BigTechs concerns privacy, concentration risk and other

BigTech firms are large technology companies with extensive established customer networks. Some BigTech firms use their platforms to facilitate provision of financial services.

The below as been quoted from Steven Maijoor (Chair of the European Securities and Markets Authority (ESMA)) speech:

BigTechs have the potential to win market share in financial services because they enjoy
competitive advantages such as economies of scale, vast customer networks, access to cheap funding and proprietary data that powers personalised services.

BigTech firms may use data to offer tailored services. This is a familiar idea from other lines of business. For instance, you may receive online advertising for a holiday destination based on your searches for local hotels, your social media posts or recent holiday-related online purchases.

A risk, however, is that even if competition in certain financial services increases at first, it may later suffer as BigTechs grow market share. Switching provider may be less convenient if financial services are integrated with other lines of business. In other words, BigTechs may, after successful entry and growth, achieve a ‘gatekeeping’ position. And they may use personal data to extract more surplus from consumers through segmented pricing.

Privacy and data rights are a major concern, especially in light of the apparently illicit use of personal data by some firms in recent years. A single firm may be able to learn and infer a huge amount about people’s lives and personal circumstances. Integrating financial services into online platforms increases even further the sensitivity of such information.

Although financial inclusion may be a benefit in some cases, there is a risk of exclusion in others. For example, reduced information asymmetry between provider and client for products such as insurance or credit may reduce prices for some consumers, but exclude others altogether. And people less inclined to use digital technology may lose out. Finally, a business model operating across economic sectors may raise concentration risk. An operational incident that originates in one platform service offered by a BigTech firm could have a large impact on other lines of business, including financial services.

Understanding the money laundering needs via informal/formal stakeholders public speeches

It was interesting to read the following speech of Therese Chambers, Director of Retail and Regulatory Investigations.

Crypto businesses may want to consider the following when proving services via a UK entity:

Under the MLRs, any firm undertaking one of the specified cryptoasset activities is required to satisfy the FCA when they arrive at our authorisations team that they have:

Risk assessment: to identify where the risks of money laundering lies in their business and establish policies and procedures to tackle them.

Customer Due Diligence (CDD): as there is a zero threshold for all activity in this sector, all transactions, whether occasional or part of an ongoing business relationship, will need to be subject to CDD. This means identifying the customer and verifying their identity on the basis of reliable and independent documentation or information. As cryptoasset activities are online, then they will need to establish the veracity of the information provided to ensure the person on the other side of the screen is who they claim to be. We expect that many will apply similar approaches to e-money and challenger banks who often deploy new technologies such as video/photo identification via mobile.

Transaction monitoring: cryptoasset firms will need to monitor the transactions that they execute on behalf of their customers to identify any potential suspicious or unusual transactions that indicate a risk of money laundering. While we know of several services that offer blockchain analytics software which can help with this task, we will still require that firms have the right processes in place to evaluate transactions. This is because all FCA regulation is underpinned by the notion that you can outsource work but not responsibility.

Record keeping: the MLRs require all firms to retain documents and information used as part of CDD and transaction monitoring for a period of 5 years after the end of a business relationship, but they do not need to be kept for longer than 10 years since the start of that relationship.

Suspicious Activity Report (SAR) reporting: where a firm identifies suspicious activity that they have reasonable ground to suspect is the proceeds of crime then they need to make a SAR and send it to the National Crime Agency (NCA).

When a firm arrives at the FCA’s gateway looking to apply for registration, we believe that a ‘good’ application will clearly demonstrate to our authorisations team that they have robust systems and controls to cover each of these areas. But fundamentally, we are looking for more than just whether the firm has the right policies and procedures, we need to be satisfied that the firm take seriously their responsibilities to prevent their business being used to launder the proceeds of crime.

