Andy Dalziel

Are the robots coming to take your job?

In March 2017, a study published by consultancy firm PwC predicted that 30% of jobs in the UK were under threat because of breakthroughs in artificial intelligence (AI), with up to half the positions in some sectors, like wholesale and retail, for example, likely to disappear.

This is not the first such study which has painted a grim picture of the future of labour markets because of the impact of AI. A widely noted study by Carl Benedict Frey and Michael Osborne in 2013 found that 47% of all American jobs were at threat from potential automation, whilst a Citibank 2016 report, published in collaboration with Oxford University, put the figure at 77% in China, and 59% across the whole OECD (Organisation for Economic Co-operation and Development) region.

Even world-renowned physicist, Stephen Hawking has weighed in on the debate, claiming in an article in The Guardian that AI would lead to a decimation of middle class jobs, worsening economic inequality and greater political unrest.

So, are we all about to see robots taking over from us, millions made redundant as the robots take over in some kind of post- Huxleyian nightmare?

The likelihood is that the future will be more nuanced than that. Whilst undoubtedly some jobs will be lost to AI, others will be created. There are also some service positions that are hard to automate, such as education, health and social care, hospitality and sports, and which are all expected to see healthy growth in employment levels.

Most at risk are those involved in jobs involving manual and repetitive tasks, in sectors like manufacturing or distribution. Workers in transport and logistics, such as taxi and delivery drivers, and office support, for example, receptionists and security guards, are likely to be replaced by computer capital, whilst those employed in sales and services – counter and clerical staff, telemarketers and accountants – are also in danger.

It should briefly be noted that changes in job market fundamentals due to automation is nothing new. The industrial revolution of the 19^th and early 20^th centuries saw the destruction of many cottage industries and rural employment, as labour began to be organised around mass production lines in factories and industrial centres. Subsequent developments in assembly-line production and technological innovation then saw the elimination of many manual labour jobs, whilst the advent of computers and the internet again had a radical impact on the pattern of employment, accounting for the loss of millions of clerical and administrative roles.

Despite this there has been no jobs “Armageddon” across the world, although it is undoubtedly true that many traditional manufacturing heartlands, such as the Rust Belt in the US and the North-East of England, have become economically depressed as local jobs have disappeared. In fact, what happens is that labour markets reposition themselves in the wake of such radical shifts, with new jobs created, as a consequence, in different sectors.

It also should be emphasised that changes in job markets tend to happen slowly, and this is likely to be the case with AI as well. People in sectors of employment identified as “at risk” should not start looking over their shoulders just yet.

In fact, the increased implementation of AI is likely to create a whole new swathe of jobs, requiring completely different skills and knowledge than exist today. A recent Accenture study “How Companies are Reimaging Business Processes with IT” identified 3 categories of new AI-driven business and technology jobs, which they labelled “trainers”, “explainers” and “sustainers”.

Trainers will be required to teach AI systems how they should perform – for example, helping language translators and natural language processors to make fewer mistakes, or teaching AI algorithms how to mimic human behaviour. AI systems do not understand human emotions or expressions of thought like empathy or sarcasm – they have to be taught.

Explainers will be needed to bridge the gaps between systems and humans, particularly business leaders and managers. Many business executives are uneasy with the “black box” approach of machine learning algorithms, and need somebody to explain and interpret data for them. Explainers will need not only to understand how the technology works and how it produces results, they will also need to be able to translate that into normal “business speak”.

The final category of job identified, sustainers, will be responsible for ensuring that AI systems are operating as designed. Current studies indicate that, on average, less than a third of companies will AI systems believe in their fairness, whilst there are serious doubts about their safety as well. This is a clear threat to the long-term roll-out of AI technology. Sustainers will have a big role to play in building the necessary trust and reliance on such systems going forward.

Of course, such jobs will require staff with the necessary skills and talents to undertake them, which, in turn, may need a radical shift by schools and universities away from traditional curriculum to offer courses which teach these new disciplines.

Undoubtedly AI is going to have an impact on the job market, but it is unlikely to be the doomsday scenario some have predicted. Those jobs which require a high degree of manual, repetitive tasks are likely to be replaced by computers or robots but, in their place, there are likely to arise a whole new range of jobs which are more highly skilled, challenging and crucial to long-term economic prosperity. And there will continue to be jobs which computers just cannot do, or perform well.

AI will have a transformative effect on employment, but it need not be cataclysmic.

