Storm-7 Consulting Limited

#Storm7Consulting #FCA #investments #investing #younginvestors #socialmedia #finfluencers The Financial Conduct Authority (FCA) found that two-thirds of young investors take less than 24 hours to make investment decisions. The findings are based on a survey which polled 2,000 investors aged 18 to 40 in the United Kingdom (UK). KEY POINTS ◾ The latest research conducted by the FCA shows that young investors are very often making important investment decisions rapidly (e.g., in a matter of hours), instead of taking the time to check out whether the product is right for them in the long-term. ◾ This is a highly problematic revelation because not only will this lead to much higher investment losses for young people, but it also identifies significant deficiencies in the financial education levels of young people in the UK. ◾ Key findings by the FCA include: 1️⃣ 66% of 18-40 year-old investors spend less than 24 hours deciding on an investment, and 14% finalise their decision in under an hour; 2️⃣ a quarter of young investors admit they make investment decisions impulsively to keep up with current trends; 3️⃣ one-in-seven (n=14%) decide to purchase in under 60 minutes; 4️⃣ only 11% take more than a week to decide if an investment is suitable for them; 5️⃣ the average spend on hyped investment products is £550; and 6️⃣ two in five investors regret purchasing a hyped investment product. ◾ Social media (SM) advertising, hype, and trends can very often lead to direct, indirect, and subliminal pressures being exerted on young people. ◾ The fast media approach evident in Gen Z in practice manifests itself in the need for life hacks, financial hacks, fear of missing out (FoMO), and SM influencer and financial influencer (finfluencer) followings and trends. ◾ Within investments, this is highly problematic because it can often lead to a significant overconfidence in a young person's actual abilities viewed from an objective perspective, i.e., the young person thinks they know and understand far more than they actually do. ◾ In effect, young people may think they know what they are doing when in fact they do not. This may be because they are simply following a trend, they are following the advice of a supposed finfluencer, or they lack the experience and understanding to see problems and risks that should have been identified. ◾ Another problem is that they may not possess the abilities, experience, knowledge, and skills to carefully evaluate their own actions. If they did, then they would stop themselves from making a complex investment decision in less than 60 minutes. ◾ This same analysis can be applied to the actions of the latest batch of finfluencers who have been prosecuted by the FCA. LINK 🔹 FCA: https://lnkd.in/eDXeQMWS. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #UK #FCA #consultation #PISCES #financialmarkets #investments #stockmarket #sandbox The Financial Conduct Authority (FCA) is consulting on a new private stock market to be launched in the United Kingdom (UK). KEY POINTS ◾ The FCA has published Consultation Paper CP24/29 on a proposed sandbox arrangement for the new 'Private Intermittent Securities and Capital Exchange System' (PISCES) platform. ◾ The PISCES Consultation contains the FCA's proposed rules and guidance for the PISCES sandbox, as well as alternative options considered in the FCA's policy development process. ◾ PISCES: 1️⃣ represents a new type of trading platform that facilitates intermittent trading of private company shares using market infrastructure; 2️⃣ is to be developed using a 'financial markets infrastructure (FMI) sandbox' (the type used for the Digital Securities Sandbox); 3️⃣ will use public market features (e.g., multilateral trading); and 4️⃣ will use private market features (e.g., to provide greater discretion over how and to whom disclosures are distributed, when trading occurs, and which investors can participate in trading events). ◾ This public-private combination approach is not easy to implement because it will require subjective judgment to be exercised on the part of the FCA (e.g., if private market features are incorporated how are key attendant risks to be addressed). ◾ The new, innovative approach for PISCES is intended to