Rich Vibert, co-founder and CEO of Metomic, takes a look at the changes the UK financial sector will soon see and how banks can best prepare for them.
With headlines focused on the UK's plans to breach parts of the Brexit agreement, many key business discussions have fallen by the wayside. But, this begs the question: how are banks going to be protecting customer data? And, what data protection regulation is in place to govern this process as GDPR becomes inapplicable?
These are difficult questions to answer and require banks to unpick complex regulation and governmental disputes, before they can even start to implement the tools that will protect their customers.
Recent reports show that there’s room for improvement when it comes to the banks’ ability to secure data privacy. According to a Bitglass study, 62% of the data breached last year came from financial services, and with the increased risk brought by COVID-19, the prospect of what could happen to data collected and managed by banks is worrying. Furthermore, back in March, a report by Accenture showed that one-third of financial services organisations didn’t have the technical or personal resources to address privacy risks related to customer data. If these firms haven’t addressed this gap yet, they will simply not be prepared for Brexit and the risk that a potential last-minute change in regulations will pose.
After investing two years of work to become compliant with the General Data Protection Regulation (GDPR), banks are understandably unwilling to start again. At present, once we are out of the EU, UK organisations will need to comply with regulation that is yet to exist. Thankfully, there is a large chance that the UK will incorporate GDPR principles into its own law, but uncertainty and confusion still remains. And should new local measures be implemented, banks will need to move quickly to become compliant.
After investing two years of work to become compliant with the General Data Protection Regulation (GDPR), banks are understandably unwilling to start again.
When it comes to data transfers with other European countries the rules will become stricter, adding extra layers of complexity for financial institutions.
As we stand, the UK government has already declared its willingness to reach an adequacy agreement, to maintain a free flow of data between the two regions. However, given the turbulent relationship with the EU, the agreement on such a deal is by no means a given.
Financial organisations also need to prepare for the possibility of a no-deal Brexit, with speculation that this could see companies sending their data to the EU next year and simply not getting it back. For businesses which heavily rely on constant transfers of sensitive data such as bank accounts and income, this is simply not acceptable. Unpicking the mess will require the investment of time and funds that many businesses can ill-afford.
While a potential headache for financial institutions, the UK’s lack of reassurance when it comes to post-Brexit data protection is even more detrimental to its own citizens. The government’s current track record for safeguarding people’s data leaves much to be desired. The recent admission that the UK track and trace system wasn’t GDPR compliant is just one example that has eroded citizens’ trust. The systematic disregard for data privacy has not gone unnoticed either. 75% of consumers report being concerned with the safety of the information they share with organisations, according to IDEX Biometrics. This has to be addressed if banks are going to survive and ensure that that customer trust is maintained.
While the future of data regulation in this country remains in flux, we know that privacy and data protection is top of mind for consumers. To maintain the trust and loyalty of their customers, financial services organisations must think ahead and be prepared for any outcome, specifically at a technical level. But many organisations will be concerned about where to begin and how to navigate this journey.
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Thankfully, financial institutions can tackle this challenge without exorbitant costs but they will need a change of mindset. They must put customer data at the centre of their strategy and embrace technology that will help them put privacy first.
But this means having a clear understanding of what is happening to customer data at all times. There are simple mechanisms that can be put in place to deliver this level of control and visibility. These include automating compliance and embedding data protection rules into the IT infrastructure. Solutions such as these can be cost effective and have the potential to save thousands of hours in auditing and developing data management processes. What’s more, they will give businesses the right foundation for protecting data, whatever the regulatory outcome of Brexit.
While the future of data protection rules in the UK are still being negotiated, the financial services firms that embrace a privacy-first approach starting now will be better prepared for any outcome in the Brexit negotiations.
Going forward, collaboration with the EU is vital to prevent a scenario where data transfers are blocked. We need to work closely with our European counterparts to create a data privacy framework that's protective of UK citizens without being restrictive to our businesses. Only time will tell, but with the respect and protection of our data is in the hands of governments and businesses, data privacy can no longer be treated as an afterthought. If banks act now, and protect against the inevitable, the ultimate benefit will be earning their most important asset: their customers’ trust.
The UK economy grew by 2.1% in August, marking the fourth consecutive month of economic expansion following its record slump of 20.4% in April.
However, this growth was slower than the expansion of 8.7% seen in June and 6.6% in July, according to new figures released on Friday by the Office for National Statistics (ONS). Economists had forecasted a monthly growth of 4.6%.
The slowdown comes in spite of a boost for the hospitality sector through the government’s Eat Out to Help Out scheme, which helped to lift output in the food and accommodation industry by a staggering 71.4% in August. Discounts for over 100 million meals were claimed through the scheme.