Paradise Lost

The recent revelations about tax avoidance schemes and the use of offshore tax havens, has, once again, shone a light on the issue of personal tax management , and the lengths that some people will go to in order to avoid paying tax.

Yet amidst the undeniable outrage at the antics of the rich and famous, and calls from politicians, journalists and the arbiters of public opinion for increased regulation and a clampdown on such practices, there is an essential element that is being lost. Many of the schemes exposed are actually legal, either under local or international law, and, more fundamentally, there is no moral or ethical obligation to pay more tax than is legally required.

As the famous American jurist Learned Hand opined: “there is nothing sinister in arranging one’s affairs to keep taxes as low as possible….nobody owes any public duty to pay more than the law demands….to demand more in the name of morals is just cant”.

There is no doubt that some of the worst excesses highlighted by the Panama Papers are either against the spirit or the letter of the law. However, the vast majority of people who employ tax havens are doing so perfectly legitimately, using the existing law to minimise their personal tax burden accordingly. There is actually nothing wrong with this if you can afford to pay for the proper professional advice to set-up an appropriate offshore tax structure.

Unfortunately, these people, and the accountants, lawyers and tax experts who advise them, run the risk of being demonised for just doing what every citizen has the right to do, and that they will become victims of the politics of envy.

At the same time, the demand from the authorities and regulators to “do something” about the perceived abuses will force many offshore centres to radically curtail their activities, which will cause irreparable damage to local economies heavily dependent on financial services for the bulk of their income.

It also might have another unintended consequence.

Whilst proponents of increased regulation and transparency will argue that the net result of the Paradise Papers will be that more people will be forced, or shamed, into paying their fair share of tax, there is also the strong possibility that the incidence of tax evasion will increase, as tax avoidance or minimisation loopholes are closed. As a result, the total tax take will fall, not increase.

There is also a wider debate to be had about the fairness of current personal tax rates, especially when put into the context of the wider burden of taxation imposed on citizens – VAT, sales tax, capital gains tax, inheritance tax etc.

Unfortunately, there is a real danger that this debate will get lost in the noise about the dishonest practices of a few advisers and their clients, with the inevitable consequences of tighter regulation and scrutiny of one’s tax affairs. As a consequence, it might be that we look back in a few years’ time, and realise what further control we have ceded over our own tax affairs to national governments and regulators.

If that is the case, it might truly be Paradise Lost.

How likely is Bitcoin to survive?

Introduction

Speaking at the Fortune Global Forum on November 5^th, JP Morgan’s Jamie Dimon dismissed Bitcoin’s long-term chances of survival, stating that, in his view, there will be no non-controlled currencies in the world, because no governments can, in the long-run, tolerate the existence of methods of payment they cannot control

This is not the first time that Dimon has been sceptical about Bitcoin. In September he threated to fire any of his traders who attempted to deal in it after declaring the cryptocurrency a fraud.

He is not alone. Legendary investor Warren Buffett has warned for years that Bitcoin has no intrinsic underlying value and that the current price bubble will soon burst in spectacular fashion, whilst billionaire Saudi investor Prince Al-Waleed bin Talah has predicted a forthcoming implosion of the digital currency because of the lack of regulatory control.

On the other hand, part of the reason for the recent Bitcoin price surge was due to strong interest from investors on both Wall Street and in the Far East, whilst the news that the CME (Chicago Mercantile Exchange) plans to trade Bitcoin futures would indicate that, at least some elements of the investment community are anticipating a long and bright future for the cryptocurrency.

Who is to be believed?

Is there a Bitcoin Bubble right now?

It would be hard to argue with those that contend that the current Bitcoin price of over US $6,400 a coin – it was above US $7.500 before falling back – appears to have all the characteristics of a bubble, given that it started the year around the US $1,000 level. As such it would appear, on the face of it to resemble some of the famous bubbles in history, such as the Tulipmania of the 17^th century, the South Sea bubble a century later, and, most recently, the dot com boom around the turn of the Millennium.

The problem with this is that the classic definition of a bubble is when an asset is traded at a price that strongly exceeds its intrinsic value. However, if Buffet is to be believed and Bitcoin has no intrinsic value, what is a reasonable price for it?

At this point it is also worth pointing out that a regular fiat currency – such as a dollar, euro or sterling – also has no intrinsic value. Since countries abandoned the gold standard – when every unit of currency issued was backed, at least in theory, by the equivalent in gold – the value of a currency is determined more by the backing and support of government and financial regulation than by any physical equivalent.

