W&F October 2017

Wealth & Finance International - October 2017 5 Research shows that UK financial services sector risks non-compliance and €5m fines through lack of awareness, according to research from NPL. New research from NPL, the UK’s National Measurement Institute, has shown a lack of awareness in the UK financial services sector around the new European Markets in Financial Instruments Directive (MiFID II) ahead of its imminent deadline and many firms may fall short of compliance by employing inefficient means of timestamping. The regulation, set to be implemented on 3 January 2018 will aim to provide harmonised regulation to improve transparency in trading across the Eu- ropean Economic Area and includes regulatory technical standards (RTS 25) that will require all trades to be timestamped to Coordinated Univer- sal Time (UTC) with a high level of precision. Timestamps will need to be accurate to within a 100 microsec- onds of UTC for high frequency trad- ing (HFT) - those noncompliant with MiFID II will risk fines of up to 5 million euros, or 10% of global turnover. According to the report, top line awareness of MiFID II is high, with 91% of those surveyed aware of the regulation itself. 75% of those claimed to know the deadline for compliance, but when asked to choose from a range of dates, two thirds (66%) chose incorrectly. Most chose dates later than the deadline meaning they would miss this, highlighting a need for further education across the industry. The research, facilitated by Cen- suswide, was based on responses from 200 professionals responsible for operations and/or regulatory compliance in the UK finance sector, including banks, hedge funds, analyst firms, investment management/advice and data centres. It demonstrates a clear will from industry to become compliant, with 89% of those aware of the regulations taking steps towards compliance. However, according to the survey, the most common method currently used for timestamping is Network Time Protocol-based Internet Time, with more than half of respond- ents (56%) employing it. This is only accurate to the tenth of a second and, while able to accommodate the requirements for human trading, such as over the phone and online, it cannot remain a solution for HFT and non-HFT, as these require 100 micro- second and one millisecond accuracy respectively under RTS 25. The survey also highlighted the con- tinued reliance on GPS for timestamp- ing, with 14% of financial services professionals responding using it, despite the majority (79%) of those experiencing issues doing so, such as drop out, loss of accuracy, lack of synchronisation and leap second issues. GPS can be vulnerable to jamming and loss of signal, and can only ensure compliance with continual monitoring and calibration to ensure that it is traceable back to UTC. The ideal method to deliver a precise time signal guaranteeing the accuracy required for RTS 25 is UTC delivery by fibre from a national timing insti- tute. Research has shown fibre optics are capable of achieving accuracy better than 100 nanoseconds. Howev- er, while a fifth of respondents are us- ing this method to keep to time (21%), only around a third (32%) of those taking steps towards compliance said they believed this to be the correct method to adopt - meaning firms could find their upgrades will still see them falling short of the regulations. Dr Leon Lobo, Strategic Business Development Manager, NPL, com- mented on the findings and what they mean for the market. “It is encouraging to see an under- standing of the magnitude of the new regulations and a clear will from the UK finance industry to shape up for the regulation. However, what is equally important is to ensure that the efforts of industry are not wasted and there is a clear grasp of what level of accuracy constitutes compliance. “Many of the current methods are problematic and opting to improve these will not guarantee the highly-ac- curate time standard which will ensure timestamps are easily certified. At NPL, the home of the UK’s national timescale, we provide the only precise time dissemination solution that is directly and physically connected to UTC – and that gives users confi- dence in their compliance, without additional monitoring and calibration needs or costs. NPLTime® is perfectly placed to meet the ever-increasing demand for precise timing ahead of MiFID II implementation in January 2018.” An ethical framework signed by finance & technology industry veterans will set out guidelines to better serve investors in token/coin sales. London Fundraising Token Manifesto A new ‘London Fundraising Token Manifesto’ created by Professor Michael Mainelli’s Z/Yen Group is being launched with the backing of the Long Finance community. The Manifesto is a voluntary code of conduct which has been created in collaboration with finance industry and blockchain technology leaders. It seeks to establish new standards for Initial Coin Offerings (ICO) and Initial Token Offerings (ITO), the fundraising mediums that allow investors to back companies using cryptocurrency. In recent months, numerous ICOs/ ITOs have been attacked by regula- tory and financial bodies across the world after a number of illegitimate fundraising rounds defrauded uninformed retail investors. This has resulted in a degree of lost confidence in the new medium and, in some locales, it has meant that ICOs/ITOs have been banned outright. To address this issue, the London Fundraising Token Manifesto has been modelled on the Chartered Institute of Investment & Securities Code of Conduct which includes eight principals including honesty, integrity, and fairness when dealing with consumers. The ICO/ITO market has attracted over $2 billion worth of cryptocur- rency investment in 2017 and has outperformed a number of established public exchanges, leading many to believe that the ICO/ITO model, and the technology that enables it, holds real potential for the future. This is the reason that industry is seeking to better define ‘best practice’ in the new crypto markets. Professor Michael Mainelli, lead au- thor of the Manifesto, stated: “Those of us in the Long Finance movement who are excited about the technology equally look to the long-term over the short. Corporate ethical frameworks and professional codes of conduct matter. Over time, ‘meum fidem, meum pactum’, ‘my word is my bond’, prevails. This proto-bubble needs a strong dose of self-regulation and we hope our Manifesto is not-so-token, but leads to real behaviour change.” Antony Abell, signatory of the London Fundraising Token Manifesto and co-founder of blockchain applications company TrustMe, commented: “The lack of confidence in Initial Coin Offerings and Initial Token Offerings is of growing concern to finance professionals who are keen to uphold standards in the City. Legitimate com- panies who have a genuine product offering and wish to access this new, more agile form of fundraising, have suffered at the expense of unscrupu- lous firms.” He added: “A high standard of transparency, clarity and integrity are imperative requirements for the ICO/ ITO industry to create a sustainable model that facilitates the rapid fund- raising needed for fast-growth tech- nology firms in a globally competitive marketplace. This must sit alongside an implicit agreement with investors to provide the information and necessary process that will create increasing trust in the integrity of ICOs/ITOs.” Mr Abell went on to state, “The City of London’s financial procedures are looked upon by many across the world as a ‘gold-standard’ to aspire to. This new area is one in which the finance industry can work together with regulators and investors to champion the best elements of ICO/ ITO fundraising process, cementing London and the UK as a leading destination for the latest cohort of disruptive start-ups.” News