As a business model, the cloud’s massive resources and ubiquity offers unbeatable value – but it has evolved as a general-purpose solution, and not one geared to the very special demands of financial services. Says James Walker President of the CloudEthernet Forum
As business moves to the cloud, however, developments are accelerating and industry forums are emerging with the power to control and shape tomorrow’s cloud structure and experience. This presents a real opportunity for the finance industry to become involved and make sure that it will be served by a cloud that is fit for finance.
In this article we look at just three areas where the cloud could have so much to offer financial services and yet, in its current form, falls short of what could be achieved. These are simply pointers to encourage further discussion and, above all, participation by major players in the finance industry.
Controlling the cloud for compliance
The whole evolution of the cloud as a universal system of storage, compute and communication has been geared by the need to deliver on demand: “ask and ye shall receive”.
If the shortest or most obvious routes for transmitting data are in any way compromised, the network will divert its messages any way it can, rather than fail to deliver. The e-mail from next door will reach you, even if it is forced to travel via New York, London and Tokyo to do so.
This is one fabulous achievement, but it presents real and growing problems as governments wake up to the strategic value and implications of all this data on the move. New regulations are beginning to focus on this area and tighten restrictions on the free flow of information.
Banks in Canada, for example, can no longer rely on standard MPLS services for shifting data between branches, because MPLS guarantees delivery but does not specify what route is taken. Any slowdown in local routes, and data is likely to be diverted south of the border via US nodes to ensure timely delivery – but the Canadian Government no longer allows its citizens’ personal data to be sent to or via the USA.
In the United States, recent extreme weather means that the East Coast regions are considered to be meteorological danger zones. So banks are required to have backup and emergency facilities that avoid the Eastern seaboard. Ironically, in view of the last example, it can mean that a typical London, New York, Phoenix Arizona financial transaction may have to be diverted via Canada to comply with such regulations.
Ah… the problems of the rich! International players can travel to Zurich to discuss financial arrangements with their personal bank, but they may not be able to do the same when visiting their Swiss bank’s Manhattan office just round the corner – because the Swiss government does not allow certain personal data to flow out of Switzerland.
These examples are just a glimpse into the growing responsibilities for anyone holding large amounts of data: whether personal data, public data or financial data. To add to this complexity: who does have liability when something does go wrong? You give private data to your bank and then you discover it has got into the wrong hands: is it ultimately the bank’s responsibility? Or does the bank then sue the service provider for letting secure data escape?
What is needed for the financial industry – as well as many other large organisations impacted by these issues – is a fundamental rethink of the cloud’s priorities? How the data is delivered could be as vital as the delivery itself. In fact it would be better to destroy and lose some data than have it delivered via a route that breaks the law.
Mechanisms such as SDN (Software-Defined Networking) are currently being explored that could provide visibility and control into the routes taken by network traffic. These controls are not innate to cloud culture, they must be actively insisted upon by stakeholders that would benefit from it, and this issue is high on the agenda of the CloudEthernet Forum (CEF) – an independent industry body recently created to develop open standards for large global datacenter deployments.
If the cloud is to deliver its colossal benefits to the finance industry, its storage must be specified to location, and its transport routes must be bounded. How this happens, and whether the solution is one that suits the financial industry will depend on early commitment to the relevant forum working groups.
A time-sensitive cloud
Financial traders know all about the threat of latency, how a few microseconds can make or break a deal, and specialist providers have responded with dedicated services guaranteed to reduce latency to a minimum between sites. Carrier Ethernet is playing an important role in this by removing the need for translation between LAN and WAN protocols and providing fast connection between nodes.
However, there are many financial applications where “minimal latency” is not the need so much as “guaranteed latency”. If you are running trading applications that rely on being, say, ten microseconds behind the market, then a provider who promises “latency less than five microseconds 99% of the time” may deserve a pat on the back, but not your custom. Because what you need is “latency less than ten microseconds 100% of the time”. Financial data turns poisonous a lot faster than any foodstuff, so data past its “sell-by microsecond” may be no longer actionable and had rather be trashed than used.
Another angle on the importance of controlled latency is the “split brain” problem that can arise between sets of mirrored data. It makes sense to build in redundancy and have a secondary backup system that can step in as soon as a fault arises in the primary system. At that point the secondary system becomes primary and timing must be very strictly controlled to stop data being updated independently on the two systems. Once the supposedly identical mirror sets are allowed to diverge, it can become a nightmare to reconcile the two.