It is here that Dimon and bin Talah may have a strong point. Conventional currencies have value because there is a government to support it when they come under pressure. This is why financial authorities and regulators step-in when a currency comes under threat or there is a run on a bank to prevent economic disorder and financial hardship. In other words, it is government support and backing for a currency that legitimises it, rather than the inherent value of the currency itself.

With Bitcoin there is no such safety net. The only thing currently driving its price is market sentiment, which is why there is often such dramatic volatility in its value from one day to another. That would make it vulnerable to a sudden and dramatic loss in value if market sentiment were suddenly to turn against it.

Will Bitcoin become regulated?

There are signs that Bitcoin may, at some point in the future, become subject to government regulation. Already trading in the currency has become banned in China and is coming under increasing government regulation in Russia. At the same time, the SEC in the US has issued a warning to investors that trading in digital assets is subject to Federal Securities laws, whilst both the Bank of England and the Financial Conduct Authority in the UK are monitoring current cryptocurrency developments very closely.

Of course, there are purists who argue that regulating a digital currency is the antithesis of the original concept of Bitcoin – as a decentralised and deregulated peer-to-peer payment system. However, it might be a price that Bitcoin and other similar digital currencies have to pay for their long-term survival.

Certainly if major e-commerce retailers like Amazon, eBay and Alibaba begin to accept Bitcoin and other digital currencies as means of payment, it can be expected that consumer protection laws will be expanded to cover it.

To a certain extent then, a regulated Bitcoin would have the supervision and monitoring that the current coinage lacks, although many of the other principles that underpin a traditional currency – such as an underlying banking system and financial infrastructure, supporting checks and balances, and complete market transparency, would still be lacking.

Bitcoin has its supporters

It should also be said that the views of Dimon and Buffet are not the only voices in the debate. There are equally respected investors who believe in the long-term future of Bitcoin, and that the underlying price will continue to rise. Jeremy Lew, for example, one of the first investors in Snapchat predicts Bitcoin will be worth US $500,000 a coin by 2030, whilst Facebook investor and financial guru Chamath Palihapitya urged his 70,000 Twitter followers to invest in the currency as a “defense against value destruction”.

The Blockchain will survive

Even if Bitcoin were to collapse in value altogether, there are elements of the cryptocurrency concept and technology which will go on to survive and prosper, most notably the concept of the blockchain. Even Dimon himself admits this, saying “the technology will be used, it may even be used to transport currency but it will be US dollars”. He has also previously said that his bank has much to learn from the concept of disruptive payment systems like Bitcoin, in terms of real-time systems, better encryption techniques and a reduction of costs.

Conclusion

It is impossible to state with any certainty the probability of Bitcoin surviving. Certainly its many critics would argue that it is merely an asset with no intrinsic value, whose current price is being driven by a wave of market sentiment that is creating a bubble that will shortly burst spectacularly. On the other hand, there are other investors and market analysts who predict that the currency, although subject to short-term volatility, is on a long-term upward curve.

Probably the answer lies somewhere in the middle. Bitcoin will survive, but not in its present form, and the concepts around it will change. It is likely that the crypto-community is going to have to accept some form of government regulation and monitoring of the currency at some point in the future. Whilst this may be anathema for the purists, this might be the price of longevity and mainstream acceptance.

However, whatever else happens, the concept and application of blockchain technology will not only survive but will prosper and finds its way into an increasing range of applications and industries. In the end, then the enabling tool may prove more valuable than the core concept.

Another day in Paradise – for some

The Queen, Lewis Hamilton, the stars of Mrs Brown’s Boys, and the Indian aviation minister may seem, on the face of it, to have little in common with each other. However, all of them have been named in the latest leak of online information, called The Paradise Papers, as having invested in offshore tax havens.

These are, in fact, amongst the first names to appear, in what promises to be an ongoing expose of how multinationals, celebrities, politicians and high net-worth individuals have used complex offshore financial structures to protect their cash and other assets from higher taxes.

The ripples have already started to spread, with questions being raised about who owns Everton football club, the activities of former Conservative Party donor Lord Ashcroft, and politicians in Canada, India, the US and Russia all coming under scrutiny.

The Paradise Papers contain 13.4 million documents, many coming from offshore legal service provider Appleby and its former sister company Estera. There are also millions of documents compiled from corporate registers in some 19 jurisdictions, many of them located in the Caribbean, as well files obtained from the Singapore-based Asiaciti Trust.