“The combined impact of easing lockdown restrictions, Eat Out to Help Out Scheme and “stay-cations” boosted consumer demand,” the ONS noted.
More than half of the UK’s economic growth during August stemmed from the food and accommodation industry. Meanwhile, the manufacturing sector grew by 0.7% and the construction sector grew by 3%, respectively 8.5% and 10.8% lower than February figures.
The economy as a whole remains 9.2% smaller than pre-pandemic levels. The latest release from ONS is likely to put an end to hopes of a V-shaped recovery for the UK’s economic output.
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Analysts have warned that the UK’s economic recovery is likely to peter out further as new COVID-19 restrictions come into place, the furlough scheme ends by November, and concerns of a no-deal Brexit grow more pressing.
“Although the UK remains on course to exit recession in the third quarter, the looming triple threat of surging unemployment, further restrictions Wand a disorderly end to the transition period means the recent rally in economic output is likely to be short-lived,” said Suren Thiru, head of economics at the British Chamber of Commerce. “The government must stand ready to help firms navigate a difficult winter, beyond the Chancellor’s recent interventions.”
Financial services firms operating in the UK have shifted more than $1.6 trillion worth of assets and around 7,500 employees to the European Union ahead of Brexit, with more likely to follow in the weeks ahead, according to a report from Big Four accountancy firm Earnest and Yong (EY).
Tracking 222 of the largest financial firms maintaining significant operations in the UK, the EY report notes that around 400 relocations were announced in September alone amid uncertainty about the City of London’s continued access to the bloc in 2021.
EY also noted that there was very little movement in the first half of 2020, owing to the emergence of the COVID-19 pandemic and its impact on the banks. Businesses are now accelerating plans to relocate staff and operations from the UK ahead of its exit from the EU on 31 December and a possible second wave of COVID-19 lockdown measures forcing borders to reclose.
Since the UK’s vote to leave the EU in 2016, 44 financial services firms in London have created 2,850 new positions in EU nations. The biggest business gains have been seen in Dublin, Frankfurt and Luxembourg.
“As we fast approach the end of the transition period, we are seeing some firms act on the final phases of their Brexit planning, including relocations,” said Omar Ali, UK financial services managing partner at EY.
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“The time has now passed for firms to rely on short-term equivalence assessments that would align to EU rules, and the sector’s attention is increasingly focused on the longer-term outlook,” Ali added.
Major US banks with operations in the UK have begun to transfer their assets to the EU, such as JPMorgan, which has moved about $230 billion to a subsidiary in Frankfurt. Goldman Sachs has also planned to relocate over 100 London staff.
Tens of thousands of British citizens living in the EU have received notices from their UK-based banks warning them that their accounts will be closed by the end of the year, The Times has reported.
Major banks including Lloyds, Barclays and Coutts, have sent letters British account holders living in the EU with a warning that they will no longer receive service when the UK’s EU withdrawal agreement ends at 11pm on 31 December 2020.
Several thousand Barclays customers living in France, Spain and Belgium have already been given notice that their Barclaycards will be cancelled on 16 November.
In the absence of a Brexit deal, individual UK banks will now have to decide which EU nations they want to continue to operate in. As each of the 27 member states has different rules regarding banking, it will become illegal for UK banks to provide services for customers in these states without applying for new banking licenses.
Lloyds Bank has confirmed that it will no longer operate in Germany, Ireland, Italy, Portugal, Slovakia and the Netherlands; customers in these countries will have their accounts closed on 31 December. Coutts has also confirmed that its EU customers will have to make “alternative arrangements”, and Natwest and Santander have stated that they are “considering their options”.
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Nigel Green, CEO and founder of deVere Group, slammed the decision of banks to withdraw from EU nations and “abandon” their customers there.
“Once again, traditional banks are outrageously failing their clients who now need to take urgent steps to continue to be able to access, use, and manage their money,” Green said. “The move by these banks will be a major inconvenience to many tens of thousands of Brits living in the EU.”
“I would urge expats to now seek a financial services provider that already operates under pan-European rules,” he continued.
Kris Sharma, Finance Sector Lead at Canonical, explores the value of open source technologies in steering financial services through times of disruption.
In a post-Brexit world, the industry is facing regulatory uncertainty at a whole different scale, with banking executives having to understand the implications of different scenarios, including no-deal. To reduce the risk of significant disruption, financial services firms require the right technology infrastructure to be agile and responsive to potential changes.
