The financial world in 2084
The financial world in 2084/Adv.Ido Kosover
In his well-known book “Nineteen Eighty-Four”, also published as “1984”, George Orwell (pseudonym) did well to create a fascinating story, on a vision of the future. Orwell “predicted” 35 years ahead of 1949 and described how the residents of the totalitarian state, “Oceania”, lived under the watchful eye of “the big brother”.
In every room, there was a “Telescreen” – a screen that documented every moment of every day, 24/7. The big brother saw everything and knew everything. Oceania residents were even forced to use a new language, called “newspeak” – a language that its content and limits were set by the governing party (through the big brother) in order to limit the vocabulary of Oceania’s residents and in that way to limit and control their minds.
The careful reader can slowly notice the forming cracks in the absolute rule of the big brother. A room corner in which one can avoid the telescreen’s eye, the constant attempts of the party’s representatives to rewrite history while other party members are straying out of the way or when “problematic” news keeps reappearing.
The book is relevant to the financial world today, and in fact – expresses the constant conflict between the ruler’s aspiration to control, and the individual’s longing to thrive while preserving its privacy.
The Fintech industry is developing at a dramatic pace.
These days, we are predicting a collision between the new financial world and the old one. The fintech industry is developing at a dramatic pace, providing more and more efficient alternatives to traditional financial institutions.
This industry, and first and foremost the digital currencies, is having the regulators around the world working overtime. In a never-ending cat and mouse game, governmental authorities and traditional banks are trying to monitor, and even fence, this new financial activity while attempting to trace its origins.
Over the past 10 years, we can witness some dramatic regulatory intervention and enforcement proceedings, in order to monitor any “unconventional” financial activity, such as the American FATCA law, the OECD’s CRS (Common reporting standard), limitations on the use of cash, enforcement steps that were made toward some banks that supplied to their customers “discrete” services for decades, etc.
Every such action introduces new monitoring methods in the name of “Compliance” (which sounds slightly ironic, put in the context of Orwell’s book).
New challenges in the Fintech Industry.
On the other hand, the developers, investors and customers of the Fintech industry are stubbornly fighting for their right to operate privately and independently of the traditional financial system, without being subordinated to its unnecessary costs.
Blockchain Industry challenge.
So far, each country deals differently with the new dilemmas that stimulates the financial world’s collision. On the one hand, one can point to China (controlled by the communist party), which was the first to enact a law, whereby any activity related to the blockchain industry must be monitored by the state institutions and get their approval; or the state of New York, that is known for its restricting mandatory licensing process (Bit license).
On the other hand, countries such as Switzerland and Malta allow the market to operate more freely, in both business and technological advancement.
Sygnum and Seba – two corporate entities which basically operates as crypto banks have obtained a banking and securities dealer license from the Swiss Financial Market Supervisory Authority (FINMA).
The local countries are adjusting financial legislation and regulations.
Switzerland is also in the process of adjusting its financial legislation and regulations to fit the new technology. Major companies all over the world recognize this welcoming approach and act accordingly.
This is probably why Facebook also decided to house its Libra cryptocurrency foundation in Geneva. Malta, for instance and unlike other countries, demand only registration of companies who are active in the field of cryptocurrencies but did not set so far any licensing requirement.
And within that range, between China and Switzerland, there are many wondering countries, such as Israel, where government authorities have not yet asserted a clear position in many areas of the new financial world.
The right hand does so, and the left one does otherwise. One authority permits some type of activity and another authority prohibits it. That way, for example, the use of cryptocurrencies is not prohibited in Israel, yet in practice, most of the Israeli Banks – as a matter of policy – do not allow their clients to receive money (in Fiat currencies) which its source is cryptocurrencies activity, or even relates, directly or indirectly to the cryptocurrencies industry.
Similarly, there are businesses and companies who operate in the Fintech area under a very extensive and restricting regulations and licensing requirements and yet there are banks in Israel that refuse to supply them with basic banking services claiming that those companies activity “might” be suspicious in terms of AML monitoring (anti-money-laundering).
Our law firm recently dealt with numerous cases such as this and it seems that so far nothing changed and seems unlikely to change in the near future. In many cases there is no other option than addressing courts and ask for their approval in order that the bank will be satisfied – and “not responsible” anymore for the consequences of the client’s activity in the account (because of the court’s approval) – and only then the bank lets the client to use his bank account freely.
In light of the above, it seems that the regulators must recognize that avoiding from making a decision or forming a policy, is a policy in itself – and not a very good one. And sticking to storytelling, even in the famous “Matrix” trilogy – where the supercomputer knows everything and sees everything – there was the world outside the Matrix.
The regulators should avoid being compared to the big brother.
Meaning that people will always strive for privacy, for independence, for being free from the big brother’s watchful eye. The regulators should avoid being compared to the big brother or any super computer, they should take a braver and more significant approach toward the future or at least to provide to the market clear and unified guidelines without slowing down its development.
With the understanding that there will always be cracks in their regulation – the world that is outside the Matrix. That would not be necessarily something to worry about. It might even be desirable.
About the Author: Adv. Ido Kosover.
Adv. Ido Kosover is a founding partner at the Israeli boutique law firm of Sluki Kosover & Co. (https://slkvr-law.co.il/)
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