This Week in Fintech ending 15 October 2021

https://dailyfintech.com/2021/10/15/66301/

This week our experts brought you the following insights based on their experience as investors, entrepreneurs & executives.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at  Kryptonio a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords and Weekly Columnist at Daily Fintech) @iliashatzis wrote Bitcoin stronger than ever

Bitcoin hit $55,000 for the first time since mid-May, as cryptocurrency prices continue to rise in October. Bitcoin exceeded $55,833 according to Coinmarketcap on Friday.

The last time it moved at similar levels was in May before it collapsed after Elon Mush tweeted that Tesla would stop accepting bitcoin for car purchases due to environmental concerns.

Editor note: Bitcoin is a fortunate pawn in the geopolitical Cold War between America and China. If China bans crypto, America will embrace the wealth producing capability of crypto.

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Part 2 Ethereum’s big transition to Proof Of Stake

A much heralded part of Ethereum 2.0 is the transition to Proof Of Stake. It may happen during 2021 or 2022.

With Proof Of Stake, users validate transactions based on the number of coins they hold. For example, the more ETH a user has, the more power they possess. This is not mining, it is more like voting shares. Voting eliminates the energy needed for mining and should be faster, so that transactions can be done in under 3 seconds (ie “human real time”, short enough to impact consumer behaviour, as in “did you get my payment”, “wait, OK I see it, thanks”).

Proof Of Stake (POS) appeals to the financial establishment for 4 reasons.

Editor note: Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote his weekly roundup of Stablecoin news.

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Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: Win Some, Lose Some in Accelerated Life Insurance Underwriting

Life insurance ownership has seen a decline in the recent past. There was an estimated $25 trillion gap between coverage purchased and needed in the event of a loved one’s death in 2016, in the US alone. Suboptimal processes might have contributed to this shortfall. Consider something as basic as getting a physical examination, often required to buy a policy. Research found that half of respondents were more likely to purchase if this invasive step was removed.

Editor note: Of course life insurers need to know our health to estimate our longevity but the physical exam is a) only a snapshot in time and b) a huge hurdle to adoption.

Christian Dreyer @x3er, the Swiss based CFA who focusses on how XBRL changes our world wrote his weekly roundup of XBRL news.

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote his weekly roundup of Alt Lending news.

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https://dailyfintech.com/2021/10/15/66301/

Alt Lending Week ending 15th October 2021

https://dailyfintech.com/2021/10/15/alt-lending-week-ending-15th-october-2021/

Consumers need to know about new financial products!

While the concept of BNPL (Buy now pay later loans) is as old as the hills the app based finance providers are not. The commentary in the cnbc piece is interesting as it exposes the fact that regulation takes some time to catch up with product development and consumer protection legislation differs widely from country to country. In fact this issue is not new at all. Regulation has always lagged behind market innovation but whereas in the past the vast majority of new products were emerging in wholesale markets and the bankers themselves were deemed to know what they were doing this does not necessarily apply to consumer finance. As usual the situation consumer protection is largely opaque. It is up to the borrower to know what their rights and protections are. Taking out a BNPL loan can effect such things as an individual’s credit score in ways which are not necessarily understood as well as complicating the relationship between buyer and seller. Caveat emptor indeed.

Evergrande – What happens next?

Chinese  behemoth Evergrande  is inevitably in the financial news more or less every day with deadlines and payments being missed with depressing regularity. What is truly astonishing about this is the sheer size and scope of its operations together with the geo political distribution of its liabilities. It’s quite clear that a potential default of this size, north of $ 300 billion, will have a significant impact on the world at large. We will presumably find out when and if it happens but the pessimistic  comment coming from the financial press is disturbing. The old and widely quoted Chinese curse “may you live in interesting times” is likely to show us all exactly what that means. The uncertainty is already making investors and lenders start to look very carefully at the opacity of the Chinese market and the possibility of a sectoral collapse in the property and construction area which has been running hot for years. Interesting indeed.

SME’s take on more debt during pandemic

It’s official then. SME’s have taken on more debt during the pandemic. We know this because the Bank of England has told us. I suspect the same thing is happening all over the European continent and with the same baleful outcomes. Seriously though what did the government of the UK or other European countries think about businesses that were essentially stopped from doing any kind of businesses. Obviously the big names hit the headlines, Airline companies, hospitality, non essential (in who’s opinion/?) retail. The Uk government’s approach was to hose them down with money so they could bounce back! I don’t suppose that much thought was given to the fact that the world would have profoundly changed when the time came to repay this debt or that the banking system would not have been negatively affected. Payback time is rapidly approaching in the traditional and non traditional sense and I don’t think that it’s going to be pretty. We all know that the government is guaranteeing most of the COVID support loans but the devil will be in the detail of the arrangements between the treasury and the distributing banks and the resources that they are capable of deploying for debt collection.  I’m afraid there will be a lot of blood on the carpet.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2021/10/15/alt-lending-week-ending-15th-october-2021/

XBRL News about sustainability reporting, proxy votes and value chain reengineering

https://dailyfintech.com/2021/10/14/xbrl-news-about-sustainability-reporting-proxy-votes-and-value-chain-reengineering/

Here are the three most relevant developments in the world of structured reporting we became aware of in the course of last week.