Historically, banks have been hesitant to adopt open source software. But over the course of the last few years, that thinking has begun to change. Organisations like the Open Bank Project and Fintech Open Source Foundation (FINOS) have come about with the aim of pioneering open source adoption by highlighting the benefits of collaboration within the sector. Recent acquisitions of open source companies by large and established corporate technology vendors signal that the technology is maturing into mainstream enterprise play. Banking leaders are adopting open innovation strategies to lower costs and reduce time-to-market for products and services.
Banks must prepare to rapidly implement changes to IT systems in order to comply with new regulations, which may be a costly task if firms are solely relying on traditional commercial applications. Changes to proprietary software and application platforms at short notice often have hidden costs for existing contractual arrangements due to complex licensing. Open source technology and platforms could play a crucial role in helping financial institutions manage the consequences of Brexit and the COVID-19 crisis for their IT and digital functions.
Open source software gives customers the ability to spin up instances far more quickly and respond to rapidly changing scenarios effectively. Container technology has brought about a step-change in virtualisation technology, providing almost equivalent levels of resource isolation as a traditional hypervisor. This in turn offers considerable opportunities to improve agility, efficiency, speed, and manageability within IT environments. In a survey conducted by 451 Research, almost a third of financial services firms see containers and container management as a priority they plan to begin using within the next year.
Open source software gives customers the ability to spin up instances far more quickly and respond to rapidly changing scenarios effectively.
Containerisation also enables rapid deployment and updating of applications. Kubernetes, or K8s for short, is an open-source container-orchestration system for deploying, monitoring and managing apps and services across clouds. It was originally designed by Google and is now maintained by the Cloud Native Computing Foundation (CNCF). Kubernetes is a shining example of open source, developed by a major tech company, but now maintained by the community for all, including financial institutions, to adopt.
The use cases for data and analytics in financial services are endless and offer tangible solutions to the consequences of uncertainty. Massive data assets mean that financial institutions can more accurately gauge the risk of offering a loan to a customer. Banks are already using data analytics to improve efficiency and increase productivity, and going forward, will be able to use their data to train machine learning algorithms that can automate many of their processes.
For data analytics initiatives, banks now have the option of leveraging the best of open source technologies. Databases today can deliver insights and handle any new sources of data. With models flexible enough for rich modern data, a distributed architecture built for cloud scale, and a robust ecosystem of tools, open source platforms can help banks break free from data silos and enable them to scale their innovation.
Open source databases can be deployed and integrated in the environment of choice, whether public or private cloud, on-premise or containers, based on business requirements. These database platforms can be cost-effective; projects can begin as prototypes and develop quickly into production deployments. As a result of political uncertainty, financial firms will need to be much more agile. And with no vendor lock-in, they will be able to choose the provider that is best for them at any point in time, enabling this agility while avoiding expensive licensing.
As with any application running at scale, production databases and analytics applications require constant monitoring and maintenance. Engaging enterprise support for open source production databases minimises risk for business and can optimise internal efficiency.
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Additionally, AI solutions have the potential to transform how banks deal with regulatory compliance issues, financial fraud and cybercrime. However, banks need to get better at using customer data for greater personalisation, enabling them to offer products and services tailored to individual consumers in real time. As yet, most financial institutions are unsure whether a post-Brexit world will focus on gaining more overseas or UK-based customers. With a data-driven approach, banks can see where the opportunities lie and how best to harness them. The opportunities are vast and, on the journey to deliver cognitive banking, financial institutions have only just scratched the surface of data analytics. But as the consequences of COVID-19 continue and Brexit uncertainty once again moves up the agenda, moving to data-first will become less of a choice and more of a necessity.
The number of data sets and the diversity of data is increasing across financial services, making data integration tasks ever more complex. The cloud offers a huge opportunity to synchronise the enterprise, breaking down operational and data silos across risk, finance, regulatory, customer support and more. Once massive data sets are combined in one place, the organisation can apply advanced analytics for integrated insights.
Open source technology today is an agile and responsive alternative to traditional technology systems that provides financial institutions with the ability to deal with uncertainty and adapt to a range of potential outcomes.
In these unpredictable times, banking executives need to achieve agility and responsiveness while at the same time ensuring that IT systems are robust, reliable and managed effectively. And with the option to leverage the best of open source technologies, financial institutions can face whatever challenges lie ahead.
The value of the pound fell against the dollar and euro over the weekend, as news emerged that UK ministers were planning new legislation to undercut key provisions of the EU withdrawal agreement, giving rise to fears that the UK will face an end-of-year “no deal” Brexit.