The FCA’s crypotasset AML regime is still in its infancy, as it only came into effect on the 10 January 2020. We are expecting several key challenges. First, this is largely a market that is new to regulation, and since the premise of the technology comes from a libertarian strand of ideology which eschews identity checks and advocates digital privacy, so we are expecting compliance with AML regulation will be met with resistance. But we are keen to work with the industry to ensure our AML standards are met in this market, particularly since this sector is closely integrated with traditional financial services.

 

Even too big (and good) to fail are making mistakes. The coronavirus may be seasonal (also the bear market).

You can try to do your best, but here is no perfect.

Even too big to fail make mistakes. Please note, they are good not bad, but mistakes happens to everyone.

Example A

The Securities and Exchange Commission announced settled charges against Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network for failing reasonably to supervise investment advisers and registered representatives who recommended single-inverse ETF investments to retail investors, and for lacking adequate compliance policies and procedures with respect to the suitability of those recommendations. The SEC ordered Wells Fargo to pay a $35 million penalty, which will be distributed to harmed investors.

Example B

LF Woodford Equity Income Fund
On 3 June 2019, the LF Woodford Equity Income Fund (WEIF) suspended dealing. The
WEIF was a retail scheme authorised in accordance with EU rules for Undertakings
for the Collective Investment in Transferable Securities (UCITS). UCITS schemes
are a type of open-ended authorised fund designed that can be marketed to all retail
investors. The WEIF’s suspension demonstrated the issues which can arise when other types of authorised retail funds invest in less liquid assets.
In October 2019, Link Fund Solutions, the authorised corporate director of the WEIF,
decided it was in the best interest of investors to close the fund. The liquidation of
the fund commenced on 18 January 2020 and will see money returned to investors in
instalments. 

Example C

Leveraged financial investment instruments. One small movement in the underline asset, and your invested capital is gone.

Investing is risky, you should take more than 1 advise.  It can save you a fortune.

BTW, we can assist with a good advice, just ping us back (email us).

BTW 2, the coronavirus may be seasonal, and the market may recover from the bear market. If you have available cash, there are plenty of bargains out their now.

Digital Assets and Related Investments – What You May Need to Consider

Is it direct holdings of digital assets? If not, you may need more details about the financial product. Is it future contract, OTC contract, an option? Please get more details, and consult with your financial expert/advisor/adviser.

Custody, where the digital asset stored? Is it regulated exchange? where is it regulated? Off-shore regulated entities may be more risky than US/UK/GERMAN/AUSTRALIA/FRANCE/SWITZERLAND regulated entities 🙂

Manipulation in the digital asset markets. Can the digital asset price can be manipulative easily? If yes, the asset price can be very volatile, and you may lose your invested capital.

Fee disclosure – do you know everything about the fees you will be charged? some business can cut a large sum from your invested capital, in order to make their business richer.

Liquidation – If you will need your funds back, how fast you will be able to get it back into your bank account? Some asset are not very liquidated, and you will not be bale to exchange your digital asset back to FIAT. You may not be bale to pay your monthly expenses, including rent, electricity, mortgage, since those can only be paid with FIAT (EUR, USD, GBP, AUD, NOK, SEK etc.).

Technology and user friendly – do you know how to handle the registration process, where do you see all the disclosures, terms and conditions, your account balance, your account status, user interface, broker contact details? If not, make sure you control everything more than perfectly. No one else will do it instead of you.

What is your risk tolerance? if it is very low, you may need to consider more traditional investments, the regular stock market may be better option (S&P 500 stocks can be better option for you).

No investment products are absolutely risk-free. This can be particularly true with novel and previously-untested investment strategies. Investors should proceed with caution, ask questions, and consider their risk tolerance before investing.

Life is risky, and so is investing.

Is it really limited liability company or “phoenixing”?

What phoenixing is?

Phoenixing is a common term used to describe the practice of closing a firm and that firm re-appearing under a new guise to avoid liabilities arising from the old firm. Each time this happens, the insolvent company’s assets, but not its debts, are transferred to a new, similar ‘phoenix’ company.