provide opportunities for more diversified returns for investors - investments in new and promising businesses in the UK. ◾ Firms that intend to operate a PISCES platform will be required to apply to the FCA for approval to run intermittent trading events. TIMELINE ◾ The Consultation is open for comments until 17 February 2025. ◾ Briefing information for firms interested in applying to be a PISCES operator will be published by the FCA in early 2025. ◾ The Treasury will lay a statutory instrument before Parliament by May 2025. ◾ The FCA is likely to publish its PISCES final rules 1-2 months after this. POTENTIAL CONSULTEES ◾ Current and potential investors in private companies. ◾ Post‑trade service firms. ◾ Private companies. ◾ Professional advisors (including accountants and lawyers). ◾ Regulated trading intermediaries. ◾ Relevant trade bodies and associations. ◾ Trading venue and platform operators. LINKS 🔹 FCA Consultation: https://lnkd.in/eA_X8x7v. 🔹 FCA CP24/29 (PDF): https://lnkd.in/e4rdUZaF. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #UK #CEOs #CEOpay #managementtheory The Big Question: should the UK pay chief executive officers (CEOs) like top footballers? The Financial Times (FT) states there are some who argue that the United Kingdom (UK) cannot fairly compete with the United States (US) when its executives earn less. It posits the question of what is the right level of remuneration? KEY POINTS ◾ In the UK the average CEO is paid more than 100 times the average full-time worker. ◾ UK 2023, the FTSE 100 companies with the highest CEO pay were: 1️⃣ £16.85 million - Pascal Soriot, AstraZeneca; 2️⃣ £13.64 million - Erik Engström, RELX; 3️⃣ £13.61 million - Tufan Erginbilgiç, Rolls-Royce; 4️⃣ £13.45 million - Charles Woodburn, BAE Systems; 5️⃣ £12.72 million - Emma Walmsley, GSK. ◾ US 2023, the highest CEO pay packages were: 1️⃣ $198,685,926 - Jon Winkelried, TPG Inc.; 2️⃣ $186,994,098 - Harvey Schwartz, Carlyle Group Inc.; 3️⃣ $161,826,161 - Hock Tan, Broadcom Inc.; 4️⃣ $151,425,203 - Nikesh Arora, Palo Alto Networks Inc.; 5️⃣ $149,429,486 - Sue Nabi, Coty Inc.. ◾ Lord Michael Spencer argues that top footballers in the UK earn huge salaries, but when the CEOs of listed companies earn millions everyone contends it is an outrage. Spencer believes this is one of the reasons the UK lags behind US markets. ◾ This is not one of the reasons why the UK lags behind US markets. ◾ In the UK there are 5.5 million private sector businesses, the vast majority of which are small and medium-sized enterprises (SMEs). ◾ The number of companies trading on the London Stock Exchange is approximately 1,775, and only 100 of those are listed on the FTSE 100. ◾ Spencer's argument is essentially that if the pay of FTSE 100 CEOs were raised, all of a sudden UK markets would be able to compete on an equal footing with those of the US. This simply would not happen. ◾ We have seen that the structure of UK markets is asymmetrical, as listed companies make up only a tiny fraction of the total number of businesses contributing to UK gross domestic product (GDP) and taxes in the UK. Increasing listed company productivity alone would not be enough. ◾ Many companies with high CEO pay have continued to peform badly throughout 2024 and in previous years. ◾ US markets operate in different ways and at massively different economies of scale than those of the UK. ◾ Massively increasing CEO pay would very likely be inefficient and ineffective. It would be much, much better to distribute such a theoretical pay increase across management and employee salaries for a huge number of strategic and productivity reasons. LINKS 🔹 FT: https://lnkd.in/envB3EZt. 🔹 High Pay Centre: https://lnkd.in/ebM4q6hx. 🔹 The Guardian: https://lnkd.in/etuqZRKS. