CME Group, the world’s leading and most diverse derivatives marketplace, today announced it will launch options on its Bitcoin futures contracts in Q1 2020, pending regulatory review.
“Based on increasing client demand and robust growth in our Bitcoin futures markets, we believe the launch of options will provide our clients with additional flexibility to trade and hedge their bitcoin price risk,” said Tim McCourt, CME Group Global Head of Equity Index and Alternative Investment Products. “These new products are designed to help institutions and professional traders to manage spot market bitcoin exposure, as well as hedge Bitcoin futures positions in a regulated exchange environment.”
Since their launch in December 2017, market users have rapidly adopted CME Bitcoin futures for their hedging and trading needs. There have been 20 successful futures expiration settlements and more than 3,300 individual accounts have traded the product since inception. Year to date, nearly 7,000 CME Bitcoin futures contracts (equivalent to about 35,000 bitcoin) have traded on average each day. At the same time, institutional interest continues to build with the number of large open interest holders reaching a record 56 in July.
CME Group is the only derivatives marketplace where customers can hedge or trade benchmark options on futures across every investable asset class, with average daily volume of 4.3 million in 2019 to date. By launching Bitcoin options, the company is providing clients with additional tools for precision hedging and trading.
For more information and educational resources related to options on futures visit CME Institute. Bitcoin options will be listed on and subject to the rules of CME. For more information, please visit http://www.cmegroup.com/bitcoinoptions.
As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data - empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals. The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform. In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing. With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana.
The REGTECH Book: The Financial Technology Handbook for Investors, Entrepreneurs and Visionaries in Regulation, Wiley August 2019. Authors: Janos Barberis, Douglas W. Arner, Ross P. Buckley. Amazon link
My print copy of the long awaited RegTech book ships from Amazon next week and promises to be a comprehensive resource, crowdsourced from more than sixty leading compliance practitioners, banking regulators, and technology entrepreneurs.
What is RegTech anyway? Regulatory technology (RegTech) provides gains in efficiency for compliance and reporting functions whilst also holding the potential to fundamentally change market structure and supervision. The book is a resource that offers an essential guide to the disruption, innovation, and opportunities of technology in the regulatory and compliance sector.
The chapter structure looks more like a reference work than something to read from cover to cover, although if you are new to the regulatory World, it will serve as a wonderful primer.
2. The RegTech Landscape
3. Regulatory Innovation and Sandboxes
4. A Call for Innovation or Disruption?
5. RegTech Investment and Compliance Spending
6. RegTech for Authorized Institutions
7. RegTech from a Regulatory Perspective
8. Blockchain and AI in RegTech
9. RegTech Applicability Outside the Financial Services Industry
10. Social Impact and Regulation
11. The Future of RegTech
The rest of this article reviews Shirish Netke’s contribution to the RegTech Landscape chapter, entitled, “RegTech and the Science of Regulation”.
Mr. Netke is an entrepreneur and technologist whom I’ve known since the Sun ICON days back in the early 1990’s. I’ve known about his interest in regulatory compliance and systems to detect money laundering for the past 5-years. About 4-years ago, Mr. Netke pivoted from identifying bad actors making and selling counterfeit drugs (big pharma was in denial and didn’t want to know about it) to focus on Anti-Money-Laundering. Today, his company Amberoon and their AML solution, Lucre, are on the leading edge of technologies that are set to transform the way AML/BSA compliance is done around the world.
His article opens with a powerful metaphor from the film “Minority Report”, where the hero, John Anderson, played by Tom Cruise, head of pre-crime, arrests a man for murder – a crime he planned to commit later that day. The premise of the story being that, the future could be seen with enough certainty to arrest someone before they commit the crime.
Although the movie is science fiction, Mr. Netke suggests that with the state of computer science, that future is not far away in banking compliance.
Legacy Approaches to AML/BSA Compliance.