1  Ep. 5: Jason Meyers on Continuous Audit and Real-Time Reporting

Jason is currently developing the only known use case of blockchain for the auditing industry with AuditChain, and bringing some much needed change with real time assurance and financial reporting. If Satoshi Nakamoto will go down in history as the inventor of the world’s first peer to peer payment system without central intermediary with Bitcoin, Jason will be remembered for being the pioneer of decentralized continuous audit.

Listen to this at your own peril if you’re currently engaged in state-of-the-art financial reporting. Auditchain provides an (the?) infrastructure for reengineering the full reporting value chain, in which XBRL plays a crucial role. Note that the author has a commercial interest in this. 

2  SEC proposes enhanced, structured disclosures on proxy votes

XBRL looks set to be deployed for reporting on funds stewardship in the US, facilitating access to information on how asset managers are voting at AGMs. The US Securities and Exchange Commission (SEC) has proposed rule changes to enhance the information disclosed by investment funds about their proxy votes, in the form of amendments to its Form N-PX. Crucially, in addition to improvements to the content of disclosures, it would require filers to use “an XML structured data language.” 

Proxy voting behaviour by asset managers is an important piece of information in the assessment of their engagement activity, especially when monitoring for greenwashing. This information is currently accessible through tedious manual labour only. This proposal will hopefully change that.

3  Insights on reporting the business model, sustainability risks and opportunities

​​Following a collaborative effort in the review of reporting practices and gathering stakeholder feedback, the PTF-RNFRO, whose focus was on the reporting on sustainability risks and opportunities and the linkage to the business model- a key element of a proposal for a Corporate Sustainability Reporting Directive (CSRD)- has published its findings in a Main Report and Supplementary Document with good reporting practices.

Although rife with Eurospeak acronyms, these insights indeed provide helpful pointers to current best practice in business model and sustainability reporting, which – admittedly – is a dynamic space.

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

 New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2021/10/14/xbrl-news-about-sustainability-reporting-proxy-votes-and-value-chain-reengineering/

Win Some, Lose Some in Accelerated Life Insurance Underwriting

https://dailyfintech.com/2021/10/14/win-some-lose-some-in-accelerated-life-insurance-underwriting/

Life insurance ownership has seen a decline in the recent past. There was an estimated $25 trillion gap between coverage purchased and needed in the event of a loved one’s death in 2016, in the US alone. Suboptimal processes might have contributed to this shortfall. Consider something as basic as getting a physical examination, often required to buy a policy. Research found that half of respondents were more likely to purchase if this invasive step was removed.

Life insurance underwriting has traditionally been a manual process. From collecting proof of insurability to assessing mortality risks of individuals, the application process can be overly tedious. In recent years, there has been a marked shift to accelerated underwriting (AUW), which waives underwriting requirements for select applicants. Most limit the scope of AUW to term life with face amounts between $100,000-$1 million and applicants in 18-60 age range. The pandemic sped up the adoption of AUW as the industry took to writing policies based on new technology, with less in-person contact.

On average, companies with acceleratated programs take 3 days (from application arrival) to reach the medical questionnaire – versus 8 days for traditional underwriting. For the final decision, the mean estimate is 9 days – versus 27 days for traditional underwriting.

While accelerated underwriting waives traditional requirements, automated underwriting automates underwriter activities. Most companies report that AUW programs have reduced policy issuance time.

Top (re)insurance companies have developed AUW platforms in which the underwriting manual is embedded as automated rules. Built on modern standards, these typically include workbenches to support workflow, APIs to incorporate third-party data and modules with cutting-edge AI (e.g. natural language processing). On some platforms, 90% of applications are processed within minutes, and a mere 5% percent require human touch.

Most accelerated pathways today are limited to simple products like term insurance policies. Fluid-less options are available only to relatively few customers who fit age and face-value requirements. In several cases, such limitations are aggravated by additional medical criteria with insurers choosing to accelerate only high-quality risks.. Consequently, many customers that start on an accelerated journey have to move back to a traditional manual underwriting path, leading to increased frustration.

One of the toughest challenges life insurers face when adopting AUW is determining how to compensate loss of information previously derived from tests. Insurance exams and fluid specimens reveal important evidence for risk assessment of life insurance applicants. Fluid-less underwriting gives up this value and carriers are exploring ways to offset the loss.

An example is Hannover Re that is collaborating with ExamOne, a Quest Diagnostics Company, to incorporate its LabPiQture data into Hannover Re’s AUW to enhance their automated capabilities and cut issuance time. ExamOne provides access to a comprehensive suite of real-time laboratory data – serum biochemistry, microbiology and toxicology – in a digitally standardized format.