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #BoE #regulation #financialregulation #competitiveness #growth #gametheory PAPER SUMMARY: Carlos Cañón Salazar, Misa Tanaka, John Thanassoulis, 'Regulatory stringency as a competitive tool for financial centres', Staff Working Paper No. 1,098, December 2024. KEY POINTS ◾ In this Working Paper (WP) the authors develop a game-theoretic model in which financial regulators compete to attract internationally mobile banks. ◾ The model works by setting the level of regulatory stringency to meet: 1️⃣ financial stability; and 2️⃣ growth objectives. ◾ The WP shows that: 1️⃣ competitive deregulation will NOT arise if the relatively growth-focused regulator becomes even more growth focused; 2️⃣ competitive deregulation becomes MORE likely if the relatively stability-focused regulator becomes more growth focused; 3️⃣ domestic non-regulatory inducements to retain banks (e.g., labour laws, tax) create an EXTERNALITY on the global equilibrium of regulatory stringency chosen by financial regulators with a growth objective. ◾ The regulators of key global financial centres such as Hong Kong, Singapore, and the United Kingdom (UK) have been set explict growth objectives. ◾ The WP indicates that if a financial regulator is given a growth objective, or the existing growth objective is enhanced in some way, this will NOT lead to competitive deregulation if other regulators worlwide are primarily focused on financial stability. ◾ However, the WP also indicates that if more and more financial regulators around the world are given growth objectives, competitive deregulation then becomes a possibility as these regulators become more growth focused.   ◾ Applied in practice, if this occurs, this may then potentially make it more difficult to move towards increased regulatory convergence because of opposing regulatory objectives. ◾ Whilst the WP does not explicitly reference the use of the model in crypto markets, it is certainly one of the most interesting areas where the model could be deployed and investigated in further depth. ◾ If the WP findings were theoretically applied to crypto markets, it would mean that instead of moving towards regulatory convergence in global crypto standards (which is arguably exactly what is needed at present), national regulators with crypto growth objectives would increasingly move towards crypto deregulation (i.e., "lighter touch" crypto regimes). LINKS 🔹 BoE WP: https://lnkd.in/e23aqge4. 🔹 BoE WP (PDF): https://lnkd.in/eXeD7Q9u. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #US #CFTC #regulation #artificialintelligence #AI #financialmarkets #commodities #derivatives #swaps #futures In the US the CFTC has issued a Staff Advisory (the Advisory) related to the use of AI by registered entities and registrants (CFTC-regulated entities (CFTC-RAs)). DEFINITIONS AI (artificial intelligence); CEA (Commodity Exchange Act); CFTC (Commodities Futures Trading Commission); CP (commodity pool); CTA (commodity trading advisor); DCM (designated contract market); DCO (derivatives clearing organization); FCM (futures commission merchant); IB (introducing broker); RFED (retail foreign exchange dealer); SD (swap dealer); SDR (swap data repositories); SEFs (swap execution facilities); United States (US). KEY POINTS ◾ The Advisory was issued by the CFTC Divisions of Clearing and Risk, Data, and Market Oversight. ◾ The Advisory was issued to "remind" CFTC-RAs of their obligations under the CEA and the CFTC's regulations. ◾ The Advisory addresses issues potentially affecting three groups: 1️⃣ DCMs, SDRs, SEFs (order processing and trade matching; market surveillance; system safeguards); 2️⃣ DCOs (system safeguards; member assessment and interaction; settlement); and 3️⃣ Associated Persons, CPs, CTAs, FCMs, IBs, RFEDs, SDs (risk assessment and risk management; compliance and record-keeping; customer protection). ◾ As CFTC-RAs design, develop, use, and evaluate AI products, services, and systems, AI may come to affect nearly all aspects of the derivatives trade lifecycle. ◾ However, the speed with which AI is developing means that it is highly likely that there are areas of regulation where the use of AI may become somewhat opaque and challenging for CFTC-RAs. ◾ On the face of it, what the CFTC is attempting to do is to tell firms that where they are developing AI to be used within the derivatives trade lifecycle, this development will still be subject to obligations under the CEA and the CFTC's regulations. ◾ However, what the CFTC really seems to be doing is covering its back. It is effectively saying that in the future, if the use of AI outpaces the speed of regulation, the CFTC reserves the right to retrospectively interpret and apply the CEA and the CFTC's regulations to entirely new and novel situations. ◾ The CFTC will seek to say "this is what you should have been doing", even though it provided no comprehensive and detailed ex ante guidance on the use of AI to CFTC-RAs in the first place. LINKS 🔹 CFTC Staff Advisory: https://lnkd.in/eeEVaNrw. 