The Financial Times first reported that the “Internal Market Bill” would undermine the legal force of areas of the agreement in areas including customs in Northern Ireland and state aid for businesses, risking a potential collapse of trade talks with the EU. Downing Street later described the measures as a standby plan in case talks fall through.
Political backlash followed as Michelle O’Neill, Northern Ireland’s Deputy First Minister, described any threat of backtracking on the Northern Ireland Protocol as a "treacherous betrayal which would inflict irreversible harm on the all-Ireland economy and the Good Friday Agreement". Scottish First Minister Nicola Sturgeon also stated that the legislation would “significantly increase” odds of a no-deal Brexit.
The pound was down 0.6% against the dollar by 10am on Monday for a total slide of 1% against the dollar in the past 5 days. The pound also slid 0.5% against the euro for a total of 0.7% in the same period.
The value of the pound is now equivalent to $1.319, or €1.1145.
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The eighth round of Brexit talks is set to begin on Tuesday, aimed at forming a deal that will allow companies in the UK and EU to trade without being hindered by customs checks or taxes.
The news follows Prime Minister Boris Johnson’s imposition of a 15 October deadline for securing a Brexit deal, recommending that both sides “move on” if no such agreement is reached by that date. The proposed deadline would come far ahead of the slated end of the transition period on 31 December 2020.
Richard Harmon, Managing Director of Financial Services at Cloudera, discusses the importance of relevant machine learning models in today's age, and how the financial sector can prepare for future changes.
The past six months have been turbulent. Business disruptions and closures are happening at an unprecedented scale and impacting the economy in a profound way. In the financial services sector, S&P Global estimates that this year could quadruple UK bank credit losses. The economic uncertainty in the UK is heightened by Brexit, which will see the UK leave the European Union in 2021. In isolation, Brexit would be a monumentally disruptive event, but when this is conjoined with the COVID-19 crisis, we have a classic double shock wave. The duration of this pandemic is yet to be known, as is the likely future status of society and the global economy. What the ‘new normal’ will be once the pandemic has been controlled is a key topic of discussion and analysis.
In these circumstances, concerns arise about the accuracy of machine learning (ML) models, with questions flying around regarding the speed at which the UK and EU will recover relative to the rest of the world, and what financial institutions should do to address this. ML models have become essential tools for financial institutions, as the technology has the potential to improve financial outcomes for both businesses and consumers based on data. However, the majority of ML models in production today have been estimated using large volumes and deep histories of granular data. It will take some time for existing models to be re-estimated to adjust to the new reality we are finding ourselves in.
The most recent example of such complications and abnormalities, at a global scale, was the impact on risk and forecasting models during the 2008 financial crisis. Re-adjusting these models is by no means a simple task and there are a number of questions to be taken into consideration when trying to navigate this uncertainty.
ML models have become essential tools for financial institutions, as the technology has the potential to improve financial outcomes for both businesses and consumers based on data.
Firstly, it will need to be determined whether the current situation is a ‘structural change’ or a once in a hundred years ‘tail risk’ event. If the COVID-19 pandemic is considered a one-off tail risk event, then when the world recovers, the global economy, the markets, and businesses will operate in a similar environment to the pre-COVID-19 crisis. The ML challenge, in this case, is to avoid models from becoming biased due to the once-in-a-lifetime COVID-19 event. On the other hand, a ‘structural change’ represents the situation where the pandemic abates, and the world settles into a ‘new normal’ environment that is fundamentally different from the pre-COVID-19 world. This requires institutions to develop entirely new ML models that require sufficient data to capture this new and evolving environment.
There isn’t one right answer that fits every business, but there are a few steps financial services institutions can take to help them navigate this scenario.
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When facing a crisis of unprecedented size such as this one, it’s time to look inwards and review the technology investments in place and whether crucial tools such as ML models are being deployed in the best way possible. Financial institutions should face this issue not as responding to a one-off crisis, but as a chance to implement a longer-term strategy that enables a set of expanded capabilities to help prepare them for the next crisis. Businesses that put in time and effort to re-evaluate their machine learning models now will be setting themselves up for success.
Many are choosing to wait out the trouble and see what happens rather than selling their home for somewhere new. But with Brexit resolved (at least on paper), and the country coming to terms with lockdown and looking forwards the future, there may be a level of certainty soon returning to the market now could be the perfect time to look into selling again. If you are planning on selling up, here are some key things that you need to know.
It can’t be denied that COVID-19 has been disastrous for the housing market. It is not so much that demand has seen a dip, rather that the market has gone into deep freeze - everyone looking to buy or sell is looking to wait until some sort of certainty returns. However, life goes on and increasingly it will be necessary to understand how to get on with things in spite of the coronavirus.