Like last year’s Panama papers, the original material for the leaks was obtained by the German newspaper Suddeutsche Zeitung, which passed them on to a global network of investigative journalists, the International Consortium of Investigative Journalists, which includes the BBC Panorama programme, The Guardian and The New York Times, to work on them further.

Whilst the number of files released this time round is fewer, in number, than the Panama Papers, this leak has the potential to cause more damage because it focuses on well-known high net-worth individuals and celebrities, many with links to the UK.

Investing in offshore tax havens is not illegal – there are many offshore tax schemes and arrangements that are wholly legal and above board. However, there are many who question whether it is ethical to actively take measures to avoid tax.

Moreover, at a time when national governments and international authorities have been promoting a series of initiatives and measures to force individuals and companies to be more open and transparent with their tax affairs – with initiatives like BEPS, the Common Reporting Standard, and new CFC and transfer pricing rules – these latest revelations will come as a huge embarrassment for some, and lead to legal sanctions for others. Expect a series of high profile resignations, mea culpas, and public apologies in the next few days.

At the same time this will highlight, for some, the continued inequality of the tax system.

In September, a report co-authored by economist Gabriel Zucman estimated that 10% of all global GDP – about £6 trillion – is held offshore. The report also stated that 80% of all offshore cash is owned by 0.1% of the richest households, with 50% held by the top 0.01%.

Yet again, it seems that there is one rule for the overwhelming majority of us, and another for the super-rich.

Bitcoin surges again as Cryptocurrencies hit new highs

On 3^rd November of this year, a historic milestone was reached when the cryptocurrency market capitalisation passed the US $20 billion mark for the first time in its history. This was hard on the heels of Bitcoin reaching a high-water mark of US $7,461 the previous day.

Although it has since dropped back a little, Bitcoin now has a market capitalisation of nearly US $122 billion. Even Ethereum, which has struggled recently whilst market support has piled behind Bitcoin, has rallied, and is now trading at nearly US $300 a coin, which represents a market capitalisation of US $28.3 billion.

What is driving the current cryptocurrency surge and is it sustainable?

In truth, the current price surge is really all about Bitcoin. Not only does it account for more than 60% of the cryptocurrency market in terms of market capitalisation, the volumes traded dwarf that seen for other cryptocurrencies, with Ethereum a very distant second. Essentially, other altcoins are now trading on Bitcoin’s coat tails, so that is where most attention needs to be paid to understand the current market position.

There are many who argue that what we are seeing in the market now is just a bubble and that a crash will occur sooner rather than later. That is certainly the view of legendary investor Warren Buffet who recently advised his Berkshire Hathaway investors to stay away from Bitcoin because the price is being driven by speculation, and cannot be valued properly because it is “not a value-producing asset.”

This is not the first time that Buffet has criticised Bitcoin. Back in 2014 when it traded around US $400 a coin, he stated that it was a joke to think that cryptocurrencies have any intrinsic value because they are just a way of transmitting money. Three years later, with the price of Bitcoin at record levels, we are still waiting for the predicted crash, although there has been plenty of volatility in the intervening period.

Buffet is not alone in being a naysayer. JP Morgan boss Jamie Morgan called Bitcoin a fraud in September, and promised to fire any trader at his investment bank caught dealing in the currency. Meanwhile billionaire investor Howard Marks has called it pyramid selling, whilst Saudi Prince Al-Waleed bin Talah predicts that Bitcoin will soon implode because it is not regulated.

Ironically, in the light of these views, one of the reasons for the current rise in the value of cryptocurrencies is because certain parts of Wall Street, at least, are now starting to take them seriously. Data recently published by financial research firm Autonomous Next showed that, since the start of the year, 90 hedge funds focused on digital assets have been launched in the US alone.

At the same time, the world’s largest options and futures exchange, the Chicago Mercantile Exchange, has announced plans to offer Bitcoin futures by the end of the fourth quarter, subject to regulatory approval.

This is seen as another step in the development of Bitcoin as a more established asset class, and potentially gives institutional investors a way of buying into the digital currency market.

There are other factors behind the current rise of Bitcoin as well.

In November the Segwit2X hard fork is planned, which, at least in the short-term, has a positive impact on the Bitcoin price. Those investors that do not expect Segwit2X to become the majority blockchain are investing in Bitcoin; paradoxically, those who are expecting it to become the majority are also investing in Bitcoin because that is the only way they will be able to buy the Segwit2X coin when it becomes available.