As in the routing example, the Internet has been brought up like a good boy scout to “do its best”. But what is sometimes needed is not “the best” but rather a clearly specified standard – whether by geography or time lapse. This is an important issue that is not innate to cloud philosophy, so it needs pressure from concerned stakeholders to get timing on the agenda for future cloud development.
Can’t we just use private clouds?
There is an obvious solution to the challenges discussed so far: forget the public cloud and still take advantage of the cloud concept by commissioning your own private cloud purpose-built to meet your exact requirements.
This is fine in theory, but what do you need from your private cloud, and do you have the necessary resources? If computation power is what you want, then it would be very costly to build anything to compare with the massive resources available from public cloud providers.
While storage of data might be wisely constrained to a secure private cloud, there are certain tasks that are better farmed out. For example the colossal number-crunching needed to rebuild some of the today’s complex trading algorithms would be beyond the power of any normal company datacentre. But cloud services can provide a “sandbox” big enough for any experimental algorithm to play in until it is proven.
This would be by far the fastest route to accelerating development of trading systems ahead of competitors but, even without the use of private data safely stored in-house, the algorithm itself becomes very interesting to competing companies. So security in the cloud again becomes a very hot topic.
It is an opportunity
A cloud that promises to do its best, and not bother you with the details as to how it achieves it – that is what we have inherited and it serves most of the world very well on those terms. But it is not a cloud that large parts of the finance industry can trust.
It does not have to be that way. The cloud is changing fast right now, and there are industry forums, including the CloudEthernet Forum, that are having an increasing say in how it is changing. These must be explored.
Find a forum that addresses the sort of interest that would serve your business. Join it, become active and make sure your voice is heard.
Service providers, equipment vendors, software developers and systems integrators are already joining the CEF to make sure that tomorrow’s cloud is shaped to serve their needs. Don’t let the needs of the finance sector be overlooked in this rush.
Five things shaping Britain’s financial rulebooks after Brexit
By Huw Jones
LONDON (Reuters) – Britain is conducting a review of its financial rulebooks and policies to see how it can keep its 130 billion pound ($184 billion) finance sector competitive after Brexit left it largely cut off from the European Union.
The government is due to issue papers in the coming days outlining its approach to financial technology (fintech) and capital markets, while further down the line it’s expected to propose changes to the funds and insurance sectors.
Here are five things set to shape the City of London financial hub following its loss of access to the EU:
BIG BANG DEBATE
Britain’s finance ministry is reviewing financial regulation and insurance capital rules, with minister Rishi Sunak raising the prospect of a “Big Bang 2.0” to maintain the City’s competitiveness, a reference to liberalisation of trading in the 1980s.
But it’s unclear how far any deregulation could go given that Britain says it won’t undermine global standards.
UK Finance, a banking body, wants a formal remit for regulators to ditch rules that put them at a competitive disadvantage globally. Insurers want cuts in capital requirements to free up cash for green and long term investments.
But the Bank of England says the City must not become an “anything goes” financial centre, and that insurers hold the right amount of capital.
Cross-border firms want to avoid Britain diverging from international norms as this would add to compliance costs.
City veterans say Britain should focus on allowing firms to hire globally, and ensuring that regulators respond nimbly and proportionately to crypto-assets, sustainable finance, long-term investing and restructurings after COVID-19.
COPYING NEW YORK
London has fallen behind New York in attracting company flotations and a government-backed review of listing rules is likely to recommend allowing “dual class” shares and a lower “free float”, perhaps for a limited period.
Dual class shares are stocks in the same company with different voting rights, while “free float” refers to the proportion of a company’s shares that are publicly available.
The potential changes could attract more tech and fintech companies whose founders typically want to retain a large degree of control.
It could also recommend making it easier for special purpose acquisition companies (SPACs) – businesses that raise money on stock markets to buy other companies – an area in which New York has also dominated, with Amsterdam catching up fast.
UK asset managers warn that strong corporate governance standards could be diluted by tinkering with listing rules.
Britain is home to one of the world’s biggest innovative fintech sectors, its “sandboxes” – which allow fintech firms to test new products on real consumers under regulatory supervision – copied across the world. But Brexit means Britain has to work harder to attract and retain fintechs as they will no longer have direct access to the world’s biggest trading area.
