Your IndustryOct 29 2015

News from 2020: The closure of the FCA

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News from 2020: The closure of the FCA

The UK government announced today that the Financial Conduct Authority (FCA) is to close. The culmination of financial regulation globally began in 2018 with the widespread introduction of distributed digital ledger technology (DDL).

The groundbreaking technology made trusted intermediaries – who had dominated deposit taking and the provision of loans since the 18th century –redundant with billions of global assets moved onto DDLs. The growth in algorithm-based, data-driven structures with minimal infrastructure costs enables consumers and businesses to deal directly with governments, peer-to-peer lenders (P2P), fund and pension managers, and investment houses.

The Financial Policy Committee and the Prudential Regulatory Authority will remain to monitor the micro- and macro- environments to ensure stability in global and European interest rates. A source close the PRA stated “with the huge Fintech implementation over the past 5 years, there is simply nothing left to regulate”.

In terms of small advice and wealth management firms, since the introduction of safe-harbour financial advice delivered by Pension Wise and the Citizens Advice Bureau in 2017, the majority of financial advisers closed with just over 400 small firms and 600 regulated advisers remaining who provide financial planning services to wealthy, elderly clients, arguably the last of the internet-illiterate segments. The government announced as part of the FCA closure that small firms will transition to self-regulation over the next two years.

The wrap platform market that dominated consumer investing was hit hard with the implementation of DDL resulting in billions of assets being removed in favour of zero-cost cloud based systems. The revolution was even more devastating in lending – the loan and mortgage markets are currently fully automated and delivered through low cost P2P structures.

One former building society CEO, whose business closed in 2019,said “Peer-to-peer lenders simply took all our traditional business, with distributed digital ledgers you don’t have legacy issues, hardware infrastructure with IT systems that continually need updating and cost billions”.

P2P lending, arguably slow to take off, exploded in 2018 with the full introduction of DDL technology allowing global deposits and lending deals at small costs, which can be accessed 24 hours a day without human interaction. Developing nations have been quick to exploit these cheap loans to build their infrastructure. The World Bank has set up its own P2P disrupted ledger which currently handles over £300 billion in loans without the requirement of any trusted intermediaries.

In 2018, P2P moved to a data-driven process, scrapping the traditional credit-score system. The removal of loan officers and underwriters from the lending process was arguably responsible for the boom in small business lending and growth in 2019,resulting in an increase of 1.5 per cent in the UK’s GDP figures. Crowd-based funders dominate the market for new start business start-ups. The move away from credit scores, a system which excluded millions of global consumers from borrowing and opening bank accounts has resulted in cheaper costs, increased equality and reduced exclusion.

The archaic banking system’s inability to provide solutions to information asymmetry created both adverse selection and moral hazard, resulting in large scale systemic risk. Geographic concentration, even for those trusted intermediaries previously operating on a global scale, caused institutions to borrow billions to lend as they struggled to correctly match short-term depositors and long-term borrowers.

The injudicious lending strategies of taking short-term deposits and turning them into long-term mortgage debt created a substantial liquidity issue experienced in the banking crash of 2008.The P2P system matches lenders to buyers precisely, matching global borrowers and lenders with sophisticated algorithms, with the added ability to transfer money in seconds where, just 10 years ago, the process could have taken weeks.

The financial services revolution, which began in 2015, has resulted in a fairer, self-regulated, global service with minimal exclusion that promotes perfect information asymmetry and minimal systemic risk.

Enormous bank profits and the banking bonus system have gone, together with the misselling which cost the industry billions in compensation and trust issues, from which it seemed it would never recover.

The old system has been all but replaced with cheap banking, lending and investing on a global scale with minimal exclusion – a system almost unthinkable just five years ago.