🔹 Statement of Kristin N Johnson: https://lnkd.in/e9ccsS25. 🔹 Statement of Rostin Behnam: https://lnkd.in/eVxNZ_zS. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #US #TikTok #law #legal #constitutionallaw #nationalsecurity #China #espionage The United States (US) Court of Appeals for the District of Columbia has ruled that US legislation requiring ByteDance to divest TikTok is capable of withstanding constitutional scrutiny. KEY POINTS ◾ The Protecting Americans from Foreign Adversary Controlled Applications Act is a bill proposed in Congress in 2024. ◾ It seeks to prohibit the distribution, maintainance, or provision of internet hosting services for a "foreign adversary controlled application". ◾ The term "application" refers to digital applications (e.g., Facebook, LinkedIn, X). ◾ The term "foreign adversary controlled" refers to the control of such applications by a US foreign adversary such as China, North Korea, or Russia. ◾ The massive widespread use of TikTok in the US means that TikTok holds unbelievable amounts of personally sensitive data on millions of Americans. ◾ Now, imagine if the Central Intelligence Agency (CIA) were given complete unfettered access to TikTok data. It would be able to implement artificial intelligence (AI) algorithms to scan TikTok data feeds (unstructured data) in real time for behaviours, content, patterns, pictures, or words that were in any way criminal, subversive, or suspicious in nature. ◾ For the CIA this data would be a treasure trove, because it could be used to recruit people, to blackmail people, to target people, or to build up behavioural and psychological profiles on people. ◾ Now, swap out the CIA for The Chinese Ministry of State Security (MSS). ◾ Imagine if the MSS can directly access TikTok data feeds. These would provide it with masses of data to support espionage and intelligence activities. They could be used to build up target family and personal networks, to identify target behavioural patterns and weaknesses, or to identify potentially susceptible and vulnerable targets. ◾ The US government argues foreign adversaries may: 1️⃣ weaponize TikTok to collect sensitive information about millions of Americans; 2️⃣ covertly manipulate the content delivered to American audiences; and 3️⃣ undermine US national security. ◾ The TikTok case concerns a fight between: 1️⃣ complete and unrestricted free speech (First Amendment); and 2️⃣ restriction of free speech by the US government based on national security grounds. ◾ The US Federal Appeals Court has upheld a potential ban on TikTok in the US. The next step is to see if the Supreme Court will entertain any appeal. LINKS 🔹 Justice Department: https://lnkd.in/gxMcEg9q. 🔹 Law.com: https://lnkd.in/eX9ZNeYt. 🔹 Wired: https://lnkd.in/g9EywfPc. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #US #theFed #regulation #artificialintelligence #AI #financialservices #banking #payments SPEECH SUMMARY: Governor Michelle W. Bowman (2024). 'Artificial Intelligence in the Financial System' (22 November). At the 27th Annual Symposium on Building the Financial System of the 21st Century: An Agenda for Japan and the United States (US). "Inertia often causes regulators to reflexively prefer known practices and existing technology over process change and innovation." KEY POINTS ◾ Governor Bowman provides some observations on the implications of artificial intelligence (AI) in the US financial system (FS). ◾ The financial industry-specific implications of AI examined include: 1️⃣ how it may change the FS; and 2️⃣ how regulatory frameworks should respond to AI. AI AND INNOVATION ◾ AI use cases and tools can substantially enhance the FS by: 1️⃣ expanding the availability of credit; 2️⃣ fighting fraud; 3️⃣ improving public sector operations; and 4️⃣ reviewing and summarising unstructured data. AI AND COMPETITION ◾ The regulatory approach and framework adopted can promote competition in the development and use of AI tools in the FS. ◾ An