parties, government departments and so on, face the choice of becoming facilitators or withering away. 

So is there anything 'new' to write about? 

Six years on we are still seeing the dawn of where these trends will take us. But to get a sense of the future, I've been following the rise of 'open data' - or open access to data in machine-readable form. This marks a new frontline between institutions and facilitators. Big Data vs You. Not only has it already created new facilitators, in the form of "personal data stores" or "personal information managers", but it may also redefine some of today's facilitators as the institutions of tomorrow... 

As a taste of things to come, last week a senior advertising executive insisted to me that "Big Data can accurately predict human behaviour." To be fair I made him repeat the assertion in case it had slipped out by accident. No one else at the table seemed to find that truly weird, and it wasn't until the end of the week, when I met up with some people working at the sharp end of data gathering, that I was able to fully enjoy the hilarity of that statement.

This is going to be fun.

Image from Data.gov.uk

Matched Funding For UK SME Lending Platforms

At a ‘FinTech’ Cabinet Office workshop on Monday, we were informed/reminded that the "Business Bank" created by the Department of Business Innovation and Skills has at least £300m to invest in any platform or business that will provide debt funding to SMEs.

Apparently few applications have been received so far.

The process starts with just a 3-pager to establish whether its worth proceeding to a more detailed pitch. If the process is to proceed, it should be no more intensive than a typical VC/angel investment process (see section 2 of the doc).

Related investment funding programmes include:

• £50m to expand the Business Angel Co-Investment Fund to a £100m fund; 

• £25m to extend the Enterprise Capital Fund programme to include a VC Catalyst Fund, which will invest in venture capital funds that specialise in early stage venture capital and are near to close, enabling them to commenc e investment in small and medium sized enterprises.

• Plans to expand the Enterprise Finance Guarantee (“EFG”), aimed at using guarantees to help bridge the “affordability gap” by providing a guarantee to lenders of up to 25% of the overall cost of repaying a loan; and separately, extending EFG to support businesses lacking track record, who are seeking loans of under £25k.

Several other programmes (like the Business Finance Partnership) are also being consolidated under the umbrella of the “Business Bank”, boosting the overall amount available to about £1.5bn. New senior management with private equity experience have been appointed in order to speed the programme along.

Here's an explanation of the strategy and timing for the Business Bank to become fully operational.