The data and models used in AUW pose new risks for insurers. Assumptions about factors affecting mortality need further testing. Although medical data may be better correlated with mortality, behavioral data such as gym memberships, shopping habits, wearable technology and credit scores may lead to questionable conclusions. A high-income individual, perceived as someone with excellent medical care, may also have the resources for illegal drug use. On the contrary, a healthy young couple with lower disposable income to join a gym, may exercise on their own. The lack of a gym membership or lower income may not construe an increased mortality risk.

The approach of several companies’ accelerated or automated underwriting programs has been cautious, partly because insurers have taken an incremental approach to scaling automated decision making. These companies are opting for modest improvements to their risk frameworks and processes. With growing adoption and rising maturity, many more will look to embark on transformative programs.

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https://dailyfintech.com/2021/10/14/win-some-lose-some-in-accelerated-life-insurance-underwriting/

Stablecoin News for the week ending Wednesday 13th October.

https://dailyfintech.com/2021/10/13/stablecoin-news-for-the-week-ending-wednesday-13th-october/

How will Stablecoins be regulated?

Here is our pick of the 3 most important Stablecoin news stories during the week.

It turns out everything is regulated, if it’s not it’s called self regulation, and that is how the stablecoin industry has been up until now.  In pure numbers, you would say it has worked well.

Firstly, this week we heard from the Central Bankers Bank, the Bank for International Settlements’ (BIS) which says stablecoin payment systems should comply with international standards for payment, clearing and settlement.

A new report published Wednesday by the BIS Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) includes preliminary guidance on how to apply the Principles for Financial Market Infrastructures (PFMI) to stablecoin arrangements.

BIS Outlines How Stablecoins Could Comply With International Money Standards — CoinDesk

Then there are jurisdictional differences.  The Financial Stability Board (FSB) — an international body that monitors and makes recommendations about the global financial system — this month said that countries’ implementation of its recommendations for “global stablecoin” regulations was “still at an early stage” and international coordination was critical to overcoming regulatory arbitrage.

How Global Stablecoin Regulations Are Evolving (forkast.news)

But stablecoins are not just used for payments, they are more than money – they’re programmable money! There’s a difference between the tokens themselves and the issuers. It’s all well and good for Circle to become a bank, for the U.S. government to insure its deposits and for greater transparency across the board. But the rules need to be flexible enough so that they don’t crush the utility of the tokens themselves.

US Wants to Regulate Stablecoins First — CoinDesk

So in summary we have regulators looking to push square pegs into round holes!  It’s going to take more time and a lot more thought before we have suitable regulations to this new and innovative asset class.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just US$143 a year (= $0.39 per day or $2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2021/10/13/stablecoin-news-for-the-week-ending-wednesday-13th-october/

Part 2 Ethereum’s big transition to Proof Of Stake

https://dailyfintech.com/2021/10/12/part-2-ethereums-big-transition-to-proof-of-stake/

A much heralded part of Ethereum 2.0 is the transition to Proof Of Stake. It may happen during 2021 or 2022.

With Proof Of Stake, users validate transactions based on the number of coins they hold. For example, the more ETH a user has, the more power they possess. This is not mining, it is more like voting shares. Voting eliminates the energy needed for mining and should be faster, so that transactions can be done in under 3 seconds (ie “human real time”, short enough to impact consumer behaviour, as in “did you get my payment”, “wait, OK I see it, thanks”).

Proof Of Stake (POS) appeals to the financial establishment for 4 reasons:

1.Voting with your capital is how financial governance works today.

2. The ROI is easy to figure out; you can deploy capital and calculate yield vs price.

3. POS is easy for regulators; it is simply another way to deploy capital.

4. Taxation is easy to figure out; you can tax it like a dividend or bond yield.

Proof Of Stake will never happen on the Bitcoin Blockchain. Proof Of Work is the proven transaction validation model for Bitcoin, Lightning Network is the scalability solution and if you destroyed the mining business by destroying Proof Of Work, Bitcoin would collapse.

Ethereum has a transition issue with Proof Of Stake. It is an economic incentive issue not a technical issue. If you make money mining ETH using Proof Of Work, are you incentivised to switch to Proof Of Stake voting?

The fact that Ethereum is also working on scaling Proof Of Work using a technology similar to Lightning Network (Raiden) indicates they are hedging their bets.

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

Some may not be published yet.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2021/10/12/part-2-ethereums-big-transition-to-proof-of-stake/

This Week in Fintech ending 8 October 2021

https://dailyfintech.com/2021/10/08/this-week-in-fintech-ending-8-october-2021/

This week our experts brought you the following insights based on their experience as investors, entrepreneurs & executives.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at  Kryptonio a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords and Weekly Columnist at Daily Fintech) @iliashatzis wrote Bitcoin will Eat Everything

Between 1990 and 2000 the Internet went from zero to really big numbers. During this period it had its fastest growth, growing at 63% a year. It had the fastest adoption compared to anything before it in history. Then the dotcom crash came and everyone said it was the end of the Internet. But actually, it was not the end, but only the beginning. It gave birth to billion and trillion-dollar companies like Amazon, Google, Twitter, Facebook and Uber, and a few others. At the end of the month, bitcoin will have its 13th  birthday, and crypto’s numbers are around the same number of users the Internet had in 1997. Depending on the source you look at, crypto is between 150 and 200 million users. It’s growing at 120% a year. That’s double the adoption rate of the Internet. That’s hockey stick growth. We are looking at over one billion people in the next three years and 3.5 billion people by 2027. That’s half the world’s population by the end of the decade. That is truly extraordinary!