With only around 1% intercepted of the illicit $2-4Trillion laundered globally, the outcomes of the current approach to AML compliance are abysmal and frustrating for both regulators and practitioners. False-positive alerts typically exceed 90% in most banks and many practitioners complain that the same names keep appearing in alerts even though they are low risk customers. The root-cause of the problems and frustration can be traced back to legacy AML systems that extract reports from historical systems of record.
These systems may be effective in measuring, monitoring and running a bank, but they do not provide insights into the risks associated with today’s banking environment.
RegTech and Modern Technology
Mr. Netke quotes a statistic from a Bain and Co report entitled “Banking RegTechs to the Rescue” that estimates the costs for governance risk and compliance (GRC), account for 40% of banks budgets for building new systems.
The foundation for future advanced-systems of insight that enable banks to manage their operational risk lie in modern technologies, including predictive-analytics, big-data systems and machine-learning. The Bain article suggests that where legacy systems required up to $10M and 2 years to implement, new systems can be implemented for $300,000 in three-months and deliver greater insight.
The rate of adoption of RegTech will be dictated by the people responsible for implementing operation change within the bank. RegTech has the potential to increase compliance-team productivity by 100% and provide far greater insight into operational risk.
Mr. Netke does not advocate for an AML system without people; indeed, he believes that the answer to using technology in financial services is with a judicious combination of human intelligence and machine intelligence.
The Future - Preparing for RegTech
Mr. Netke concludes his article with the belief that regulation is essential to the future of banking to address risk management and the function of an efficient and effective market, where customer funds are protected. The future consists of emerging technology solutions that help banks make better risk decisions at lower cost and in compliance with regulations.
The emerging technologies of cognitive analytics, big data systems, machine learning and predictive analytics are the enablers. These technologies did not exist 10-years ago. The future of RegTech will hinge on a partnership between regulators, practitioners and technologists to define an effective new compliance eco-system that benefits all participants and has the potential to identify bad actors and intervene before a money laundering crime is committed.
Canada’s prepaid market continues to experience strong growth, according to a report conducted by the Canadian Prepaid Providers Organization (CPPO), a not-for-profit organization representing the voices of the Canadian open-loop prepaid payments industry, and Mercator Advisory Group.
The annual report, The Canadian Open-Loop Prepaid Market: 2018, reveals that CAD$4.3 billion in total dollars was loaded onto open-loop prepaid cards in 2018, a 9 percent increase over 2017. Total loads increased across corporate- government- and consumer-funded cards with General Purpose Reloadable (GPR) cards (cards used as a bank account alternative) recording the highest loads at $2.5 billion. Open-loop gift cards also showed fantastic growth, increasing by 22 percent in 2018.
In a recent interview with PaymentsJournal, Jennifer Tramontana, executive director of CPPO, explained why the prepaid market is expanding in Canada, how prepaid has become a platform for innovation by banks and Fintech companies in both Canada and the UK, and how prepaid is poised to replace cheques.
Prepaid is “a nimble foundation for bringing new products and services to market,” Tramontana said. Prepaid’s “light, modular infrastructure” offers companies the creativity and flexibility to explore new features and capabilities to better suit their customers’ needs.
Although Canada is a highly banked nation, prepaid continues to grow in popularity among consumers, something Tramontana believes reflects consumers’ desire for alternative–and less expensive–financial solutions.
“Prepaid has become a really good, important educational [tool] for financial literacy… [Prepaid cards are a great] initial product that gets people into the financial mainstream.”
The rise of prepaid also signals the end of cheques as a widely used form of payment by Canadian businesses and the government.
“There’s about 385 million checks that go out a year, and it’s estimated [that this] costs [the Canadian] economy about $5.8 billion annually,” she said.
With an annual decline in cheque use of 7 percent across the nation, Payments Canada predicts that, by 2020, virtually every business and government office in Canada will have switched from cheques to electronic payments, including prepaid. 66 percent of Canadians are ready to ditch cheques, and 27 percent of them were so anti-cheque that they were prepared to pay extra to process a cheque-free transaction electronically.