It seems that lockdown won’t actually have a huge effect on house prices - demand for properties is still there, it is just currently frozen. So if you are thinking of selling, you need to be getting ready in spite of the restrictions of lockdown. Things can change quickly, and it may soon be the case that the market returns to a level of normality.
It might seem like a lifetime ago, but no matter what you think about Brexit, there is no doubting the uncertainty surrounding the UK since the vote to leave. This has created a great sense of trepidation in terms of people being interested in investing their money, and buying property. Now the UK is officially leaving the EU, we can expect to see the market stabilise and confidence return.
Over the course of deciding the terms of Brexit there have been instances of house prices falling and people being reluctant to buy. The return to certainty – whether it is good in the long-term or not – should provide some relief to the property market, and make 2020 a good time to sell.
Now the UK is officially leaving the EU, we can expect to see the market stabilise and confidence return.
In 2020, the range of estate agent options that you have available is larger than ever. In general, estate agents now fall into two separate categories: those with a physical presence in the form of high street stores, and those who operate purely online.
There is no doubt that online agents generally offer a cheaper service – some, such as Purplebricks, charge a simple one-off fee and do not take commission. However, it is important to understand that you will get less in the way of services from them. Standard estate agents charge more but will typically do more to get your property sold.
In the past, we have seen many homeowners take a ‘wait and see’ approach to selling their property. This sees them listing it at a very high price, hoping that someone will fall in love with the property and pay over what it is worth.
However, if you are looking to make a sale, this isn’t a wise move. It is a much better idea to set a realistic asking price. The process of selling can be drawn out enough without the challenge of overcoming an overly high price tag.
First impressions matter when it comes to selling a home, so there is no doubt that you need to think about the exterior of your property. Your home needs kerb appeal – when someone sees it for the first time, are they impressed or disappointed? If it is the latter then you need to prioritise making changes.
There are actually many ways to enhance your kerb appeal. But it is important to think about the specifics of your property – what really needs changing? Some homes could do with a new paint job, others would benefit from replacing an old, rusty garage door. Take a look at your home objectively, and ask yourself what is detracting from the overall look.
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65% of homeowners renovate their kitchen before they sell. There is a good reason for this. The kitchen is seen as the focal point of the home, and it is somewhere that buyers will be drawn to, and will want to inspect. If your kitchen is looking a bit tired, now is the perfect time to make upgrades and improve the value of your home.
If you only have the budget to make home improvements in one area of the house, then it is definitely worth making that area the kitchen. Your budget will go a long way – replacing cupboard doors and handles can freshen up the whole look of the kitchen without breaking the bank.
The property market is certainly looking up, so now could be the perfect time to put your home up for sale. Be sure that you present your home in the best possible way – you might be surprised just how much of a difference this makes to the amount of money you can get for it.
The precise shape of the UK’s post-Brexit taxation regime is yet to be decided; however, the indications are that radical changes are unlikely. Much will depend on the terms of the UK-EU trade deal, which is due to be negotiated this year. The EU has been abundantly clear that UK alignment in terms of taxation, labour and environmental regulation is the price for EU market access.
Yet, former Chancellor, Sajid Javid, warned that "There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union – and we will do this by the end of the year." It remains to be seen whether his successor, Rishi Sunak, will be as bold or soften in the face of the economic consequences of losing trade with the EU. Below, Miles Dean, Partner at Andersen Tax UK, offers Finance Monthly his predictions on what we are likely to see in terms of taxation as future trade deals are negotiated.
Given the scale of UK trade with the EU, it appears probable that substantial alignment will ultimately be seen as a wise trade-off in order to retain valuable market access to the EU. The EU remains the UK’s largest trading partner. 44% of all UK exports went to the EU in 2017, with 53% of all UK imports coming from the EU. The efficient operation of cross-border supply chains are vital to the UK’s automotive and aerospace industries. These largely depend on the free movement of goods across the Channel.
The Conservative Party’s clear majority in the 2019 general election makes the UK’s future tax policy somewhat more predictable. While some more excitable commentators feared that the Conservatives would slash corporation tax, deregulate and sell off the NHS, the party’s 2019 manifesto went in rather the opposite direction - deferring a scheduled cut in corporation tax to fund the NHS. Section 46 of the Finance Act, 2016 had pledged to reduce the rate of corporation tax from 19 percent to 17 percent from 1 April 2020. However, Prime Minister Johnson told the Confederation of British Industry’s annual conference on 18 November 2019 that the this planned reduction would be put on hold to fund the NHS and other “national priorities”.