Editor note: Ilias makes the long term bull case for bitcoin.

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Part 1 what is Ethereum 2.0?

Ethereum is a blockchain platform born in 2014 that enables programmers to build decentralized ledger applications (DApps). Confusingly there is both a native currency/token “ether,” only for  transactions on the platform, and an investable asset called ETH.

The Ethereum 2.0 upgrade began many years ago and got some reality with Beacon Chain in December 2020,  existing alongside Ethereum’s mainnet. This is like a public beta where validators can register their interest by staking  32 ETH (worth over USD 96k as I write). Staking means committing funds for two years or more only to be released when Ethereum 2.0 is fully ready; it is a big committment that few retail investors can do.

Editor note: Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned to Parts 2-4 by subscribing.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote his weekly roundup of Stablecoin news.

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Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote: The State of the Claims Technology Modernization Market

With the spread of digital claims, major changes are upon us, such as rising adoption in virtual estimates for auto and property claims and telemedicine for injury claims. For simple claims, fully digital processes are taking center stage with claims staff tasked with covering blind spots from artificial intelligence (AI) and ensuring superior customer experience. For complex claims, handlers continue as usual, bolstered by AI-led decisions to improve automation.

Editor note: Making complex technology easy to use is hard and makes a massive difference to customer traction.

Christian Dreyer @x3er, the Swiss based CFA who focusses on how XBRL changes our world wrote his weekly roundup of XBRL news.

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote his weekly roundup of Alt Lending news.

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To continue receiving ‘This Week in Fintech’, the weekly recap of our articles, you will need to fill this form to give us consent to send this to you. Please note that Daily Fintech requires your organizational email address (e.g. corporate, educational or government) and your LinkedIn URL. This information is required for subscribers who want ‘This Week in Fintech’ for free. If you prefer to not provide this information, you can still receive all our content by becoming a paying member.

https://dailyfintech.com/2021/10/08/this-week-in-fintech-ending-8-october-2021/

Alt Lending week ended 8th October 2021

https://dailyfintech.com/2021/10/08/alt-lending-week-ended-8th-october-2021/

Credit Suisse raided by Swiss police over Greensill funds.

It comes as no surprise at all that the long arm of the Swiss Police is now feeling the collar of Credit Suisse over the Greensill affair. The bank, of course, is somewhat reticent in accepting any responsibility for the undoubted debacle but as it had to tap investors for a couple of billion over both Greensill and Archegos Capital management. In addition it has infuriated investors by its action in suspending $10billion of (supposed) supply chain funds invested in Greensill paper. How much money was actually lost globally is anyone’s guess but Credit Suisse is reckoned to have over $2.3billion at risk.  Under the circumstances perhaps a little humility and introspection might be deemed appropriate but Credit Suisse will not be making any further comment. After all there is an investigation going on. Apparently the investigation relates to how the Credit Suisse funds were managed and marketed so nothing to do with the bank.  According to London’s Financial Times it had ranked the funds as low risk financial products. One wonders what high risk products would look like

Barclays entering “Buy now pay later” market

It looks like Barclays and a handful of others think they can make money in the fast growing BNPL market. Certainly one of the market leaders Klarna is expanding rapidly and it is a market that is very attractive to “must have it now” type consumers. However much mainstream players would like a piece of the action I would caution against two rather obvious risks. The first is the old as the hills fact that some of the punters taking out this type of arrangement will get themselves into some kind of financial problems and will not be able to pay their bills. The second is that the financial regulators in quite a few countries are taking a close look at the consumer protection side of all this the thinking being that it could lead some people to become overstretched.  My bet would be that some kind of regulation is going to come along sooner or later.

Monzo gives up on US gambit for now?

The British based App only bank Monzo has withdrawn its application for a banking licence in the US. The bank which has tested its banking app with Ohio based Sutton bank admitted this “isn’t the outcome we set out to achieve”. I would say there is a degree of understatement to that as talks with the US regulators have been going on since April 2020. It highlights the difficulties that start up banks have in gaining a banking charter in the US but perhaps  it also shines a light on the conservatism of the US authorities. The reasons for the withdrawal of the application are not stated but there has to be a suspicion that Monzo’s financial results might be partly to blame. In the financial year ending on Feb 28th. this year Monzo reported losses of £ 130million on revenues of £66 million which prompted an audit qualification concerning its going concern status. Revolut Monzo’s rival app based competitor also submitted an application to the US authorities in March. It remains to be seen whether this will be successful.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could be worth $ millions.

https://dailyfintech.com/2021/10/08/alt-lending-week-ended-8th-october-2021/

XBRL News from Germany, India and London

https://dailyfintech.com/2021/10/07/xbrl-news-from-germany-india-and-london/

Here are the three most relevant developments in the world of structured reporting we became aware of in the course of last week.

