We are now uploading recent speeches and presentations given by the Centre’s team.
Fintech, big data, and the open banking ‘revolution’
Summary of presentation given by Mick Mc Ateer at Policy Network conference on Open Banking on 1st February 2017.
There has been much hype around the potential for fintech, big data and, in the banking sector, ‘open banking’ to transform financial services. But, beyond the hype, what is the real potential, what are the barriers to the development of new more responsive, convenient, efficient financial services, and what are the risks?
We do think fintech has potential to benefit some consumers in terms of new product development, greater convenience, distribution channels more suited to the changing needs of consumers, and encouraging more positive financial behaviours (what we term ‘FincApps’ – financial capability and financial inclusion applications).
But, it is by no means clear that this potential will be harnessed and we should be realistic. Fintech is not necessarily a game changer. There are many barriers to overcome. Monetising big data without exploiting consumers will be a big challenge.
Fintech may well just end up affecting the last part of the ‘supply chain’ in financial services (how consumers engage with their provider) and may have little impact on product manufacturing, supply chain efficiency, cultures, financial infrastructures and financial markets themselves.
Moreover, the greater use of fintech actually creates new risks with regards to financial exclusion and the ability of financial services firms to exploit behavioural biases.
There are some important questions about how fintech should be regulated especially if we see traditional banking infrastructures married with fintech interfaces and big data analytics. We are concerned about a ‘clash of cultures’ between traditional bankers (who understand what regulators expected of them but struggle to understand the ways in which fintech can be used and abused) and the fintech pioneers (who often come from non-regulated worlds, who are impatient to get on with things, and don’t recognise conduct risks).
More fundamentally, we argue we need a major upgrade of our legislative and regulatory system. Data protection regulation is important but it is not designed to cope with the conduct risks we see in financial services. Data and information is becoming almost like money. There is a robust body of regulation which governs the way financial institutions use the money we give them (or if they provide us with credit). There is nothing like the same robust protections in place when we hand over our data to financial institutions.
We need a frank and open debate about how we deal with the potential benefits and risks associated with fintech and big data.
The presentation can be found here: mick mcateer policy network open banking presentation
Joint European Central Bank/ European Commission conference on financial integration in Europe
Notes of an speech made by Mick McAteer at the joint ECB/ EC conference looking at how much progress we have made towards integrated EU financial markets, and what needs to be done.
Although there has been much policy activity with a number of major regulatory initiatives underway, it remains to be seen whether these reforms will result in effective, integrated markets that works for consumers and real economy firms. The real work is yet to be done.
We need structural and institutional reform. Financial markets are still too focused on financial activities which are not economically or socially useful or non-productive assets such as property. This will not change unless financial markets and institutions are restructured and incentives are reformed so that financial markets are compelled to deploy more resource to activities which serve the needs of the real economy.
Tough, properly enforced regulation is needed to tackle the ‘4Cs’ – market conduct and culture, competition, and confidence – primarily through supply side interventions.
Details can be found here: Mick McAteer intervention joint conference of the ECB and the EC on financial integration in Europe
Pensions Reform in the UK: One step forward, two steps back
Presentation given by Mick McAteer at the LCP defined contribution pension conference.
Pensions policy should have four objectives: maximise number of people who have sufficient assets to generate decent retirement income; retirement incomes are sustainable (ie. people don’t run out of money/ fall back into poverty); people are not exposed to undue risks saving for or in retirement (market risks, misselling, scams); and the pensions system/ market is as efficient as possible.
This last point is crucial as the more value extracted through unnecessary costs, the more people have to save. Moreover, the pensions and investment industry plays an integral role in channeling savers’ capital to real economy firms. The more value extracted, the worse asset allocation decisions are, the greater emphasis on short term thinking, the less long term capital is available to support the real economy.
The UK faces major problems with serious levels of pension underprovision amongst key groups such as the self-employed and others in insecure work who make up a larger share of the labour market. We spend £billions on tax relief which benefits the better off and subsidises inefficiencies in the pensions and investment industry.
Conflicts of interest and weak governance standards are evident in the wholesale, institutional and ‘retail’ markets. A recent FCA investigation found that only 5 out of 19 investment firms investigated tested consumer understanding of product documentation – critical for understanding risks – see: https://www.fca.org.uk/static/documents/tr16-3.pdf.
Low levels of confidence and trust don’t just affect consumers willingness to invest for the long term but result in further misallocation of resources. The lack of trust appears to be encouraging people to invest in property – inflating the property bubble and diverting resources away from productive, real economy investment.
But, the recent pension freedom and choice reforms – and the new ‘LISA’ account – will exacerbate the problems with consumers exposed to even more complexity, risk, higher lifetime charges and worse value. We think this will ultimately discourage, not encourage, consumers’ willingness to invest for the long term.
However, there are a number of measures which could be introduced to make the market work better and protect consumers including:
- Reform and target pensions tax relief on lower-medium income households
- Introduce post-retirement/decumulation default option fund to reduce the risk of misselling and market failure – either NEST style or formalise buying of added years in state pension
- Other major supply side reforms including: advisers focusing on reducing costs, improving efficiency and using simple strategies; reduce unnecessary active management costs and align the interests of fund managers and clients by requiring fund managers to bear all transaction costs and charge a clean fee; a new focus on governance and conflicts of interest in wholesale and institutional markets; and the FCA to be responsible for all aspects of conduct and governance in pensions industry.
The presentation can be found here: pensions reform 1 step forward,2 steps back LCP DC conference april 16
Fintech – utopia or dystopia
Presentation given by Mick McAteer at the Cantillon 2016 conference on whether ‘fintech’ will really transform financial markets and the risks to financial markets and consumers. Click here for presentation: mick mcateer cantillon presentation
Employee Share Ownership and Social Capitalism
Speech given to ESOP Centre Awards Dinner on EU financial market reform and the role of employee share ownership in creating a 21st century ‘Social Capitalism’. Read more here ESOP centre awards dinner speech