A government-backed review to buttress the sector is due to report back on Friday with recommendations that could include cutting red tape for fintechs that want to recruit staff from across the world, and make listing in Britain more attractive.
Other ideas could include helping fledgling fintech navigate government departments and regulators more easily, along with ways of boosting funding for start-ups.
FUNDS ARE THE FUTURE
Britain is reviewing how to make itself a more competitive place for listing investment funds, a core tool for bringing fresh capital into markets.
UK-based asset managers run many funds listed in the EU, but this global system of cross-border management known as delegation could be tightened up by the bloc.
Having more funds listed in Britain would also mean that the shares they hold would be traded in London. Billions of euros in trading euro shares have left the UK for Amsterdam since Brexit due to the bloc’s restrictions on where funds can trade shares.
As the City will get only limited access at best to the EU, industry officials say it makes more sense to focus on getting better access to other markets like Singapore, Hong Kong, Japan and the United States, while at the same time keeping the UK financial market open to the world, including the EU.
Negotiations between Britain and Switzerland for a “mutual recognition” deal in financial rules is the way to go, industry officials say. Better global access would also keep the City ahead of EU centres like Amsterdam, Paris and Frankfurt.
($1 = 0.7056 pounds)
(Reporting by Huw Jones. Editing by Mark Potter)
How the Brexit Agreement Failed the Financial Services Sector
By Steve Taklalsingh, MD UK Business, Amaiz
Over the Valentine’s weekend, it was announced that during January, the first month that the new Brexit-related changes came into force, Amsterdam overtook London as the largest financial trading centre in Europe. Approximately €9.2bn (£8.1bn) worth of shares were traded on Amsterdam’s exchanges each day in January, against €8.6bn in London. How did that happen and why is Brexit to blame?
The Brexit deal for the Financial Sector
The Christmas Eve Brexit agreement delivered an unfair market for UK companies in the Financial Services Sector. The deal meant we were left in a situation where EU-based banks wanting to buy European shares cannot trade via London. EU shares that were previously traded in the UK have moved to the EU on advice of the European regulator. In addition, EU FinTech companies can operate in the UK but, as ‘equivalence’ (agreeing to recognise each other’s regulations) has not been agreed, our FinTech companies cannot now operate in the EU. You can already see evidence of EU companies, particularly those based in Amsterdam and Germany, eyeing up the UK market.
As a sector we’ve never been shy of boasting about our 12% contribution to the UK’s GDP. FinTech, in particular, has been a UK success story. This vibrant scene is looked on with some envy and I’m very proud to be part of it. Internationally, having a foothold in this market, and a London address, was the aspiration of financial services companies who wanted to be taken seriously, but not anymore.
Action to solve the market distortion
The Bank of England chief Andrew Bailey has warned that there are signs that the EU plans to cut off the UK from its financial markets and has urged them not to do so. The indications are that the Government is aware of the ‘problem’ but doesn’t appear to see the clear urgency in resolving it. It has been reported that there are ongoing talks to harmonise rules over financial regulations (equivalence) and that they’re working towards a March deadline.
Number 10 has said they are open to discussions on the equivalence issue and claims that the Government has ‘supplied the necessary paperwork’ and boasts of the UK’s strong regulatory system. It lays the fault of delay firmly at the doorstep of the EU: “Fragmentation of share trading across financial centres is in no one’s interest.” I’m disappointed that they’re not, in public, recognising the seriousness of the situation.
Research on the impact of Brexit
At Amaiz we have worked hard to understand the implications of Brexit. At the beginning of December we carried out research which focussed on the impact on financial services. The report, Brexit Brink: Are British SMEs about to fall off the edge of Europe – or building new bridges? is based on a survey of SMEs across the UK and you can download it free from www.https://journal.amaiz.com/amaiz-guide/. Our findings gave us valuable insight into the deal that was needed for Financial Services.
Most companies had been preparing for Brexit for some years. Whilst there were some that hoped and campaigned for the referendum result to be overturned, that seemed unlikely. The results of our research in December showed that people were as ready as they could be:
- Nearly half (49.2%) of company decision makers had reviewed new regulations set to take force on 1 January 2021 (if there was a no deal Brexit) and made changes to ensure their companies would meet them.
- Only 17% of companies said they had failed to prepare.
