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Stablecoins to be tightly controlled in the UK – Industry roundup: 25 July

Stablecoins to be tightly controlled in the UK as a portion of its Finance Bill

The UK government's decision to include stablecoins under regulatory oversight as part of the newly released Financial Services and Markets Bill has reportedly been praised by fintech companies and suppliers of digital assets. Reports indicate that this is the first time that a cryptoasset will be officially addressed under the UK’s licensing process. While some cryptocurrency businesses are subject to UK anti-money laundering regulations, stablecoin issuers who wish to use their currencies as payment will be expected to apply for a license from the Financial Conduct Authority (FCA).

Blair Halliday, Head of UK’s crypto exchange Gemini, commented that this is a positive step in recognizing the vital function that these assets will play in the economy and financial system in the future. Reports indicate that the Irish Central Bank recently registered Gemini as a virtual assets service provider, the first crypto company to receive this comparatively new license in Ireland.

Introducing stablecoins under the regulation is said to be a significant step forward according to Harry Eddis, Global co-head of fintech, Linklaters law firm. Eddis further stated that additional legislation is also likely to be proposed, and that the new stablecoin regime's narrow scope reduces the initial impact, but that a consultation later this year will review continued expansion of the regulatory net into the crypto sector.

This new bill has been called one of the first significant financial regulatory actions after the UK exited the European Union. Additionally, the UK's AI Rulebook, which outlines the country's plan to impose ethical standards on the use of artificial intelligence, is being published at the same time. The reports state that while the UK's proposals acknowledge the same ethical issues with AI as are mentioned in EU regulations, they do so in a more decentralized and principles-based manner, which may hint at future differences between the UK and EU regulatory approaches.

Regulators are attempting to deal with substantial regulatory changes like laws over sustainable assets and greenwashing as well as the emergence of cryptocurrency and digital assets and services. Due to this, the sector has reportedly called for any regulations to appropriately strike a balance between the need for investor protection and the capacity for innovation.  While it is important for the industry's regulatory bodies to continue to be on the lookout for systemic and conduct risk, Andrew Pilgrim, UK financial services partner, EY, emphasized that the city must also make sure it does not fall behind in fostering innovation and new growth.

Financial market downturn drops fintech valuations by approximately 50%

With continuous reports of significant stock declines or poor assessments for unlisted companies, fintech companies have had a difficult year. According to CB Insights, which based its estimates on the current assessment of openly traded fintechs it tracks compared to their peak evaluation, there has been a reduction in the value of fintech companies of almost a half-trillion dollars up to this point in 2022 (most appraisals have peaked recently).

The average share price of well-known fintechs tracked by CB Insights has dropped by approximately 50% in 2022, compared to a 30% drop in the Nasdaq index as a whole. The cumulative capitalization of fintechs has decreased US $156 billion in 2022, or a US $460 billion loss (from nearly US $900 billion) if each fintech's current cost is compared to its all-time high.

As stated by Christina Ross, CEP and creator of Cube, a monetary preparation and analysis company, many fintechs, particularly those in the BNPL space (which has been hit especially hard by recent regulatory and financial pressures), have been attempting to diversify their sources of revenue in order to remain competitive. Additionally, scope-firms have been considering offering credit cards, Ross stated. In the long-term, she commented, this correction will be beneficial since it will enable these businesses to concentrate more on their core services and continue to develop products with a defined go-to-market plan.

Reports indicate that fintechs will continue to focus on practical issues such as payment processing friction, threat, or development that makes it simpler for banks to connect with one another to combine payments with other services.

Banks opt to build technology infrastructure in-house rather than purchase

According to recent research from NTT Data, the majority (nearly 61%) of corporate banks are reportedly looking to build their technology infrastructure in-house rather than purchasing from a third party due to high corporate demands for digital services.

NTT claims that the desire for more digital services and the reversal of a long-standing tendency toward buying rather than building have exacerbated this change. The report further indicated that this has created a major quandary for corporate banks when it comes to satisfying this demand. However, while the majority of banks build their technology in-house, only 22% build systems from the ground up, with the remaining 78% relying on their existing cash forecasting systems.

Corporate banking is moving faster than ever before, and technological advancements are also occurring at a faster rate, according to reports. The demand from customers is said to motivate banks to invest in cutting-edge technology like AI and automation.

Virtual banking solutions suite newly launched by OneConnect Financial Technology

OneConnect Financial Technology Co., Ltd, a Ping An Group affiliate and technology-as-a-service provider, recently launched OneCosmo, which claims to be a "one-stop" omni platform for all-in-one digital banking solutions. OneCosmo was jointly created in collaboration with Pismo, said to be one of the fastest-growing banking Software-as-a-Service (SaaS) companies based in Brazil.

After establishing a strategic collaboration earlier in April 2022, OneConnect and Pismo have now launched OneCosmo as a result of their combined product offerings. The suite of solutions offered by OneCosmo, which is said to make use of cutting-edge technologies like AI, ML, blockchain and microservices, is reportedly designed to provide banks and other financial institutions a highly flexible and simple-to-integrate solution for developing digital banking capabilities.

A wide range of services under its solutions will include digital identity verification, core banking, digital payments and digital loans. Reports indicate that the platform's highly versatile APIs and microservices will enable simple integration with various third-party service providers as well.

Due to pre-integrated and pre-configured capabilities, prospective users can expect to fully onboard themselves onto its platform in a matter of weeks.  Additionally, financial institutions can modify the solution package to meet their own requirements while also having the flexibility to operate with existing technology. Financial institutions can expect to use real-time data streaming to gain a better understanding of consumer behaviour through data analysis.

According to Gartner research, the cloud services sector increased 18.4% in 2021 to a total valuation of US $304.9 billion, up from US $257.5 billion in 2020. MarketsandMarkets research also revealed that the SaaS market is growing at an 18% annual rate. OneCosmo is currently available in Southeast Asian countries such as Thailand, Malaysia, Indonesia, the Philippines and Singapore, with plans to expand its offerings to Middle Eastern financial institutions.

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