What if someone built an antivirus to monitor online finance and detect financial crime in real time?
This is a whitepaper I wrote ahead of an IOSCO summit in Toronto in 2017 (involving ~20 leading financial regulators). I was trying to suggest something new: a smart, efficient, automated tool that regulators can use to scan the internet and enforce crimes and breaches of regulation in real time.
As far as consumer protection goes, financial regulators were designed as “sheriff’s offices”. For many years, they were in control at the “small towns” they were tasked with protecting. But the internet has made the financial services industry less of a small town and more like Gotham City: huge, dynamic, chaotic and full of crime. The recent rise of cryptocurrencies and ICO’s only makes it clearer that enforcing regulations today is a whole different task, and regulators are under-equipped to perform it.
This work is the result of a few conversations with Bendicte Nolens, the Head of Strategy at the SFC (the independent statutory body charged with regulating the securities and futures markets in Hong Kong – the equivalent of the SEC in the US).
I still don’t know if it’s a company worth starting. But I believe it’s at least an idea worth sharing. Would love to hear your feedback.
I like the story of CLS (Continuous Linked Settlement), one of the most boring and important institutions in global finance. CLS is the world leader in FX settlement. It was launched in 2002, and just like with many other important things in the world, very few people have heard about it. That’s what I like about it. Also, the story of CLS is the perfect argument for one of my favorite quotes: “the older the problem, the older the solution”.
Now let’s talk about blockchain. When you give a little kid a hammer, everything looks like a nail. Blockchain is still a hammer looking for nails. Over 2016 it has been hailed as the future of insurance, identity, exchange and property tracking– mostly by people without skin in the game (media, banks, governments and consultants). Meanwhile, founders & VC’s with skin in the game, who tackle big problems in finance, are usually not talking about blockchain and not using it. Here are some of them: m-Pesa, LTSE, Lemonade, YueBao, LendingClub, Wealthfront. Isn’t it strange?
Technology serves us best when it solves a real problem. The financial system has huge problems: financial inclusion, friction in payments, low access to asset management, system risk from off-balance sheet derivatives… we can go on and on. Is blockchain, a database that someone invented in 2008, the solution to these problems that have existed for dozens/hundreds of years?
Let’s take an example. Can you use a blockchain to simplify and improve the settlement process in the FX market, as some articles suggest? Yes, you can. Blockchain is a database, and you can build anything with it. But would you?