2. Reminder
• An on-going experiment – Week 3rd of 8
• Slides (and recordings) made available post module, e.g.
• https://www.slideshare.net/dindjic
• My social network policies (repeat)
• LinkedIn: invite accepted only following (supervised) project, internship
• Twitter: open to all to (un)follow @dindjic
• Still no questions (or essays) received (yet)
• dindjic@london.edu
• indjicd@regents.ac.uk
3. Syllabus
1. Digital Transformation of Financial Services
2. Regulation: law, platforms economy
3. Identity: Customers, People, Privacy
4. Blockchain: Coins, Tokens and Contracts + Guest
5. PayTech: Money, Payments + Guest
6. WealthTech: Personal Services
7. Infrastructure: Services, business, wholesale
8. Innovation: Entrepreneurship and Strategy
4. 2. Regulation
• Principal banking functions
• arranging payments, allocating credit, taking deposits (or equivalent)
• Regulated
• Money and customers → fraud, financial crime and consumer rights.
• EU Single Digital Market (2015)
• Citizen’s identity (eID), drive from 2007 Payments Directive (PSP) to EMR/EMI
e-money (2011) and PSD2 banking (2018) regulation
• #openbanking
• EU banks must provide 3rd party access to customers’ accounts and payment
services.
6. Future is a happy customer
• “The first attempt by competition authorities to use technology to
rebalance complex markets towards consumers”, OBIE Report, July
2019 – compare to energy firms in the UK
• Banks as utilities: commoditized, switching <> loyalty
7. Neobanks
• UK: “Open Banking Implementation Entity” (2016)
• Defines and regulates: The API, security and messaging standards; the Open
Banking Directory; manages disputes and complaints.
• CMA: “a model for similar steps in other markets where customer
inactivity or loyalty can leave people worse off”
• https://www.currentaccountswitch.co.uk/
• for 40 banks; 4m switches; SME included
• But thanks to PSD2 you don’t even need a banking license!
• FCA (July 2019): 86 Account Information (AISP) and 37 Payment Service
initiation (PISP) providers (AISPs/PISPs) have been authorised.
8. • Financial Services and Markets Act (FSMA) 2000: “financial activities
have to be regulated by the FCA. Any firm (whether a business, a not-
for-profit or a sole trader) carrying out a regulated activity must be
authorised or registered by us”.
• https://www.fca.org.uk/firms/connect
• Introduction: https://play.buto.tv/5XjxG; takes up to 6 months
• “Authorised firms must be ready, willing and organised to comply with
our rules and requirements at all times”.
The UK Financial Firm Authorisation
9. UK: FCA’s Market Competition Mandate
• First Step: register your business and apply to the FCA for authorisation
• https://www.fca.org.uk/firms/authorisation
• Business plan
• Inc. financials (launch + 2 years) - e.g. only £1m via “New Bank Start-up Unit”
• Service providers: compliance, accounting, business banking, client custody)
• People: qualified. some with ‘Approved Person’ status
• https://register.fca.org.uk/
• FCA is going to
• Match business activity to particular ‘regulated activities’
• Check threshold conditions for authorisation: the systems and controls
• Test and/or launch applications; verified in FCA inspection visits.