44% of all UK exports went to the EU in 2017, with 53% of all UK imports coming from the EU.
To offset this disappointment to UK business, the Conservative Manifesto announced other business-friendly measures, including a review of business rates, an increase in the R&D tax credit rate from 12% to 13% and an increase in the structures and buildings allowance from 2% to 3%. Yet none of this amounts to anything resembling dramatic reform. Indeed, this cautious approach rather suggests that the government is heeding the EU’s bottom line in terms of alignment, and that it does not intend to radically alter the UK’s taxation regime.
The idea of the UK becoming a giant Singapore-style tax-haven after Brexit also appears to be on hold. Indeed, the government is even promising additional anti-tax avoidance measures and a new digital services tax, showing a commitment to maintaining and even expanding the UK’s tax base.
The new digital services tax may yet be influenced by trade negotiations – this time those with the United States, as regards a US-UK trade deal. The Government’s plans to introduce a 2% digital services tax from April 2020 would disproportionately affect US tech companies such as Google and Facebook. The US treasury secretary Steven Mnuchin has warned of retaliation by new US taxes on UK car imports, saying “If people want to just arbitrarily put taxes on our digital companies we will consider arbitrarily putting taxes on car companies.” Downing Street replied in turn, saying that such tariffs would “harm consumers and businesses on both sides of the Atlantic. We feel [the digital tax] is a proportionate step to take in the absence of a global solution. We made our own decisions in relation to taxation and will continue to do so.”
Despite the Government’s declaration of independence in terms of taxation policy, this incident illustrates that any greater independence in trade and taxation policy brought by Brexit has limits. There will inevitably be trade-offs and constraints. UK decisions on taxation do not operate in isolation, but can have broader political and economic consequences. The UK exports some £8.4 billion worth of cars to the US each year. The early agreement of a UK-US trade is a priority for the government. US pressure may well yet influence the government’s digital taxation plans.
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Nobody can predict the future. When it comes to Brexit, events are notoriously unpredictable. However, the actions of the UK government have been moderate – even if the rhetoric is sometimes less so. Mr Johnson came to power with the promise of keeping the credible threat of no-deal on the table, as a negotiating tactic. However, his aim was not to end up with no deal, but with a more favourable one. Having made the compromises required to achieve a withdrawal agreement, we can hope that a similarly reasonable approach will prevail in the UK-EU trade negotiations. No doubt the threat of no-deal will also remain on the table, for tactical reasons, as before. Therefore, while it is possible that the talks will collapse, resulting in a no-deal Brexit at the end of 2020, that outcome appears unlikely.
Even in a no-deal scenario, the Government’s no-deal Brexit tariff regime means that 88% of imports would not be taxed. The Confederation of British Industry estimates that 90% of the UK’s goods exports to the EU, by value, would face tariffs averaging 4.3%.
While the UK could theoretically abolish VAT after Brexit, the technical guidance for a no-deal Brexit indicated that the current VAT system would continue. Since it raises around £125 billion per annum, it is inconceivable that it will be abolished let alone restructured to any significant degree.
While the UK could theoretically abolish VAT after Brexit, the technical guidance for a no-deal Brexit indicated that the current VAT system would continue.
A no-deal Brexit would disproportionately impact sectors such as agriculture and manufacturing. Likewise many EU sectors would be badly affected. Since a deal is in the interests of both sides, it’s reasonable to hope that one will be achieved, even if it is imperfect.
The broad shape of a UK-EU agreement that would facilitate market access is already known. It will require sufficient UK alignment on key matters, including taxation. While the detail is undecided, in broad terms it means little change to the UK’s taxation regime. Perhaps, the government may seek some wriggle-room on VAT or corporation tax. Yet the fact that the government has shown no appetite for radical change in taxation is telling. Maintaining the status quo on taxation helps to keep a UK-EU trade deal within the government’s sights.
Miles Dean is Head of International Tax at Andersen Tax in the United Kingdom. He advises privately held multinational companies, entrepreneurs and high net worth individuals on a wide range of cross border tax issues.
Andersen Tax provides a wide range of UK and US tax services to private clients and businesses, helping them achieve their personal and commercial objectives in a tax efficient manner.
Fintech is one of the most recognisable terms in the financial services industry but sits aside its lesser-known compatriots, RegTech and InsurTech. Put simply, these terms represent the evolution and revolution of financial services globally, and the UK has firmly embraced the use of such advances. Evolution relates to the giants of the UK financial services industry who have been around for over a hundred years and revolution reflects the large number of start-ups who have not had to adapt old systems to new ideas but have had a clean sheet from which to design a process and solution using the latest technology. Simon Bonney, Partner at Quantuma and member of IR Global, explains to Finance Monthly how fintech has transformed the industry.