1  ESEF-Premiere: Marathonlauf mit Hindernissen

Digitization should enter the group reporting throughout the EU this year with the European Single Electronic Format (ESEF). However, when there was the option to postpone the introduction of the electronic reporting format, they used 23 out of 27 EU members. Only four states, including Germany and Austria, adhered to the original timetable and experienced a turbulent premiere season that presented companies, but also auditors and service providers with great challenges.

A nice piece (in German, so get your Babel fish out) about the German experience with ESEF and the broader European outlook on ESEF implementation next year.

2  Indian debt issuers to submit XBRL compliance filings, feeding central database

XBRL implementation just expanded in India, with all listed debt issuers now required to submit compliance filings in XBRL. While both debt and equity issuers have been reporting financial results to stock exchanges for some time, these wider requirements previously only applied to equity issuers.

Great news – we would be keen to learn about practical use cases for this. Will this information flow directly to third party providers, or are there direct users?

3  What are the digital reporting implications of updating the management commentary?

Many of our readers may be interested in an agenda paper presented at this month’s meeting of the IFRS Foundation’s IFRS Taxonomy Consultative Group (ITCG). In May, the International Accounting Standards Board (IASB) proposed a new comprehensive framework for preparing management commentaries, which accompany financial statements. The framework, currently out for consultation, is intended to reflect the changing reporting landscape, and better meet the broader information needs of today’s investors and creditors.

IFRS pronouncements are always important to the reporting and analysis community. However, we are of two minds when it comes to granular tagging of management commentary as long as semantic parsing and automated interpretation of natural language escapes us.

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

 New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2021/10/07/xbrl-news-from-germany-india-and-london/

The State of the Claims Technology Modernization Market

https://dailyfintech.com/2021/10/07/the-state-of-the-claims-technology-modernization-market/

With the spread of digital claims, major changes are upon us, such as rising adoption in virtual estimates for auto and property claims and telemedicine for injury claims. For simple claims, fully digital processes are taking center stage with claims staff tasked with covering blind spots from artificial intelligence (AI) and ensuring superior customer experience. For complex claims, handlers continue as usual, bolstered by AI-led decisions to improve automation.

A car insurance claim is a disruption in daily life, requiring a person to contact the carrier, get repair estimates, go to an auto body shop, likely needing alternative transportation. Typically, this is done telephonically with a claims handler who guides step-by-step. Often this unstructured process leads to significant delays in claims resolutions, frequently affecting customer satisfaction.

With technology advances, insurers are implementing more and more digital tools. Today, customers can file a claim, schedule an appraisal, find a shop and get updates on the carrier’s app. There is a 20% increase in customers using these tools over the past three years, per a J.D. Power study. The vehicle insurance sector accounts for a substantial share of global insurance, expected to reach US$1,096.2 billion by 2027.  AI in auto insurance market is expected to reach US$5.5 billion in 2027, up from US$1.0 billion in 2018.

Optimizing claims management with AI standardizes claims management operations, improving the rate of resolutions. Customers get claims processed within days, sometimes minutes, not weeks or months –  benefiting both insurer and insureds.

A leading Israeli insurance provider worked with Stat-Market to use AI technology to optimize its claims management processes. It achieved a reduction in claims processing time by 54.4% and a 1.5% reduction in unnecessary and fraudulent pay-outs leading to significant annual savings.

Aviva has digitized half its customer journeys with some now entirely digital. Direct customers of motor and home log claims digitally, tracking end-to-end progress of repairs. Motor customers who report online can access straight through processing, going from claim reporting to repair booking without contacting Aviva. However, surveys show that this level of functionality is far from the norm. Once online notification is received, just 18.3% of respondents say their system can auto-triage the claim, with 58.3% having a mix of manual and automatic processes and 23.3% managing manually.

With AI technology, insurers are tailoring communication channels to individual customer preferences, enabling them to provide information about claims in various ways, such as by uploading images to an app. Carriers communicate proactively with customers by using analytics and algorithms to anticipate questions and send updates through the customer’s preferred communication channel before such information is even requested.

There is additionally an increased focus on claim prevention with insurers proactively contacting customers with data-driven suggestions on actions they can take to reduce risks. For example, insurers are pushing notifications about severe-weather warnings to encourage customers to stay put to avoid hail damage or turn up the heat to avoid pipes bursting during a winter storm. With focus turning to prevention, the insurance model is expected to shift from the traditional risk-transfer model to a mix of risk transfer and hedging, where policyholders manage the claim risk amid the tighter focus on prevention.