overly conservative approach can skew the competitive landscape, e.g., by preventing the use of AI altogether. ◾ As there are risks to being overly permissive in the AI regulatory approach, AI supervision practices should be nimble. AI AND REGULATORY TOOLS ◾ Many AI risks are already well-covered by existing regulatory frameworks in the FS (e.g., copyright, cybersecurity, data privacy, fair lending, third-party risk management). ◾ A big problem, however, is that much of the work in AI innovation occurs OUTSIDE the banking system, such as developing and testing of generative AI models (this means FS regulators cannot directly regulate such practices). ◾ Regulators must therefore: 1️⃣ strive to understand AI before they consider whether and how to change regulatory approaches; and 2️⃣ adopt an openness to the adoption of AI (successful AI adoption requires communication and transparency between regulated firms and regulators). LINKS 🔹 Bowman Speech (html): https://lnkd.in/eGTTeKCx. 🔹 Bowman Speech (PDF): https://lnkd.in/e7qTuzKt. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #UK #FCA #PRA #BoE #artificialintelligence #AI #machinelearning #financialservices #research SUMMARY: Bank of England (BoE) and Financial Conduct Authority (FCA). (2024). 'Research Note: Artificial Intelligence (AI) in United Kingdom (UK) financial services' (November). ABOUT THE REPORT ◾ The BoE and FCA have jointly published a report that sets out findings and analysis of the 2024 AI and machine learning (ML) in UK financial services survey (3rd survey). ◾ The report covers: 1️⃣ AI benefits (respondents' views); 2️⃣ AI risks (respondents’ views); 3️⃣ approaches to AI accountability, governance, and monitoring effectiveness;  4️⃣ levels of automation in AI use cases; 5️⃣ perspectives on constraints to the development and deployment of AI; 6️⃣ quantitative overview of AI use and AI projected use (including foundation models and large language models (LLMs)); and 7️⃣ share of AI use cases developed in house or by third party providers (TPPs), and TPP concentration. ◾ The highest perceived benefits of AI are in: 1️⃣ data and analytical insights; 2️⃣ anti-money laundering (AML); and 3️⃣ combating fraud, and cybersecurity. ◾ The areas with the largest expected increase in benefits over the next three years are: 1️⃣ operational efficiency; 2️⃣ productivity; and 3️⃣ cost base.  ◾ 16% of firms have NO accountable person for their AI framework - "Who's in charge of the AI here?" - "Don't worry, it takes care of itself!" TOP FINDINGS ◾ 75% of firms are using AI (10% more plan to in the next 3 years). ◾ 33% of AI use cases (UCs) are from third parties. ◾ 55% of AI UCs have some automated decision-making (2%=autonomous). ◾ 17% of AI UCs are AI foundation models. ◾ 62% of AI UCs are low materiality (16% are high materiality). ◾ 84% of firms have a person accountable for AI. ◾ 34% of firms have a complete undersanding of the AI they use (46% firms only have a partial understanding). LINKS 🔹 FCA Definitions: https://lnkd.in/ejcGebn5. 🔹 FCA Research Note: https://lnkd.in/g2gVTEdz. 🔹 BoE: https://lnkd.in/ePkEuCZY. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #UK #BoE #regulation #financialmarketinfrastructures #FMIs #CCPs #CSDs #paymentsystems #payments The Bank of England (BoE) has launched a consultation on developing new Fundamental Rules for financial market infrastructures (FMIs) (FMI FRs) in the United Kingdom (UK). KEY POINTS ◾ In financial markets, FMIs play critical roles in managing risk and facilitating safe payments. ◾ FMIs facilitate the clearing, settlement, and recording of financial transactions. In the UK, the BoE is responsible for supervising certain types of FMIs. These include: 1️⃣ central counterparties (CCPs) (e.g., LME Clear Ltd); 2️⃣ central securities depositories (CSDs) (e.g., Euroclear UK and Ireland); and 3️⃣ payment systems recognised by HM Treasury (e.g., Bacs). ◾ At an international level, the Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) have already developed standardised principles for FMIs. ◾ However, in practice such principles are only intended to provide standardised guidance, with countries left to implement FMI regulatory frameworks that reflect their particular requirements at a national