Mobile banking and digital payments are also on the rise, which is another reason for optimism in the Canadian prepaid market. “A little bit more than two-thirds of Canadians are now doing most of their banking digitally,” said Tramontana. “And there’s obviously big opportunities for continuous development in those kind of innovative, user-centric capabilities and solutions.”
The Canadian prepaid market is rapidly growing, and there’s lots of room for companies to make an impact. “We’ve seen a compound annual growth rate [of around] 17%,” she said. “So it’s an important market for us to understand where to go… [There are] amazing opportunities for innovation here.”
Equitivo, Europe’s only full-service fintech consultancy is partnering with Brismo, the market-leading provider of lending performance data, to provide institutional investors with best in class due diligence into loan investment opportunities.
The unique partnership will give fintech investors a more detailed and consistent understanding of investment potential across leading alternative finance platforms. The combined competencies of the two businesses will ensure that originators of capital are best positioned to provide investors with the insight required to make a funding commitment.
Equitivo is a consultancy offering unrivalled insight to help fintech firms develop their strategy, operations and performance along with offering detailed capital markets advice to prepare platforms for a capital raise. Brismo constructs lending performance metrics, built on cash-flow level data, that enable loan originators to credibly demonstrate track record, and investors to deploy capital more productively and cost-effectively.
Together, the two companies will offer a quantitative and qualitative solution to identify performance, using a unique combination of ‘industry standard’ performance data, with strategic insight and consultancy. This partnership will offer investors improved transparency, and a deeper understanding into loan book performance.
The two companies aim to help shift the industry from self-reported performance which makes it very difficult for investors to compare risk and return on a like for like basis.
Andrew Holgate, CEO of Equitivo, said, “Working alongside Brismo gives a new dimension to our consultancy services. We believe this partnership will allow fintech investors – from new ones to savvy investors - to have the clearest understanding of the market and therefore grow confidence and credibility across this evolving sector. Equally, platforms will benefit from unrivalled data-backed consultancy.”
Brismo’s CEO Rupert Taylor, said, “Responsible fiduciaries need to perform a price discovery exercise before they commit client capital. Equitivo offers the qualitative expertise that complements our data-led approach to ensure that investors can perform thorough due diligence. We are excited to be working with such a respected consultancy to help the loan market scale by attracting additional capital.”
Martin Fiddaman, managing director, head of financial institutions and professional services at NatWest, shares his insights on technology, regulation and changing customer demands ahead of Sibos.
We may currently be in a period of uncertainty, but in many parts of the economy, it’s an exhilarating one, too. Our increasingly connected, there-in-an-instant world means people expect instant service - whether it’s a music download, a film hosted by Netflix or even goods from providers like Amazon. In the world of payments, the demand for an instant service is no less pervasive: customers want to pay right now and the supplier wants to receive payments instantly, including across borders.
In my career of 30-plus years I’ve never witnessed such a rapid pace and scale of change - and certainly not with so many developments shaping the payments world in consort: greater regulatory demands, new technologies and evolving customer demands deserve mention.
So it’s a dynamic time, but not without challenges for banks, which must balance protecting the customer and leveraging the demands of regulators with offering new solutions and services. In the cross-border landscape, there’s a comparable analogue: the shift from the traditional, slower system of correspondent banks to a more interconnected high-speed world.
One challenge is that different countries and banks are at different stages of their evolution and readiness, so there’s quite a range of propositions and systems, but the direction of travel is towards greater harmonisation. In the UK, for example, our new real-time payments system is growing at pace - its increase in payments in the year to July 2019 was about 28%, and the vast bulk of that percentage were one-off instant payments made on mobile or online. In the UK, real-time instant payment isn’t “the new normal”; it’s an old normal that will be subsumed by a truly instant world.
Tools for the job
Many people envisage a future where the faster payments systems within each country or jurisdiction will collectively mature and link up, but only when we have standards in place. This sounds straightforward but poses several regulatory challenges, such as instant fraud checking and transaction monitoring. In turn, this demands the right technology.