The insolvent company then ceases to trade and might enter into formal insolvency proceedings (liquidation, administration or administrative receivership) or be dissolved.

What the FCA is doing to prevent financial adviser phoenixing?

It has a broad programme of work under way to tackle the harm caused to consumers when regulated financial advice firms and individuals seek to avoid liabilities to consumers that have arisen because of the poor advice they have given. As part of thier ongoing supervision of firms and of individuals controlling firms, they actively look out for and act on, situations where a FCA regulated firm or individual is seeking to avoid their liabilities arising from awards made by the Financial Ombudsman Service or are deliberately seeking to avoid paying in the future because of their poor advice or practices.

Where the FCA finds individuals who deliberately avoided their responsibilities and not complied with previous awards made against their firms, it will question the fitness and propriety of these individuals and take necessary steps against them so that they don’t cause further harm to consumers.

What you can do to protect yourself from poor financial advice or a potential phoenixed firm?

Research the financial advice firm/financial adviser

  • Check on the Financial Services register whether the firm or individual you are dealing with is regulated by the FCA. If you deal with a firm (or individual) that is not regulated you may not be covered by the Financial Ombudsman Service or the FSCS.
  • Consult the FCA Warning List to check if the firm is known to be operating without FCA authorisation and for any FCA Enforcement decisions/actions against the firm or adviser.
  • Check the Financial Ombudsman Service  website for the firm’s record of complaints to help inform your decision on whether you wish to receive investment advice from the firm.

Don’t be the next victim, you can take control of your own destiny. It is all up to you, some can assist you the get it right.

The London Capital and Finance (LCF) outcome – FCA to ban promotion of speculative mini-bonds to retail consumers

Lesson learned, and actions are taking. The FCA is introducing the restriction without consultation, using its product intervention powers. The restriction will come into force on the 1 January 2020 and last for 12 months while the FCA consults on making permanent rules.

The term mini-bond refers to a range of investments. The ban announced today will apply to more complex and opaque arrangements where the funds raised are used to lend to a third party, invest in other companies or purchase or develop properties. There are various exemptions including for listed mini-bonds, companies which raise funds for their own activities (other than the ones above) or to fund a single UK property investment.

The FCA has limited powers over the, usually unauthorised, issuers of speculative mini-bonds but can take action when an authorised firm approves or communicates a financial promotion, or directly advises on or sells, these products. Alongside this activity, there is evidence of a growing incidence of promotions which are frauds or scams and involve no attempt to meet financial promotion rules. The marketing ban does not apply to such frauds and scams because they are illegal in any event.

The Crypto’s light is already dare (typo error)?

If you are Crypto enthusiast, pro Crypto you can also be optimistic from the following speech giving by Commissioner Hester M. Peirce:

I am concerned about how the SEC has regulated this space, because I believe our lack of a workable regulatory framework has hindered innovation and growth. The only guidance out of the SEC is a parade of enforcement actions and a set of staff guidance documents and staff no-action letters. For example, the SEC’s web page “Spotlight on Initial Coin Offerings (ICOs),” has an “ICO Updates” section that is headlined by enforcement actions brought by the Commission. Only when you click through to “More” do you see other materials. Of particular concern is that these enforcement actions and guidance pieces, taken together, offer no clear path for a functioning token network to emerge. Instead, I support creating a non-exclusive safe harbor period within which a token network could blossom without the full weight of the securities laws crushing it before it becomes functional. By allowing legitimate projects to get their tokens into the hands of a broad set of developers and network users without fear of enforcement, we also would allow the SEC’s Enforcement Division to focus its resources on the fraudulent actors in the realm of crypto offerings.

In a different paragraph she shared the following:

The terms of a settled enforcement action, for example, may turn on considerations that will not be obviously determinative to someone reading the facts set forth in the settlement order. I am thinking of one recent enforcement action that generated quite a buzz in the crypto world because some thought its penalty was too low relative to the amount raised in the offering. Yet, there were some underlying facts that might have argued for the opposite conclusion—that the penalty was too high.

