News & views

When fintech and Central Banks unite

 

To Beirut last week for the biggest, buzziest event in Lebanon’s calendar, BDL Accelerate. It’s for early stage companies and those that are interested in such start-ups – including Greentarget’s chairman, prowling for the latest wrinkles ‎in the fintech world.

 

Regiments of attendees – 20,000 registered they said, from 50 countries, including such heroes as Tony Fadell, inventor of the iPod and iPhone and Steve Wozniak, co-founder of Apple.

 

Here’s the biggest surprise: BDL stands for Banque du Liban, the Central Bank of Lebanon. This techfest was organised by BDL Governor Riad Salameh and his right hand Marianne Hoayek in their spare time.

 

They do not have a lot of spare time. BDL has been for a long time the only properly functioning arm of government in Lebanon and it has kept the currency stable and economy going come hell or high water, which have indeed arrived quite frequently in recent times.

 

Salameh and Hoayek produced BDL Accelerate for the young men and women of Lebanon‎ who came in large numbers, shining with intelligence and ambition.  They drank in all the sessions and presentations, alert through three long days, all itching to be successful entrepreneurs of the Internet Age.

 

And, as Tony Fadell was keen to emphasise, the age of the Internet means that today’s young Lebanese will not have to leave for Europe and the US, as their forefathers did, to build their companies and fortunes. The software and services this generation of smart Lebanese produce can be sold to the world right from Beirut.

 

Come to think of it, a number of European central banks also have youth unemployment problems. But no event like BDL Accelerate in Spain or Portugal or Italy or France springs to mind. So what do the central banks of those countries find to while away the working day, since they have lost their prime function of managing a currency?

 

Cheerful thoughts from the IMF/World Bank annual meeting

(L-R) Governor of the Bank of England Mark Carney; International Monetary Fund Managing Director Christine Lagarde and Wolfgang Schauble, Finance Minister, German participate in a CNN Debate Seminar on Global Economy October 6, 2016 at part of the 2016 IMF/World Bank Annual Meetings in Washington, DC. IMF Staff Photo/Stephen Jaffe

IMF Staff Photo/Stephen Jaffe

 

When a body is feeling down,  nothing cheers like a gossip with friends about the dreadful state in which the world finds itself.  Small wonder that so many of us look forward to the International Monetary Fund/World Bank annual meeting each October.

 

This year’s event did not disappoint. Much of the talk on the sidelines of the meeting — no-one much bothers with the official agenda — was about the unprecedented and dangerous pass the global community has reached.  Golly,  what risks we face: Turkey under Erdogan, Russia  under Putin, China under Xi, all making the world order wobbly.  Deutsche Bank on the ropes,  the Eurozone in deflation. And Italy!  Does anyone have some dosh to buy a Mt Everest of bad loans and save Italy’s banks (and save the Eurozone)?

 

All very reassuring,  because IMF attendees know that the unprecedented and dangerous situation we spoke of last year faded away and that there will be a fresh new unprecedented crisis for us to enjoy next year, same time, same place.

 

The more interesting thoughts in Washington, however, turned to reputation — that precious commodity,  so hard won, so easy to lose.

 

The loser much talked about was Wells Fargo, humiliated by the revelation that some 5,300 employees were guilty of opening unauthorised accounts for customers.  These unfortunate workers, who had been saddled with a compensation system that encouraged a little jiggery-pokery, then got the sack. Pilloried for both the unauthorised accounts and the sackings, the institution did not know where to hide its face. (It was excoriated too, behind its back, by its banking rivals, who fear that this will set off yet another round of punitive and expensive regulation, just when things seemed to be dying down for everybody except Deutsche.)

 

What made it so much worse was that Wells had allowed itself to appear whiter than white,  a saint among the major banks of the world because it avoided taint during the 2008-2016 festival of very large fines and judgements by the regulators.   It is very hard for an institution that’s prospering not to take on a holier-than-thou air when its rivals are in trouble. But that air must be avoided at all costs with a deft public relations touch.

 

Meanwhile the winner, in more ways than one, was Alfonso Prat-Gay,  finance minister of Argentina, who has demonstrated that even the worst reputation can be rehabilitated.  Argentina has been  in the international capital markets’ dog house for more than a decade,  after the then largest sovereign default of all time, by a chalk.  Since the 2001 default, the country has been spinning in the wind,  unable to settle with hold-out creditors and generally unwilling to make necessary reforms to its economy.

 

Then along comes a new president, Mauricio Macri, last year, who ropes in Prat-Gay to clean up the mess.  This he did by tirelessly pressing for change at home, deft negotiation with hold-out bondholders and explaining, explaining, explaining to the market that this time Argentina is different. Only a young man, which prat-Gay is, would have had the physical energy. He got two rewards.

 

One was a celebrated $16.5 billion-dollar Argentine sovereign bond issue earlier this year. And the other was the coveted Euromoney Finance Minister of the Year 2016 Award,  presented to him during the IMF meeting.

 

He handled the award ceremony like the modest gentleman he is, calling all his team members on stage so they could be in the photos with him.  No-one can recall that happening in the more than 30 years that Euromoney has been making its award.

Hot topics from Sibos 2016

sibos

Blockchain and the speed of its implementation in financial markets infrastructure was definitely a hot topic at this year’s Sibos.  There was a general consensus that there are certain post-trade functions which can be made more efficient through the use of distributed ledger technology but that it is far from a panacea for all that is inefficient in market structure.

While some conference panellists claimed that by next year’s Sibos they would be providing demos of real life applications of distributed ledger technology, others were a little more cautious in their optimism.

The view of the more cynical Sibos attendees was nicely summed up by my favourite analogy of the week. At present, discussing real life applications of blockchain is like trying to rush a baby into college. The reality is that many financial markets processes are inefficient and therefore simply untangling them to implement a completely new technology, let alone to implement an entirely new process, is going to take time. I will be interested to see who’s proved right at next year’s Sibos: the optimists or the pessimists.

The other big theme was cyber security. There was agreement that greater collaboration among market participants and the sharing of information about cyber attack experiences are certainly helping in the fight against increasingly sophisticated attacks. The popularity of cyber insurance was noted, not only for the financial protection it provides to corporates but for the wide ranging benefits offered to policyholders, including a full audit of a firm’s cyber security processes which is conducted before the policy is issued.

All of the discussions I saw on cyber crime concluded that while cyber defence systems are becoming ever more sophisticated and industry collaboration is greater than ever, most cyber breaches result from human error.  This is a security failing that is yet to be fixed, and I suspect never will be!