The claims process is the “moment of truth” for clients who expect handlers to demonstrate empathy, precision and care while delivering fair outcomes. Though digital claims are becoming more commonplace, the benefit of quality customer service should not be discounted. The J.D. Power study found customers who did not use digital claims tools experienced a similar level of customer satisfaction. There is a healthy appetite for AI-led digital tools and good old-fashioned guidance from a real person. It’s not binary and customers clearly want different options in how they communicate with insurers.

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https://dailyfintech.com/2021/10/07/the-state-of-the-claims-technology-modernization-market/

Stablecoin News for the week ending Wednesday 6th October.

https://dailyfintech.com/2021/10/06/stablecoin-news-for-the-week-ending-wednesday-6th-october/

Will regulations enable Crypto to go mainstream?

Here is our pick of the 3 most important Stablecoin news stories during the week.

The belief is widely held that regulations and regulators build trust, which the mainstream requires if they are to adopt this bright, shiny new technology (which is by nature trustless)!

Stablecoins are the most obvious starting point.  They are the on-off ramps of Crypto and as they are by nature tied to Fiat are a relatively easy and less controversial place to start.

This week we saw the Biden administration signal that it wants crypto companies that issue stablecoins to become banks. (It’s unclear how it will enforce some of its recommendations, a potential weakness of a coming report from a group of senior regulators).  Banks and stablecoins are presently overseen at the State level, so expect a major bun fight towards the end of October.

Biden Administration Seeks to Regulate Stablecoin Issuers as Banks – WSJ

Meanwhile, the Fed indicated it also supported a stablecoin first approach to regulation, leaving Crypto (for now) alone.  Most recently, China’s central bank prohibited all local organizations from dealing with anything even remotely connected to crypto.

This caused disruptions in the market. At the same time, multiple prominent names urged the US to take the complete opposite stance on crypto.

And it seems this is precisely what the States plans to do, at least according to the Federal Reserve Chairman Jerome Powell. During yesterday’s House Financial Services Committee meeting, he said the government has no intentions to ban cryptocurrencies.

However, he still asserted that some digital assets, stablecoins in particular, have to be regulated.

The US Has No Intentions to Ban Bitcoin, Said Fed Chair Powell (cryptopotato.com)

Then we hear the darker side, actually let’s use regulations to slow adoption down or even stop it.  Why?  It could be too successful and become a systemic risk (like we don’t have that with the current system)!

The Washington-based IMF said the 10-fold increase in the market value of crypto assets – digital or virtual currencies – to more than $2tn since early 2020 required more active and collaborative supervision by governments.

The IMF also highlighted potential problems with the four-fold increase in the supply of stablecoins – cryptocurrencies that aim to peg their value, usually against the US dollar – to $120bn (£88bn) during 2021.

“Given the composition of their reserves, some stablecoins could be subject to runs, with knock-on effects to the financial system. The runs could be driven by investor concerns about the quality of their reserves or the speed at which reserves can be liquidated to meet potential redemptions.”

Last month, China made transactions in cryptocurrencies illegal, but the IMF said emerging and developing countries appeared to be leading the way with their use. This risked damaging the ability of central banks to effectively implement monetary policy and potentially created financial stability risks, it added.

IMF warns of global risks from unregulated cryptocurrency boom | International Monetary Fund (IMF) | The Guardian

So there we have, literally, both sides of the coin, good regulation (not copy and paste from the existing system) could add a trust and protective layer to the Crypto and stablecoin ecosystem.  But keep an eye out that the state is not just protecting it’s monopoly while cynically preaching safety for the common man.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

____________________________________________________________________________________________________________

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https://dailyfintech.com/2021/10/06/stablecoin-news-for-the-week-ending-wednesday-6th-october/

Part 1 what is Ethereum 2.0?

https://dailyfintech.com/2021/10/05/part-1-what-is-ethereum-2-0/

Ethereum is a blockchain platform born in 2014 that enables programmers to build decentralized ledger applications (DApps). Confusingly there is both a native currency/token “ether,” only for  transactions on the platform, and an investable asset called ETH.

The Ethereum 2.0 upgrade began many years ago and got some reality with Beacon Chain in December 2020,  existing alongside Ethereum’s mainnet. This is like a public beta where validators can register their interest by staking  32 ETH (worth over USD 96k as I write). Staking means committing funds for two years or more only to be released when Ethereum 2.0 is fully ready; it is a big committment that few retail investors can do.

Ethereum 2.0 on mainnet will require sharding (a technically complex job of dividing up the blockchain into smaller chains known as shards) for efficiency.

There are two narratives related to this roadmap:

– Ethereum bulls say this is like the move from DOS to Windows in the PC era, technically complex and hugely valuable. The killer apps such asNFTs and loaning/borrowing are already proven.

-Ethereum bears say this is a pipedream, and will not happen. Re killer apps, remember when ICOs where the proven use case for Ethereum?

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

Some may not be published yet.