 

UK, information on current account services, or more simply banking services

Current account providers are publishing better information about the services they offer consumers and small businesses. This follows action by the FCA and the Competition and Markets Authority (CMA), and a voluntary commitment by banks and building societies.

This information helps consumers and small businesses find the right service for them, get the most out of it, and get help if things go wrong. It will also help others such as comparison services and the media to compare current accounts.

Please find attached a link for the data, enjoy.

https://www.fca.org.uk/data/mandated-voluntary-information-current-account-services

Some banks will allow you to open an account, issue a debit card, take an overdraft in just 1 day. Or you can just start using crypto-currencies.

Old and not secure

Congrats, but you are in risk. The risk of losing your life, your money and your love-ones.

You need to keep fighting, it does not end until it ends.

Five Red Flags of Investment Fraud

Promises of High Returns with Little or No Risk.  The promise of a high rate of return, with little or no risk, is a classic warning sign of investment fraud.  Every investment carries some degree of risk, and the potential for greater returns generally comes with greater risk.  Avoid putting money into “can’t miss” investment opportunities or those promising “guaranteed returns.”  Remember – if it sounds too good to be true, it probably is.

Unregistered Persons.  Always check whether the person offering to sell you an investment is registered and licensed, even if you know him or her personally.  Unregistered/unlicensed persons who sell securities perpetrate many of the securities frauds that target older investors.  Researching the background of the individuals and firms selling you investments, including their registration/license status and disciplinary history, is free:

  • Search the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck online database.

Red Flags in the Financial Professional’s Background.  Even if an investment professional is in good standing with his or her regulators, you should be aware of potential red flags in the professional’s background.  SEC, FINRA, and state securities regulator records can be used to identify red flags for potential problems, including: (1) employment at firms that have been expelled from the securities industry; (2) personal bankruptcy; (3) termination; (4) being subject to internal review by an employer; (5) a high number of customer complaints; (6) failed industry qualification examinations; (7) federal tax liens; and (8) repeatedly moving firms.

Pressure to Buy Quickly.  No reputable investment professional should push you to make an immediate decision about an investment, or tell you that you’ve got to “act now.”  If someone pressures you to decide on an investment without giving you ample time to do your research, walk away.

Free Meals.  Be wary of “free lunch” seminars.  The ultimate goal of free meal investment seminars is typically to lure new clients and to sell investment products, not to educate the public.  If you decide to attend one, commit to yourself before the seminar that you won’t purchase anything or open an account while at the seminar.  Even if the free meal does not come with a high-pressured sales pitch, you should expect the “hard sell” in subsequent contacts from the person selling the investment.

Highlights from the statement of commissioner Jackson

It may be worth think about the following from his statements about:SEC rules give public companies four days before they must notify the market about market-moving business developments, corporate insiders incentives to pursue stock buybacks, and how public companies spend their money on politics:

I believe that a critical part of the SEC’s mission is to make sure that ordinary investors stand on a level playing field in today’s complex markets. Gaps in our securities laws that allow insiders to trade before key information comes to light; pursue stock buybacks that maximize executive pay but not long-run performance; and spend investor money on politics in secret undermine the trust that ordinary Americans have in our financial system. I am delighted that this Committee is considering how best to close those gaps.

On the other hand, not everything is perfect, as you can see below regarding to rollback of the Volcker Rule:

But even if liquidity were quantifiably lower, it would be hard for me to support these changes. Ordinary American investors aren’t kept up at night worrying about an imagined lack of bond liquidity. They’re wondering why they should trust a financial system that upended their lives a decade ago. The benefits of investor trust in our financial markets are hard to quantify, but they’re doubtless a reason why our markets are the envy of the world. Rolling back risk taking protections like this puts that trust at risk, makes ordinary Americans wary of our markets, and—ironically—may even undermine liquidity.

Dialog is always bringing to a better and robust financial market.