Artificial Intelligence (AI), for instance, is one way to solve the challenge of being quick enough to monitor real-time transactions and keep customers safe. Paired with other useful innovations such as data analytics, there is quite an onus on how banks - and fintechs - can and should make important investments around the technologies employed.
In cross-border payments, SWIFT’s global payment innovation (GPI) is becoming the standard for speeding up processes and promoting transparency and efficiency. In addition, other technologies, like the cloud and AI, are being adopted in different ways by different banks.
While banks could be perceived as less nimble than fintechs, they already have customer trust and robust systems and processes in place - and we understand customer needs, regulation and compliance. Our aim is to combine those strengths with the right technologies.
Deploying the right tech in the right way doesn’t entail a world of “banks versus fintechs”. Rather, we’re seeing a more collaborative and connected ecosystem where we’re all looking to improve our products and services, against a recognition that you shouldn’t always do that on your own. The smarter solution for a bank is to find a partner that can develop technologies better and quicker, leaving the bank to focus on customer solutions. At NatWest, we practice what we preach and, as one example, have been working with our partners to successfully embed AI-enabled transaction monitoring in a subset of our payments processing, helping to identify and prevent fraud.
Technology allows us to connect in different ways. Application programming interface (API) technology, which supports open banking, is transforming the landscape and offers huge potential. We’re piloting API connectivity with some challenger bank customers to offer an alternative to the traditional correspondent banking route.
Our innovation pipeline is strong in terms of design, development and, most importantly, delivery. And our experts, alongside our fintech partners, will be showcasing these innovations in the Discovery Zone at Sibos. I’m also delighted that each day between 2pm and 3pm we’ll be giving demonstrations on our stand, G104, of our latest innovations.
Disruption from within
The evolving market, driven by the desire to improve the customer’s underlying experience, ultimately changes business models by increasing competition.
We’re lucky in the UK because our regulator, the Payment Systems Regulator, is forward thinking. It has a wide remit, which includes promoting innovation and competition, so it’s challenging the industry to come up with better solutions and better customer experiences. That’s great because it puts the customer first.
Everybody in the payments industry has an idea of what the ingredients for a successful future look like. We’re all striving to get the mix right for a more connected and instant world; a world that brings new business models supported by technology, regulation and competition.
Against this backdrop, the incumbents are galvanising, ensuring that disruption happens from within.
Fiserv, Inc. (NASDAQ: FISV), a leading global provider of financial services technology solutions, announced today that Velocity Credit Union, based in Austin, Texas, has selected Fiserv as a key technology provider as the credit union diversifies into business services and automates processes.
Velocity Credit Union has a long history of serving the greater Austin area. In recent years, the credit union has focused its strategic efforts on enhancing services for small businesses and creating a better digital experience for members. The credit union chose DNA® from Fiserv to improve loan servicing capabilities for business and real estate, and to facilitate the integration of third-party solutions through the platform’s open architecture.
“To remain competitive, we must offer the best possible digital services to business accounts and individual members,” said Debbie Mitchell, president and CEO, Velocity Credit Union. “Faster integration of the latest market innovations, which is possible with an open architecture platform like DNA, means we can quickly deliver the latest services to members. This helps us stand out and shows the business community and our members that we are invested in them.”
DNA is a modern core account processing platform that provides powerful, built-in commercial servicing capabilities to support business account growth. The platform’s open architecture makes it easier for financial institutions to integrate other solutions, bring products and services online quickly, and add new capabilities using downloadable DNAapps™.
As part of their technology transformation, the credit union also added several integrated solutions from Fiserv including general ledger, item processing and enterprise payments.
“Growth oriented credit unions are increasingly focused on improving offerings for small businesses and entrepreneurial members, in no small part because these areas drive growth and retention across the member base” said Vincent Brennan, president, Credit Union Solutions, Fiserv. “We are looking forward to working with Velocity as it creates value for its members and community with the premier retail and commercial functionality of DNA.”