The UK fintech industry is worth around £7 billion and employs over 60,0000 people. It now has banks that only communicate with their customers through an online platform and have no physical branches.
The UK thrives as a leading global fintech hub for a number of reasons. As a world leader in the financial services industry, there is an imperative to ensure that we invest in, and utilise, the latest technology to facilitate our competitiveness. As well as a deep homegrown pool, the UK attracts a wealth of entrepreneurial and tech talent because of its status (42% of workers in UK fintech were from overseas in 2018), and also its investment. Investors put more money into UK fintech than any other European country in 2018 ($3.3 billion). In addition, the UK recognises the importance of striking a balance between the promotion of entrepreneurialism and the regulation of new ideas to provide confidence to businesses and consumers the world over through the Financial Conduct Authority (FCA). The FCA’s regulatory sandbox, the framework to allow live testing of new innovations, has become a blueprint for fostering innovation around the world.
The UK Government has recognised that fintech engenders a significant opportunity to create jobs and economic growth and also facilitate the birth of new start-ups in other industries which are able to utilise new technology to make their costs quicker and cheaper. In 2019, 79% of UK adults owned a smartphone and on average they spent over two hours a day on their phones. Access to financial services by smartphones, coupled with a loss of confidence in the traditional financial services industry following the Global Economic Crisis in 2008, has meant that consumers embrace the relative ease and convenience of fintech.
Technology generally has changed the way that consumers expect to engage with financial services and the UK financial services industry has recognised that it cannot operate the same way it did 10 years ago if it hopes to keep pace with the demands of customers. Fintech has changed and will continue to influence the experience and speed of transactions. It has had a significant impact on the cost of operations. For those businesses with legacy systems, there is a huge challenge in ensuring that fintech is embraced and implemented. In order to cope with this challenge, it is likely that banks will seek to further outsource their operations and hand over management of their legacy systems so they can focus on serving customers and finding new routes to market.
Growing opportunities do not come without hurdles. The sheer speed of change in fintech means that regulation is generally trying to catch up, and in a number of instances, such as cryptocurrency, regulators are required to learn about the technology and the way it encourages people to behave before being able to effectively regulate it. However, that regulation will have an impact on development, as the costs of ensuring that new products are compliant will provide a barrier to entry. In addition, fintech is inextricably linked with data and the use and regulation of data will continue to feature in the spotlight.
It is hoped that through the use of fintech bridges, the UK’s best and brightest fintech ideas and businesses will be able to thrive internationally, with automatic recognition by the regulators in those partnering countries. Collaboration has been a feature of the success of fintech, with open source solutions being made available to enable the improvement of all aspects of the industry for the greater good with blockchain being a prominent example. Collaboration on an international level should only provide a more stable platform for that innovation. However, Brexit has raised questions regarding the future of the UK as a behemoth of the financial services industry, and the nature and mobility of fintech and the use of fintech bridges means that competition has been increased across the world.
The UK has been able to remain at the forefront of fintech due to its history in financial services and its depth of talent and investment. Importantly it recognises the importance of remaining at the forefront and will strive to ensure that innovation and regulation continue to go hand in hand.
The coronavirus pandemic is affecting every sector of the economy in a manner not witnessed since the 2008 financial crash. However, not every sector is equally vulnerable, and there are still plenty of reasons to be optimistic that UK property will remain a viable asset throughout this current global crisis. Despite the now-quashed hopes that a ‘housebuilding revolution’ would be well underway this year, the government is still showing that it understands the needs of property investors and that it will support them through these dire times.
Paresh Raja, CEO of Market Financial Solutions, outlines the implications for the UK property market.
The economic repercussions of COVID-19 have hit the UK at an interesting time for our sector. Although Brexit uncertainty led house prices to fluctuate throughout most of the last half-decade, the election of a majority government in December 2019 facilitated an impetus of new-found confidence in the market. This was reflected by the increase in UK property prices in January 2020 of 1.9%, which was seen as part of the ‘Boris Bounce’.
Alongside this, the shifting value of the pound also resulted in international investors capitalising on UK property as a result of their increased purchasing power. Mention of a future stamp duty surcharge for such buyers in the 2019 Conservative party manifesto led to further activity as individuals rushed to complete deals to avoid this potential added cost.
All of these factors contributed to market which was showing good signs of recovery – but has this growth been entirely stilted by COVID-19?