The changes that company leaders believed would have the most impact were those to regulations (37.4% of respondents said this was a concern), increased costs of doing business (37.2%), and reduced access to suppliers (35.5%). Overall, 57% of companies believed that Brexit would have a negative impact on their business, and some (6.6%) believed it would destroy their business.
The research found that larger companies were more prepared for Brexit than smaller ones. That’s likely to due to their ability to devote resources to solving the challenges Brexit presents. Those employing between 1 and 10 people were most concerned about increased costs (45.7%) and those with between 11 and 50 employees about taxes and VAT (41.3%).
Larger companies in Financial Services prepared for Brexit by registering companies and offices within the EU so that they could continue trading there. This acted as a fail-safe solution that avoided issues, whether a deal was struck or not, and whatever the nature of that deal. Smaller companies don’t have the resources to do this; they could not open another office on the off chance that they would need it, so Brexit put them in a more vulnerable position.
Impact on the economy
Of course, Brexit came at a time when we were all trying to manage the devastating impact of the pandemic. The FCA (Financial Conduct Authority) and FSB (Federation of Small Business) both published figures in January that show the terrible impact of the pandemic on SMEs in the UK. The FCA found that 59% of smaller financial firms expected that their profits would take a hit this year. The FSB found that nearly 5% of smaller companies expect to be forced to close within 12 months, the largest proportion in the history of the Small Business Index and would mean that 295,000 companies will close this year.
A plea to the Government
The Government has worked hard to find ways to help small businesses survive the pandemic in order to save jobs. The economy is experiencing an unprecedented recession, with all hopes laid on a swift bounce back as soon as lock down ends. Until then we are in ‘war’ mode. However, helping businesses survive is not just about handing out cash. What the Financial Services Sector urgently needs is a fair regulatory framework and marketplace in which UK business can operate. Instead, the Government has allowed distortions that continue to damage one of the country’s key sectors – one that can drive us out of recession – and appear laid back about resolving the situation!
Bitcoin tumbles 17% as doubts grow over valuations
By Tom Wilson and Tom Westbrook
LONDON/SINGAPORE (Reuters) – Bitcoin tumbled 17% on Tuesday, sparking a sell-off across cryptocurrency markets as investors grew nervous at sky-high valuations and leveraged players took profit.
The world’s biggest cryptocurrency suffered its biggest daily drop in a month, falling as low $45,000. Bitcoin was last down 11.3% at 0939 GMT.
The drop extended a slump of nearly a fifth from a record high of $58,354 hit on Sunday – though bitcoin remains up around 60% for the year.
“The kinds of rallies we’ve been seeing aren’t sustainable and just invite pullbacks like this,” said Craig Erlam, senior market analyst at OANDA.
Ether, the world’s second largest cryptocurrency by market capitalisation that often moves in tandem with bitcoin, also dropped more than 17% and last bought $1,461, down almost 30% from last week’s record peak.
Cryptocurrency markets have been running hot this year as big money managers and companies begin to take the emerging asset class seriously, piling money into the sector and driving confidence among small-time speculators.
A $1.5 billion investment in the crytocurrency by electric carmaker Tesla this month has helped vault bitcoin above $50,000 but may now lead to pressure on the company’s stock price as it has become sensitive to movements in bitcoin.
Rising government bond yields over recent days have hit riskier assets, spilling over into leveraged bitcoin markets, said Richard Galvin of crypto fund Digital Asset Capital Management.
“Markets were quite hit from a leverage perspective so that didn’t help,” he added.
U.S. Treasury Secretary Janet Yellen, who has flagged the need to regulate cryptocurrencies more closely, also said on Monday that bitcoin is extremely inefficient at conducting transactions and is a highly speculative asset.
Critics say the cryptocurrency’s high volatility is among reasons that it has so far failed to gain widespread traction as a means of payment.
Analysts said key price levels have played a large part in determining the direction of crypto markets.
“Because we’re so lacking in fundamentals, it’s the big figures that have proved to be support and resistance points,” said Michael McCarthy, chief strategist at brokerage CMC Markets in Sydney.
“$50,000, $40,000 and $30,000 are the key chart levels at the moment. If we see it heading through $50,000, selling could accelerate.”
(Reporting by Tom Westbrook; Editing by Jacqueline Wong and Nick Macfie)
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