10. FCA Regulated Start-up (1) - Business Plan
• Tip: use Excel to play with your capital raise, balance sheet, equity stakes,
cashflows, business cash burn rate, break-even …. etc
1000 sq ft offices, 3 co-founding partners + 2 support
staff, local PCs, server/VPN access; excluding director(s)
fees, travel, marketing costs
From To
Annual employment costs for support staff £60,000 £90,000
Annual premises lease costs @ £60-£90 per sq ft £60,000 £90,000
Telco, cloud, VPN, local IT support costs @ £10-£15,000 per person £50,000 £75,000
Annual compliance accounting & payroll costs £25,000 £35,000
Annual statutory audit costs £5,000 £15,000
Monthly general administrative costs, @ £1-£2,000 per person £60,000 £120,000
Total Budget for first year costs £260,000 £425,000
11. FCA Regulated Start-up (2) - Compliance
• Requirements: Business plan + financial model
Ltd/LLP firm, estimated costs in 2010s From To
Legal documents, e.g. LLP Agreement £20,000 £50,000
Legal & tax advisory £50,000 £150,000
Customised compliance documents in accordance with FCA etc standards £2,500 £4,500
Compliance, regulatory capital, tax advice, preparation and completion
of FCA authorisation pack through to receipt of final approval £15,000 £25,000
FCA application fee for Part IV permission £5,000 £5,000
Total : Initial Professional Fees £92,500 £234,500
12. International Regulation
• Scaling-up
• Regulatory sandboxes, GFIN
• https://www.fca.org.uk/firms/regulatory-sandbox/cohort-5
• Fintech bridges
• https://kae.com/infographic/Fintech-Bridges-Across-The-Globe/
• EEA Passporting of funds and firms
• https://www.fca.org.uk/brexit/temporary-permissions-regime
• T-4 days: “olive branches”, Gibraltar etc
• Case study: Australian e-brokerage
• https://hellostake.com/, free brokerage
13. An Essay Topics
• “Our competition objective is focused on improving the process of rivalry
between firms, and it is this process that leads to better outcomes for
consumers, by forcing firms to work harder in terms of the choice, cost and
variety of products and services they offer”.
• FCA sandbox Cohort 1-4 Analysis
• https://www.fca.org.uk/publications/research/impact-and-effectiveness-innovate
• FCA (April 2019) :“Our evidence base here is limited, but of the 44 start-ups that
tested in cohorts 1, 2 and 3 of the Sandbox, 17 were either acquired or received
investment during or after their test. 15 start-ups participated in cohort 1, and of
these 2 have been acquired, and 6 have gone on to receive a combined total of over
£135m of equity funding”
• “31 operational regulatory sandboxes globally, and 28 innovation hubs in the EU
alone”
14. Fintech Goods: Investment Funds
• NB This fintech course is not about trading but (retail) investments
• EU Fund Industry Exports
• Standardised legal form: UCITS, from 1st generation (2009) to proposed 6th
• Milestone (2019) EUR 10tn of Assets under Management (AUM)
• Just 7% are ETF, but EUR 6.5tn are cross-country assets
• July 2019: Total of 33,720 UCITS funds
• There are additional 28,818 AIF with EUR 6.4tn of AUM
• Fund definition and structural characteristics
• Business form of a collective investment scheme (CI in UCITS); investing
money alongside other customers – pooled (aggregated) assets, platform
• Benefits: professional management + economies of scale
15. Alternative Finance (AF)
• AF (def.) as financial channels and instruments emerged outside of the
traditional financial system
• “A source of risk finance that fills a funding gap following banking
shrinkage and de-risking”
• A case of platform economics
• “online platforms” or marketplaces
• Crowd
• -funding, -investing and –lending
17. AF Taxonomy, Agrawal (2014)
• Each AF platform typically provide an assessment of the ventures, market structure, as well as backers
and investors for each segment. The underlying technology is even available as SaaS
Crowd Type Examples Notes
Investing
(equity-based)
Companisto, Crowdcube, Republic,
Seedrs, Seedmatch, WiSeed
Restrictions: JOBS Act Title III, Small Investor
Protection Act (Germany): solicitation of the
general public
Lending LendingClub, FundingCircle, Auxmoney,
LendInvest
Peer-to-peer, peer-to -business
Donation
(Charity)
GoFundMe, JustGiving Social causes
Funding
(Reward)
CrowdFunder, Indiegogo, Kickstarter,
Startnext, CrowdJustice
for backers; revenue and profit sharing
18. Cambridge CAF Report (2019)
• Center for Alternative Finance: captures 90% of the global public AF market
19. Discussion
• International fund industry – can it be Made in China 2025?
• Following “CICC acquires KraneShares stake; China Post buys RBS’s funds” etc
• 深港通
