News roundup: October 2018

Austria and JPMorgan pull major blockchain manoeuvres. Plus, banks mull prospect of shifting key activities out of UK amid Brexit jitters

Austria becomes first-ever nation to issue government bonds on blockchain

A watershed moment for capital markets arrived on 2 October, with Austria becoming the first-ever country to issue government bonds with the aid of blockchain technology.

To execute the auction, Austria’s national treasury department, the OeBFA, enlisted technicians at central bank the OeKB to develop a notarisation service that would record transactions for the bonds and store them on a blockchain ledger. In addition, the system was designed to stamp each bond document with a unique, electronic fingerprint called a ‘hash’, to guarantee authenticity. The assets released in the auction were worth a total €1.15bn.

OeBFA chief Markus Stix said: “The Republic of Austria has a long tradition with regards to innovative capital market solutions: in 2012, Austria was the first sovereign worldwide to introduce dual-syndications for new government bond issues, and in 2017 [we issued] the longest government bond in the world… in the form of a 100-year government bond. We are pleased to take on another pioneering role… this time with regard to fintech.”

Explaining why the OeBFA specifically chose blockchain to support the auction process, Stix noted: “This additional layer of security helps to underpin confidence and trust in the auction process, and further strengthens the good standing of Austria on the capital market. [It] could indirectly also help to minimise funding costs.”

More than 75 banks sign up to JPMorgan blockchain venture

An ambitious blockchain network devised by JPMorgan to expedite financial transfers has undergone a dramatic expansion, attracting more than 75 participant banks.

Following its debut as a low-key pilot scheme in October 2017, the Interbank Information Network (IIN) has now amassed the largest number of banks ever to join a live application of blockchain technology. According to JPMorgan, IIN “minimises friction in the global payments process, enabling payments to reach beneficiaries faster, and with fewer steps”.

To create IIN’s infrastructure, JPMorgan developed its own, permissioned variant of the Ethereum blockchain, called Quorum. The software reduces the time that correspondent banks currently spend processing compliance and other, data-related inquiries that typically hold up payments. The expanded network of participant banks will now facilitate cross-border payments in every major market.

JPMorgan Treasury Services head of global payments and receivables Emma Loftus said: “We saw tremendous interest among correspondent banks after the pilot launched in 2017, asking if they could join. We believe IIN will significantly improve the efficiency of cross-border payments, particularly as more banks participate and we evolve the functionality and use cases beyond compliance-related inquiries.”

Brexit roundup: uncertainty prompts banks to rethink UK presences

Overseas institutions with UK offices are mulling moves out of Britain amid the uncertainty of Brexit, with taxation levels becoming a key factor in their strategic thinking, according to a new report from trade body the Association of Foreign Banks.

Published in September in partnership with law firm Norton Rose Fulbright, the report says: “A number [of respondents] expressed their concern at the UK’s current level of taxation, with the 8% bank corporation tax surcharge for profits above £25m being a particular issue. The policy is viewed as an overtly aggressive levy, with one respondent saying that the government should consider introducing a tiered system, which would help reduce [the current] adverse impact on banks’ capital growth and, therefore, lending.”

The reports adds: “Some banks’ expansion plans include focusing on countries outside Europe and – given various non-European jurisdictions have what are seen as taxation and cost advantages – it may become increasingly attractive in the future for banks’ UK operations to be relocated to these non-EU entities.”

Read the full report here.

On a similar theme, Financial Times coverage indicates that Paris is set to supplant London as the location du jour for the trading arms of several, heavyweight finance brands – with Bank of America (BofA) and Citigroup leading the way, and BlackRock and JPMorgan not far behind.

Indeed, the report notes, BofA ramped up its Brexit preparations over the summer “by announcing details of a new Paris trading floor with room for 1,000 staff”.

Former French central bank governor Christian Noyer, who is leading efforts to woo banks’ trading divisions to his nation’s capital, told the FT: “I think banks and asset managers will try to concentrate trading operations in one EU location. That doesn’t mean London won’t remain the biggest financial centre. [But] Paris could become the big trading hub in continental Europe.”

Meanwhile, another FT report indicates that European banks are “fearful” of losing access to “critical” clearing markets in the event of a no-deal Brexit – adding to the pressure on regulators to devise transitional measures.

As the report says: “Concern has been growing [among EU banks] that some [clearing] contracts, such as steel or some types of FX contracts, cannot easily be moved because EU clearing houses do not have the licences to accept the contracts, according to conversations with 10 clearing house and derivatives executives.”

Those industry figures also pointed out to the FT that other contract types, such as Brent futures, are typically traded and cleared only in London.

UK loses almost £150m to APP fraud in first half of 2018

Authorised push payment (APP) scams were responsible for a significant slice of the UK’s fraud losses in the first half of 2018, according to data from UK Finance.

The trade body’s figures show that APP cases accounted for £145.4m of fraudsters’ £500m haul in the period, with £52.5m appropriated from ‘non-personal’ – ie, mainly business – accounts. In total, there were 2,518 non-personal APP cases during H1 2018, with a further 31,510 in the personal-accounts market.

As The Treasurer has previously reported, APP scams are a low-tech form of financial crime, in which victims are duped via common forms of communication – typically emails – into making large-scale fund transfers to accounts that later transpire to be owned and managed by fraudsters. The new figures indicate that 63% of the UK APP frauds carried out in H1 were purchase scams. While CEO fraud comprised the lowest number of APP cases, it nonetheless carried the largest, average case value of £23,055.

Tony Blake, head of fraud prevention at Dedicated Card & Payment Crime Unit, said: “Criminals are after your money and they are clever at getting it, impersonating people and organisations to groom even the savviest into acting.

“If you get a call, text, email or social media message asking for your personal or financial details or to transfer money, it could be a scam – so stop, think and Take Five. Check every request is genuine by doing some research and contact the organisation using the details from their official website, a latest bill or statement.”

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