Global Trustee and Fiduciary Services News and Views Issue 50

Prime, Futures and Securities Services | XXXXXX 52 FINANCIAL INNOVATION Technology is changing the way firms interact with customers, complete transactions and process data. And as millennials enter the investment scene, they’re bringing their predilection for fast, mobile, low-cost services along with them. SIGNS OF THE TIMES Buyside firms are using AI to capture consumer patterns and insights. “ Robots ” backed by AI are interacting with customers online and on the phone. Distributed ledgers promise smart contracts, instant settlement and failsafe security. Data Mining is helping businesses identify sales and manage risks more efficiently. PARADOXES OF INNOVATION Established firms are challenged by not-yet-established tech . Firms won’t use innovation till it’s widespread, but it can’t be widespread till they use it . For the same innovation: small firms need shorter R&D times; large firms , longer ones. With rapid growth, market share is valuable to get but easy to lose . REGULATORS ON BALANCE Regulators must ensure new tech is compliant but also encourage innovation. Sandboxes allow firms to test products without any risk to the consumer and enable regulators to better understand them. Innovation hubs and tech-sprints enable regulators and developers to cooperate while helping to promote innovation. RISKS OF DISENFRANCHISEMENT MACHINES ON THE RISE Colossus is first programmable computer (1943). Artificial intelligence is coined (1955). Moore’s law on transistor density is born (1965). World wide web comes on line (1991). IBM’s Deep Blue beats Kasparov (1997). IBM’s Watson wins gameshow Jeopardy (2011). Watson starts to learn regulation following IBM acquisition of Promontory Financial Group (2016). Machine-executable regulation proof of concept developed by FCA and BoE (2017). CRYPTO COMES OF AGE 1872 First encrypted wire transfers. 1983 Anonymous e-money conceived. 1998 Distributed ledger currency proposed. 2008 Bitcoin white paper published. 2010 Two pizzas ordered for 10,000 bitcoins. 2017 Value of 1 bitcoin peaks at US$19,783.21. 2018 Market cap hits US$813bn across 1.8K coin types. Online content covered by just 10 languages 80% World population without internet access 52% UK households over 65 without internet 39% People who live outside 3G coverage 24% Proportion of adults considered illiterate 15% Population living below the global poverty line 13% FAILURE OF TECHNOLOGY Criminals exploiting new tech to finance their activities. Firm security breaches due to ineffective cybersecurity. Data stolen or lost to inadequate data protection. Infrastructure failures due to inadequate product testing or out-of-date apps or OS. As emerging tech reshapes the financial world, firms, regulators and consumers all face risks and opportunities .