A further reason for the increased demand for Bitcoin and other cryptocurrencies is because of interest from Japan and the Far East. Bitcoin and digital currencies have now become mainstream assets on Japanese markets, and high profile institutional and retail traders have started to engage in Bitcoin and cryptocurrency trading. The Japanese Bitcoin exchange now accounts for 61.2% of global Bitcoin trading, more than double the trading volume of the US.

Questions may be asked as to why Ethereum has not seen the same rise in value as we have seen with Bitcoin, and, to a much lesser extent, with currencies like Litecoin.

One reason certainly is that Bitcoin has become such a big story that it has sucked demand away from other digital currencies. There are also ongoing hacking and security concerns about Ethereum. Last year an online hack saw US $53 million drained from one of their networks, and there are continued concerns that the blockchain is still vulnerable to online attacks.

There is also an argument that says that the Ether coin is actually less important to the Ethereum project than the blockchain itself and the concept of the smart contract. That makes the currency less subject to wide fluctuations and market sentiment.

On the positive side, some market analysts predict that it is a matter of time only. Wait a year or so and we will see Ethereum start to rise strongly in value like Bitcoin.

The current market boom for cryptocurrencies is all driven by Bitcoin. Whilst there is clearly evidence suggesting that institutional investor interest in the US and the Far East is now making digital currencies a mainstream asset, there is still plenty of speculation that the current price surge is a bubble and a crash may be imminent. Certainly it will be interesting to see what happens after the Segwit2X hard fork and whether that has any impact on the long-term price of Bitcoin and the market as a whole.

Whatever happens, this is likely to be a fascinating market to follow in the weeks and months ahead.

Altcoin Review

Altcoin (the abbreviation for alternative coin) includes any coin created after Bitcoin. There are currently over 1,000 altcoins available, although many will prove short-lived and few can expect to compete with Bitcoin.

The following are the main current altcoins.

Ethereum

Although regarded as a major cryptocurrency in its own right, Ethereum is technically classified as an altcoin. Whilst Bitcoin primarily runs online peer to peer electronic cash system, the Ethereum platform supports any decentralised application. This means its potential uses expand far beyond digital currency, which is why so many multinationals are looking for ways of exploiting the potential of the Ethereum blockchain, particularly the concept of the “smart contract”, essentially a computer program that is executed when all its conditions have been met.

Instead of mining for Bitcoin, in the Ethereum blockchain miners work to earn Ether, a type of crypto token that underpins the network.

Ripple

Ripple is both a digital currency and an open source payment network, which connects banks, payment providers, digital asset exchanges and corporate entities via RippleNet. The aim of Ripple is to build and expand on the decentralised digital currency approach adopted by Bitcoin. Its settlement infrastructure technology is used by companies like UPS and Santander, who perceive its advantages over Bitcoin and other cryptocurrencies to include price and security.

Litecoin

Similar to Ripple, Litecoin is an open source, decentralised global payment network. The peer-to-peer internet currency facilitates instant, almost nil-cost payments to anyone in the world. One advantage of Litecoin compared to Bitcoin is that its blockchain is capable of handling higher transaction volumes. This is because blocks are generated more frequently, allowing the network to support more transactions. The Litecoin network is scheduled to produce 84 million Lite coins, which is 4 times more than the number of Bitcoins which will be mined.

Dash

Dash is a digital currency that allows for instant transactions to be made in complete privacy. Whilst it is based on the Bitcoin software, it has a two-tier network which improves on it, allowing users to remain anonymous.

Bitcoin requires all transactions to be published to the blockchain, meaning it is possible to trace who has made them and to whom. Dash gets around this problem by uses software which anonymises the data. In addition, Dash transactions use the Masternode network to confirm transactions which occurs almost instantly. This is a big improvement on Bitcoin, where confirmations can take a long time because all the work is being done by miners.

NEM (XEM)

NEM (New Economic Movement) was created by a group of enthusiasts who wanted to create a community-orientated cryptocurrency from scratch, with one of their avowed aims being to address wealth inequality. Unlike the vast majority of other cryptocurrencies, NEM has its own source code. NEM introduced the concept of “proof of importance” whereby a user’s wealth and number of transactions are used to timestamp transactions. The NEM blockchain software is used in Mijn, a commercial blockchain currently being tested by banks and financial institutions in Japan and elsewhere.