level. ◾ Consequently, the BoE has launched a consultation to create new rules that will clearly set out the outcomes that the BoE will expect from FMIs. ◾ These new rules will cover FMI expectations with respect to financial and operational resilience, as well as the actions FMIs should take to understand and manage the risks that they may pose to the broader system. ◾ The new FMI rules are intended to increase the transparency and effectiveness of the BoE's role in supervising FMIs (at a systemic level), thereby supporting financial stability in the UK, and the UK economy more broadly. ◾ There can be no doubt that developing FMI FRs is a highly complex endeavour. Consequently, the more input from stakeholders across the UK that the BoE receives, the more likely it is that the new FMI FRs will address key challenges, issues, and problems that FMIs in the UK may face. ◾ The BoE FMI consultation is open until 19 February 2025. Responses should be sent to: FMIfundamentalrulesCP1124@bankofengland.co.uk. LINKS 🔹 BIS FMI Principles: https://lnkd.in/efPdT-GG. 🔹 BIS FMI Principles (PDF): https://lnkd.in/gXSvxYFp. 🔹 BoE FMI Approach: https://lnkd.in/eXgpBBRT. 🔹 BoE FMI CP: https://lnkd.in/eXgaR7hm. 🔹 BoE FMI Supervision: https://lnkd.in/ezSKbKcH. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.

#Storm7Consulting #US #OFR #financialresearch #cyberattacks #financialstability #riskmanagement BRIEF SUMMARY: Arthur Fliegelman and Daniel Stemp, 'The Cyberattack on Change Healthcare: Lessons for Financial Stability', OFR Brief 24-05, 13 November 2024, Office of Financial Research (OFR) (Brief 24-05). KEY POINTS ◾ Change Healthcare (CH) is a healthcare critical service provider (CSP) in the United States (US). This brief examines the cyberattack on CH that occurred in February 2024. It sets out lessons for how the US financial system can better prepare for and reduce the risk of similar attacks. ◾ Cyberattacks on CSPs can lead to serious disruptions across parts of the financial sector. The increasing frequency of operational disuptions due to cyberattacks poses a growing systemic risk in terms of financial stability (FS), not only in the US, but also in the United Kingdom (UK). ◾ CH is the largest US medical claims clearinghouse which also provides technology solutions for essential back-office functions for healthcare providers. ◾ CH's services are simliar in nature to those provided by CSPs and US financial market utilities (FMUs). The brief draws parallels between FMUs and healthcare claims clearinghouses, and shows how cyberattacks can trigger severe liquidity events at CSPs and FMUs in both non-financial and financial markets. ◾ In light of the new operational resilience rules adopted by the Financial Conduct Authority (FCA) in the UK, financial services firms may benefit from taking a quick look at the OFR Brief. ◾ The CH cyberattack highlights the potential value of liquidity support outside of the financial sector. In the financial sector, firm failures can trigger an even wider chain reaction across the financial ecosystem. ◾ Many firms rely on single vendors for critical business functions which increases cyber risk. They do this because multiple vendors may be complex, expensive, and functionally impractical. ◾ CH lacked resiliency in the form of an effective and up-to-date recovery plan. Its data back-ups were not properly isolated from the compromised network. CH lost access to critical information and could not communicate with clients, providers, and stakeholders. ◾ It has become clear that the role of less dominant firms may play much more important roles in the financial system than previously thought. SUMMARY OF KEY FINDINGS ◾ The Brief's key findings are: 1️⃣ cyberattacks can disrupt liquidity even when they occur outside the financial system (an important point for financials services firms to note); 2️⃣ vendor dominance and high transaction costs amplify systemic risks; and 3️⃣ operational resilience adopted by firms is crucial. LINKS 🔹 OFR Brief 24-05: https://lnkd.in/e9VFisqV. 🔹 OFR Brief 24-05 (PDF): https://lnkd.in/ebGv9fSK. 🔹 OFR Cybersecurity and FS: https://lnkd.in/e-4phCNb. To receive notifications of new posts please follow #Storm7Consulting on LinkedIn: https://lnkd.in/e7wEZwBn. Thanks.