From Brexit to Blockchain: FinanceMalta's Annual Conference Weaved it All in

By Patrick L Young, author of the EI1000 Index (19/09/2017)

As a keynote speaker concluding this year’s FinanceMalta conference, the challenge was bringing together the many wise and interesting views already expressed during the 10th anniversary event all the while threading in a few thoughts of my own around major issues from this content-rich day.

Brexit attracted considerable attention both on the level of the politics per se and the negotiations; although the end result clearly requires a high-powered crystal ball! However, there was a key message of opportunity and optimism shining through the speeches beginning with Lord Marland of Odstock. Naturally that opportunity lies alongside the inherent truth that financial services ‘competition’ is not a zero-sum game. In a world of expanding products with increasing global prosperity driving a greater demand for services, there is always opportunity attracting different actors at different levels of scale. Brexit delivers another possible source of both outright “new new” things and the “tail” of some UK operations which prefer/require a closer EU regulatory embrace.

 While some major financial centres have concentrated (in a rather Machiavellian notion) on the ultimate replacement of London, this was regarded as misguided within the Malta context, where modest objectives of assisting the world’s largest financial centre maintain the requirements within the EU was seen as a major way forward. In that sense, there are additional opportunities arising from within the new European order as well as beyond – whether in the British Commonwealth or further afield, extending to all the 180 or so nations not falling within the EU’s customs union.

 Malta’s Anglo-Saxon legal base and broad English fluency makes it an attractive loation for business.  Therefore, the Brexit opportunity message was clearly expressed and Malta is perceived as having a wondrous chance to further expand its financial centre as solutions emerge even before the fog of negotiation clears.

 Meanwhile the broad Brexit opportunity runs parallel to the expansive possibilities within the rapidly extrapolating world of financial technology - or “fintech”. While general media is clearly more oriented to the impacts upon online banking and the retail customer, the serious innovation of fintech is occurring within wholesale markets.

Fintech delivers a fascinating opportunity for Malta, albeit lined with potential pitfalls. The nature, scope and scale of regulation is just one vital issue herein. A key challenge is in establishing a regulatory system which is fit for purpose in a fast-evolving world. Thus, many western nations are already locked into dangerous spirals of knee-jerk regulation to save old established industries by imputing new laws which will soon impede the serious evolution of our shared digital future.

 When it comes to taxis for instance, many cities from France to the USA have been reacting to the rise of Uber and similar taxi-like services by protecting the old licensed cab monopoly which dates back to the era of horses and carts. However, politicians protecting licensed cabs with restrictive regulation is a deeply dangerous precedent. Why? Well the future isn’t about Uber drivers versus taxi drivers! We are on the verge of an era where the driverless car will flourish across the world; thus, we must not merely allow, but indeed encourage, Schumpeterian creative destruction to achieve the best future outcome for all citizens.

 Financial regulation is facing the same issues. Near Solomonic wisdom thresholds are a precursor for the best regulators of today who have the perspective to deliver the rules that will still be relevant tomorrow and we look forward to a very different future driven by technology which was almost impossible to conceive of only a generation or so ago.

At the heart of e-commerce, we see the core model of Airbnb or Uber, to name but two. This is a variant on the finest model for growing commerce that the world has ever seen: the exchange. Exchanges are ostensibly similar to the open markets where the Maltese traded with the Phoenicians thousands of years ago and are embodied today in the more regulated processes of the Malta Stock Exchange. In that respect, we must ensure that exchanges can remain at the epicentre of all financial markets, enabling bourse-style processes such as crowdfunding and suchlike to grow... which again requires pragmatic, forward-looking regulation.

Naturally much of the FinanceMalta Annual Conference discussion centred on distributed ledger – a technology which has mushroomed from a nerd sub-Reddit topic to a mainstream of Blockchain mania within barely five years! Much hype abounds but practical significant potential is plainly evident too: the age of blockchain is upon us. Bitcoin cryptocurrency has driven a nascent blockchain ‘mainstream’ which is delivering a Copernican Revolution in money and financial markets. Nevertheless, a Distributed Ledger is hardly a new thing; Steve Tendon’s excellent presentation demonstrated “DL” origins during the medieval English era of the Domesday book. Clearly the exciting point now is that the digital distributed ledger is on the cusp of widespread deployment with an incredible opportunity to make government, society and corporations all vastly more efficient.

 My presentation concluded by looking forward to 2027 and the 20th Anniversary FinanceMalta conference! Threats will remain across all areas and any financial centre must guard its reputation zealously but, as we look at the big data universe ahead, one thing is clear - the Maltese islands must remain nimble to succeed. Standing still is not an option - that will only enable competitors to surpass progress Malta has already made. Whether in Brexit, on the Distributed Ledger, or across fintech, from any angle of the financial services industry, the need to move up the value chain will sit hand in glove with a pragmatic regulatory eye to the long-term future. With Malta exhibiting vast potential there is no time to delay progress as the digital world of opportunity awaits.

In whatever niches it may ultimately prefer, Malta is facing a simple binary option: Victory or Death!

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