Ethereum Classic

When a major theft of funds occurred, the Ethereum community fractured as to the best way to deal with it. A majority wanted to change the code to allow the funds to be recovered. However, a minority believed that it was against the spirit of the original project to change the code or allow third parties to interfere with it. This minority created the Classic version of Ethereum which continues to thrive.

Blockchain Review – the most popular blockchains

A blockchain has been defined as a distributed, decentralised ledger and peer-to-peer network which uses a defined, consensus mechanism to prevent modification of an ordered series of time-stamped records. From its initial introduction with Bitcoin in 2009, the potential of blockchain technology has continued to grow rapidly, and can be found in an increasing number of applications.

The most popular blockchain/distributed systems include:

Bitcoin

The introduction and implementation of Bitcoin – and all the digital currencies that have since followed it – was made possible by blockchain, which was the ground-breaking technology behind the whole cryptocurrency boom. Bitcoin focuses on one area of the blockchain technology, which is to run an electronic peer-to-peer electronic cash and payment system. Since 2009, the Bitcoin blockchain has operated without significant disruption, with any problems that have arisen being due to hacking or mismanagement, not with issues in the underlying system and code.

Ethereum

The second most popular cryptocurrency by market capitalisation, the Ethereum blockchain has much wider application than Bitcoin, in that is concerned not just with digital currency but with running the programming code of any decentralised application. Unlike most blockchains which limits the changes that developers can make, Ethereum allows them to create almost endless applications.

At the heart of the code is the “smart contract”, a legal agreement that a user and service provider, which acts like a computer program that is automatically executed when specific conditions are met, and which runs on the blockchain platform. Unlike Bitcoin, which is essentially passive, Ethereum is active with its own programming language, Solidity. The much wider possible applications of the Ethereum blockchain have got many major firms and governments interested in the technology.

Monax

Formerly known by the name Eris:db, Monax is an open-source platform which aims to extend the functionality of Bitcoin. Monax encourages developers to build, ship and run blockchain-based applications for business ecosystems. Deloittes, PWC and Accenture are among the firms who are running applications using Monax technology.

Chain Core

Chain Core is a blockchain platform which defines how assets are issued, transferred and controlled on a network. It uses a permissioned (meaning that the network is private and users have to apply to join) blockchain infrastructure), and can interface with existing core financial systems.

Openchain

This is an open source distributed ledger system for the issue and management of digital assets. It differs somewhat from traditional blockchain technology in that transactions are chained with one another, rather than grouped into blocks. Openchain provides instant confirmation of transactions, has no mining fees, and is highly scalable.

Hydrachain

Hydrachain is an Ethereum extension for creating permissioned distributed ledgers, aimed at the private client market, with the concept of the smart contract in mind. Its customers are typically those who are looking to the Ethereum blockchain to save costs, make business processes more effective, and create new innovative products.

Multichain

Multichain is an open-source blockchain platform for multi-asset financial transactions based on the Bitcoin blockchain. It is essentially a software tool for managing web assets and legal contracts, and is intended for banks and other financial institutions that previously have had concerns about the stability of the Bitcoin blockchain.

RegTech – the growing technological revolution

One of the fastest growing sectors of the FinTech revolution is RegTech, a phrase coined as recently as 2015 by the UK’s Financial Conduct Authority (FCA). RegTech is a portmanteau word which describes how technology is being applied in the financial services sector to address the challenges associated with increased regulation and compliance requirements.

The need for RegTech has its antecedents in the 2008 global financial crisis. In the wake of the events that saw the world’s financial markets on the verge of a total collapse, governments and regulators were determined to try and make sure that such events could not happen again. New rules and regulations were introduced, and sanctions for non-compliance on banks and other financial institutions became much tougher. Compliance, previously a secondary, back-office function, began to play increasing a leading role in banking strategy and operations.

Faced with a raft of new regulatory measures and with the financial risk of non-compliance increasing exponentially, banks and other such financial institutions began to look to technology as a way of the meeting the new challenges they faced. At the same time, with the rise of new agile FinTech rivals starting to encroach on their traditional markets, these banks also looked to technology as a way of reducing the cost of their business processes, allowing them to compete with these newcomers.

Regulation applies equally to all organisations – pension funds, hedge funds, asset managers, insurance companies, as well as banks – irrespective of their size, scale or scope of operations. The volume and pace of regulation means that even the best-resourced firms are struggling to cope – which is where RegTech comes into the picture.

RegTech aims to drive down costs and improve processes by harnessing technology. It provides a way for institutions to respond to rapidly changing regulatory obligations more cheaply, effectively and accurately than they have ever managed before.