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As it stands, not yet. Property deals that were scheduled to close in the last week have, for the most part, still gone through according to reports. From this, we can assume that we will not be witnessing a massive knee-jerk backing out of such purchases as a result of pandemic scare.
The question, then, becomes to want extent the industry will suffer due to the ‘social distancing’ measures installed by the government. House viewings, agent meetings, and contact signing all require a level of physical presence – so some fear a lack of ability to accomplish such face-to-face meetings will lessen sales completed, and therefore dampen the market resurgence many had hoped for.
In reality, property has shown remarkable resilience in the face of economic uncertainty before, and I am confident that it will continue to do so. During the global financial crisis, market activity did decrease but there were still over 898,000 UK property transactions in 2009, and 876,000 in 2010. Even when banks were adopting stringent lending practices, people still endeavoured to buy and sell property. This is also when demand for specialist finance providers began to rise significantly, with investors looking to take advantage of fast finance solutions.
In reality, property has shown remarkable resilience in the face of economic uncertainty before, and I am confident that it will continue to do so.
The last two UK property corrections, namely the 2008 financial crisis and the early 90s recession, were both the result of purely financial pressures. One could argue a pandemic-related issue may not hit the markets as hard. This is of course a speculation and should not downplay the seriousness of the issue at hand.
Importantly, we are also seeing the industry adapt to these challenging conditions. The Financial Times reports that estate agents are already beginning to offer remote, online-only house viewings to prospective buyers to ensure there’s no delay in matching customers with their ideal home.
The government has also announced a three-month mortgage ‘holiday’ for those whose income has been affected by COVID-19, and interest rates are now at a record low of 0.25%. It is positive to see lenders also addressing the needs of their clients by offering online meetings and consultations, particularly in the bridging sector. It is this type of creative thinking and resilience that makes me confident that the UK property sector will be able to overcome the initial challenges posed by COVID-19.
Interest in digital currency has grown significantly in the last few years. In this piece, we explore what digital currencies are, the current state of the cryptocurrency market and how it will impact the economy over the next few months based on current trends and events occurring in the UK.
Put simply, cryptocurrency is a digital currency managed by a network of computers.
Run through open source code, computers are used to verify each cryptocurrency transaction. Unlike traditional physical currency, they are decentralised and not managed by a central bank.
You have probably already heard of Bitcoin, which was one of the first types of cryptocurrency to come into existence. However, hundreds of other currencies have been developed since and each have different characteristics. For example, the coin Ethereum can be used to create contracts and run applications, while Litecoin and Bitcoin Cash run in a simpler way to Bitcoin, with the focus of these currencies being on processing transactions.
The technology used to manage these transactions is known as Blockchain. This technology has been around for a while and is used for many other purposes, including updating healthcare records. The UK government is even investing in blockchain to record and administer pension and benefit payments.
Cryptocurrencies have a huge amount of potential, particularly when it comes to providing accessible options for allowing people across the world to exchange money.
Currently, the use of cryptocurrency is still an emerging trend with a limited number of businesses accepting it as a payment method. These digital currencies are experiencing somewhat of an identity crisis as debates around its definition as a currency or commodity continue and authorities argue over whether it should be regulated.
Cryptocurrencies have a huge amount of potential, particularly when it comes to providing accessible options for allowing people across the world to exchange money.
However, governments and banks are reconsidering their cautious attitude towards digital currency as global businesses begin to invest in this technology. Facebook’s upcoming launch of their coin, the Libra, has caught the attention of the Bank of England. The BoE have warned Facebook that their currency would need the same level operational resilience as debit and credit card accounts, if they are to manage high volumes of transactions securely.
Libra will not be decentralised like other cryptocurrencies. Instead, it will be managed by an association of major technology and financial service companies.
Some EU governments have taken a hard-line approach, with France’s Finance Minister declaring that they will not allow the use of Libra within Europe. They state that the currency would put consumers at risk of financial fraud. Nevertheless, with the UK’s recent withdrawal from the European Union, it is likely that they will be exempt from such measures.
Brexit has also presented new opportunities for cryptocurrency processors. It is predicted that more cryptocurrency exchange offices will open in Dublin in 2020. This hotspot is ideal as it is an EU member with close proximity to the UK market.
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While cryptocurrencies are often seen as a highly volatile form of currency, the recent worldwide Coronavirus outbreak has had a damaging impact on the global economy and resulted in investors seeing digital currencies as a safe haven.
The virus is predicted to result in consumers buying less at physical stores as they avoid getting infected. As a result, the amount of online purchases being made is set to increase significantly, and with more powerful firms such as Facebook migrating over to cryptocurrency transactions, we can expect more and more of these purchases to be made with digital money.