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https://dailyfintech.com/2021/10/05/part-1-what-is-ethereum-2-0/

Bitcoin will Eat Everything

https://dailyfintech.com/2021/10/04/bitcoin-will-eat-everything/

Between 1990 and 2000 the Internet went from zero to really big numbers. During this period it had its fastest growth, growing at 63% a year. It had the fastest adoption compared to anything before it in history. Then the dotcom crash came and everyone said it was the end of the Internet. But actually, it was not the end, but only the beginning. It gave birth to billion and trillion-dollar companies like Amazon, Google Twitter, Facebook and Uber, and a few others. At the end of the month, bitcoin will have its 13th  birthday, and crypto’s numbers are around the same number of users the Internet had in 1997. Depending on the source you look at, crypto is between 150 and 200 million users. It’s growing at 120% a year. That’s double the adoption rate of the Internet. That’s hockey stick growth. We are looking at over one billion people in the next three years and 3.5 billion people by 2027. That’s half the world’s population by the end of the decade. That is truly extraordinary!

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.

“Soft­ware is eat­ing the world,” wrote ven­ture cap­i­tal­ist Marc An­dreessen in 2011. At the time, Marc posited the idea that all companies must in essence become software companies to compete in the rapidly evolving technological landscape that was to be the 2010’s. Not only did Andreessen accurately categorize the prevailing “creative disruption” at the time, but he also effectively predicted the economic takeover of disruptive, software-first tech giants such as Uber, Airbnb, and Salesforce. Again, it is not sur­pris­ing to me that An­dreessen Horowitz was one of the ear­li­est be­liev­ers in bit­coin, the largest in­vestors in the space, and the first in­vestors in Coin­base.

At the end of June, venture capital firm Andreessen Horowitz launched a $2.2 billion crypto ETF. Their team has expanded substantially in just a year. A letter to investors argued that “we would be remiss to ignore a now $2 trillion cryptocurrency market”.

Today, bitcoin and other cryptocurrencies are mostly used as a store of value, and they are not widely used as a payment method, at least not yet, because of their volatility. Cryptocurrency is seen as a hedge against inflation and currency depreciation by investors. However, recent indicators suggest that the industry is maturing and that digital currencies will eventually replace the existing fiat paradigm.

The world’s central banks have increased their money production in response to the coronavirus epidemic. A $1.9 trillion stimulus package may soon infuse the US economy with ultra-easy credit and massive government expenditure, a formula for short-term currency inflation. Investors are flocking to bitcoin, as fiat offers near-zero returns or negative interest rates. Cryptocurrency’s growth is a reflection of an indisputable worldwide trend.

For the time being, the US dollar remains untouchable as the world’s reserve currency, with over 80% of global trade based on dollars. However, the history of fiat currencies has always followed the same downward path: currency debasement, inflation, and a loss of trust in institutions all lead to a point when they lose their value.

Millennials are driving the bitcoin economy and millennials have no trust in institutions. They trust institutions implicitly in some ways, but when it comes to finance they don’t because 9/11, the 2008 financial crisis, and now the pandemic. How can you trust institutions when your parents lost their houses and jobs in the 2008 crisis? They also are digital natives and grew up on social media. While there is lots of noise online, there is a lot of quality of information on Twitter, Reddit, even on TikTok.  People are trying to help each other because of network effects. The more people you bring more into the network, the value goes up for everyone.

Bitcoin is a network of value that sits above the internet that connects all of this digital world in a way that the value is transferable, storable, ownable, recordable. Social media gave us a people and information layer, but crypto builds a value layer on top that is peer-to-peer and controlled by that peer group. This is an important reason leading to increased adoption and growth.

But more importantly, Bitcoin is a huge breakthrough because it introduced a new business model. Fifteen years ago, the network business models of Facebook, Google, and Twitter created a network of people that were incentivized to post, share, and like. The users of those networks got the benefit of finding our old school friends and keeping in contact with relatives and other things we use social networks for. The companies and their shareholders got rich, but we didn’t. In fact, they took our data and used behavioral economics to monetize our eyeballs and our attention.

Then comes bitcoin in 2008, and suddenly you have a radical shift in this model. Bitcoin started a whole new process. Now, you’ve got a network where the users of the network are incentivized to grow the network and earn bitcoin. As we realized the business model of tokens, network effects, and that the technological benefits work for almost everything and we saw the rise of NFTs, DeFi, and social tokens.

Scarci­ty dri­ves prices, whether we talk about watch­es or gui­tars, wine or cars, paint­ings or sculp­tures—all phys­i­cal as­sets. Mak­ing digi­tal as­sets used to mean it could be copied for free. Not any­more. Bit­coin can be ver­i­fied, di­vid­ed, re-as­sem­bled, stored, and trans­port­ed at vir­tu­al­ly no cost. It’s the per­fect scarce digi­tal as­set. All that’s re­quired to keep the net­work run­ning is al­lo­cat­ing the cheap­est elec­tric­i­ty in the world. Elec­tric­i­ty se­cures the net­work. Not trust­ed par­ties or peo­ple with guns are need­ed. I call that progress.