Many RegTech providers use the word agility to describe how their products use techniques like advanced analytics and assessment to teach systems how to “learn” and support both new and emerging regulation, with neural networks helping predict customer behaviour and fraud.

RegTech solutions tend to be cloud-based, which means that data is remotely stored, managed and backed-up.

Examples of RegTech tools include Tableau, Hadoop and Pentaho, which all are designed to organise vast amounts of data, and allow the creation of bespoke reporting which is flexible enough to meet the needs of both current and future regulatory requirements. Tableau, for example, is a visualisation tool which makes it easier to look at data in order to identify trends, and, from a compliance viewpoint, identify anomalies, even down to the individual customer transaction level. Hadoop is an open-source software platform for the distributed storage and processing of very large sets of data, whilst Pentaho is a data integration solution which aims to turn information into insights.

In the short-term, RegTech will help firms automate the more mundane compliance tasks, and reduce the operational risks associated with compliance and reporting requirements. However, longer-term its proponents hope it will empower compliance functions to make informed choices about the risks they face and how to manage and mitigate those risks.

Blockchain – the technology of the future?

Although originally known as the technology behind bitcoin, blockchain’s potential extends considerably beyond cryptocurrencies, with major tech firms and banks among the many organisations which are actively looking at ways of exploiting the concept for wider uses.

In simple terms, blockchain is a distributed public ledger – a consensus of shared, replicated and synchronised digital data which is spread remotely across multiple sites, countries or institutions rather than being held centrally in one place, such as on a server. Instead of using a middle man such as a bank to make a transaction, blockchain removes the need for third party intervention, allowing consumers and suppliers to connect directly with each other.

By using cryptography to keep exchanges secure, a blockchain provides a “digital” record of transactions that everyone on the network can see, the network in this case being a chain of computers all of which must approve an exchange before it can be verified and recorded.

The potential applications of blockchain are vast, and include any type of transaction that involves value, including money, goods and property – such as tax collection, trading in securities, birth, wedding and death certificates, even nuclear codes!

By way of illustration, here are just a few applications where blockchain technology can be expected to have a major impact on business.

Smart Contracts

Although the term “smart contract” was first used in 1993, it gained popular currency with the Ethereum platform, the best known of the digital currencies after bitcoin. A smart contract is essentially a computer protocol which facilitates and enforces the performance of a contract. It is akin to a computer program that is automatically executed when specific conditions are met. And, because they are run on the blockchain platform, contracts will be executed just as programmed – with no possibility of downtime or third party interference.

Smart contracts can be used for any form of financial or legal transaction, offering total security at minimal cost.

Cloud Storage

Current cloud storage is similar to banking in that it relies on trusted third parties to act as intermediaries and to hold secure, private data. This makes it an ideal application to be replaced by blockchain, where data can be stored on dozens of individual nodes distributed around the globe, rather than in a regional data center which represents a potential single point of data.

With a blockchain, no third party controls user data or has access to user files, ensuring total privacy. There may also be the possibility of considerable cost savings for users, freed from dependency on major cloud capacity suppliers like Amazon.

Supply Chain Efficiency

Most businesses sell products that are not made by a single company but by a chain of suppliers who sell their components to a single company that assembles and makes the final product. The issue with such a supply chain is that if there is a problem with one of the components, the whole brand or product can be affected, and the efficiency of the system compromised. With blockchain technology, digitally permanent records, which can be verified and approved, can be created to show the state of the product at each stage of the value chain, allowing individual suppliers to be paid for their part, irrespective of issues with the “chain” as a whole.

Employee payments

With its roots in crpytocurrencies, it is logical for blockchain to be considered as a means of paying employees – for example, if a company has overseas employees or contractors. Incorporating bitcoin in the payroll process, for example, could eliminate costly fees associated with bank transfers, as well as the time delays associated with moving money from one country to another.

Online Voting

Blockchain is seen as a way of bringing the voting process into the 21st century, whilst guarding against election fraud. By providing an online, secure means for people to place their votes, blockchain can allow voters the means to safely record their votes without revealing their identity or political preference. In turn, officials can count votes and have confidence that each vote is attributable to one voter only, no duplicates or fakes can be created, and no tampering can take place.

Blockchain technology is here to stay. While it may have had its origins in bitcoin, the concept of a distributed public ledger which eliminates the need for intermediaries whilst offering enhanced security and privacy has many wider applications and potential, and its uses in many different fields – health, government, information technology, security, legal, human resources, to name but a few, as well as financial markets – appears to be endless. As such, we can expect it increasingly to become a common phrase in the lexicon of business, as more people look to embrace the concept and expand what can be done with the technology.

Why you need to separate personal and business expenses?

Introduction

One of the biggest mistakes small business owners make is not keeping personal and business funds, assets, and expenses, separate. This can get them into a lot of trouble with tax authorities, and, in some cases regulators; one of the most common reasons, for example, that small legal and accounting practitioners get hauled up before disciplinary bodies is due to a failure to maintain a clear distinction between client, and personal and business, accounts.

Human error can, and does, occur, and the odd transaction can be paid from the wrong account, or posted to the wrong ledger. However, to avoid potential tax, legal or other consequences, it is important to create a system to ensure that the personal is separated from the business as much as possible.

There are, of course, those who deliberately look to mix the two. A recent report (http://ajd.consulting/2017/10/04/new-report-highlights-reasons-for-tax-evasion/) highlighted the fact that there are people who habitually indulge in low level tax evasion, such as those who claim personal items as business expenses, or buy assets for the business, such as laptops and printers, which they then take home for personal use.

However, these people are likely to be the exception not the norm. In most cases, the opposite behaviour will occur, and a small business owner pay for a business expense from personal funds. Whilst such actions are understandable – in their mind their business may be inseparable from them – it is important to mark the distinction. The business and the individual are not one and the same.

Maintain Separate Bank Accounts

The first set is to establish separate bank accounts for business and personal expenses, with separate debit, and where necessary or applicable, cheque books and credit cards as well. Any income earned from the business should be put straight in the business account and any income from personal sources – wages, dividends, interest etc. – should be paid into the private account.

Don’t Mix Up Payments and Expenses

Make sure that business and personal expenses are paid from the right account – whether it be by bank transfer, cheque or card. Business payments by cash should, wherever possible, be avoided, unless it is items of a very minor nature – for example, taxi fares. or refreshments – as such transactions can have potential tax implications. However, if you must make a cash payment, note whether the payment came from the business or personal account, and whether subsequent reimbursement is required.

Remember also that paying a business expense with a personal cheque or debit cards just looks unprofessional; it gives the impression you are not a real or serious business person.

Maintain Accurate Records

If you want to claim expenses as business related, you need to keep an accurate record of when and where the money was spent and for what purpose. Whenever possible, get an invoice and keep this on file, perhaps with a simple note explaining the nature of the expenditure.

This is especially true of any travel-related expenses – airlines, hotel bills, restaurant and entertainment expenses. Tax authorities are notoriously tough on such items and will look to argue that, wherever possible, such expenses are personal rather than business. Record the details of your trip, who you met and for what purpose. You may need to build a case that such costs are eligible as business deductible.

Separate Billing

Particularly when working from home, it can be difficult to separate the personal from the business. Try to create a separate identity for each. If, for example, you use a room in your house as an office, create a written agreement renting the space to your business. Get a separate phone number for the business, and make sure it is listed accordingly. Similarly with a mobile phone. Always ensure, as much as possible, that calls of a personal nature are not made or received on the business phone and vice versa. Ensure the billing for the business phone is in the company name.

All business expenditure should be billed in the company name. Where your office is located outside your home, ensure this address is used on the invoice. And, if your business has a VAT number, try and see that this is included as often as possible on any supplier invoices (you may also need it for any B2B transactions with any supplier in the European Union). In other words, make sure that everything possible is done to distinguish expenses as clearly belonging to the business.

Contributing Assets to the Business

If you put money into the business in terms of assets or cash, distinguish how the investment is to be treated. If it is a loan, create a short agreement between you and the business, stating the main terms, interest rate (even if it is considered interest free), and repayment conditions.

Taking Money Out of the Business

If you want to take money out of the business, pay yourself a regular salary, and make sure that it is reasonable in terms of what the business can afford. Remember that the money in the business does not belong to you; provision needs to be made to pay taxes, suppliers, employees and other stakeholders. It is also worth bearing in mind that drawings from a business, especially in a start-up phase, may need to be minimised whilst the company gets on its feet.

Summary

Keeping personal and business expenditure separate is both necessary and important. Necessary because it will protect you from action by tax authorities and regulators; important because you need to understand the true profitability of your business, and this is impossible to do if income and expenses are mixed. Get into the right habits, differentiate and clearly label what is personal and what is business, and, where necessary, document what you have done.