Like gold, bit­coin has the abil­i­ty to pro­tect us against politi­cians who have the pow­er to de­stroy our mon­e­tary base. Is that re­al­ly nec­es­sary, you might ask? Strike up a con­ver­sa­tion with a Turk­ish work­er the next time you are on va­ca­tion and ask how it feels to have your cur­ren­cy de­pre­ci­ate by al­most 50 per­cent against the dol­lar in a sin­gle year. It has hap­pened, it hap­pens, and will hap­pen again.

We’re just at the dawn of the digital currency revolution. Facebook’s Diem project is expected to launch this year, and will likely introduce a huge chunk of Facebook’s 2.7 billion global users to the market. At a state level, the Chinese government is taking steps to become the first country to implement its own unlimited-supply digital currency, a move that would send shockwaves across global trade. The EU has also announced plans for a digital Euro

Many ar­gue that gov­ern­ments may ban bit­coin, or that new reg­u­la­tion will de­stroy it. While it would re­quire near glob­al co­or­di­na­tion, which seems impossible, we can­not ignore that the bans could cause fric­tion for adop­tion, like China banning of ex­changes to lim­it peo­ple’s abil­i­ty to buy or sell and make the as­set less at­trac­tive. But the truth is that regulators are terrified because there is a lot at stake and they don’t know what to do. But governments don’t want to shut it down, they just want to slow it down, even China. How do you regulate things like DAOs and decentralized exchanges? You regulate on-ramps and off-ramps, which is the big reason that central banks are building CBDCs. They’re interested in collecting taxes. The smaller a black economy is, the bigger tax revenues become. And God knows they need them with all this money printing.

The di­rec­tion is clear: fi­nance will be dis­rupt­ed as sure­ly as fos­sil fu­els will be. Bit­coin is go­ing to be on the right side of his­to­ry. For the skeptics, I will quote George Bern­hard Shaw, the No­bel win­ning play­wright: “progress is im­pos­si­ble with­out change, and those who can­not change their minds can­not change any­thing.”

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https://dailyfintech.com/2021/10/04/bitcoin-will-eat-everything/

This Week in Fintech ending 1st October

https://dailyfintech.com/2021/10/01/this-week-in-fintech-ending-1st-october/

Yes, we are in the final quarter of 2021, fall/autumn fashions and weather and the last 3 months for businesses to show results and our experts have been working hard to bring you their insights based on their experience as investors, entrepreneurs & executives.

Monday Ilias Hatzis our Greece-based crypto entrepreneur (Founder & CEO at  Kryptonio a “keyless” non-custodial bitcoin and cryptocurrency wallet, that lets users manage bitcoin and crypto, without private keys or passwords and Weekly Columnist at Daily Fintech) @iliashatzis wrote Evergrande is the trigger to a crypto economy

China has banned Bitcoin more times than I can remember. On Friday, China declared that all crypto transactions are illegal driving a sell-off of Bitcoin, Ethereum, and other cryptocurrencies. The market value of the world’s cryptocurrencies tanked to a low of about $1.8 trillion, falling roughly 9% and losing $188 billion in value within just three hours of China’s announcement, according to CoinMarketCap.

Editor note: China is the poster child for centralized control, so it’s leaders are bound to try to stop Bitcoin but honey badger don’t care!

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Tuesday Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy wrote: Part 4 Place your bets on this behemoth battle

It is easy to place your bets as all three companies are publicly traded. Square is part of the Fintech 50 Index. Facebook and Twitter are big media businesses.

Bias disclosure. While I have no commercial stake at time of writing I do have two biases.

Editor note: Square is a great company, possibly overvalued and too exposed to small business that got hammered by the pandemic.

Wednesday Alan Scott Managing Director EMEA at 24 Exchange @Alan_SmartMoney wrote his weekly roundup of Stablecoin news.

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Thursday

Rintu Patnaik, an Insurtech expert based in India, wrote:Risk Exchange Platforms for Reinsurance Gain Prominence

The future of reinsurance (RI) markets is being reshaped by new technology, alternative capital and reinsurers bundling value-added services with reinsurance. These forces are leading to new trends, in a backdrop of changing RI buying patterns, emerging risks and the realities of ever changing regulation. Placement processes have evolved at a slow pace while acquisition costs are on the rise. The reinsurance placement process includes discovering RI prices, agreeing to contract terms and conditions, and allocating limits among several reinsurers. It is a complex, slow and expensive process that involves face-to-face meetings with numerous handovers. The ensuing inefficiency and opacity makes this market ripe for more automation.

Editor note: Rintu shines a light on part of the Insurance business that is very important but that few understand.

Christian Dreyer @x3er, the Swiss based CFA who focusses on how XBRL changes our world wrote his weekly roundup of XBRL news.

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Friday Howard Tolman, a well-known banker, technologist and entrepreneur in London, wrote his weekly roundup of Alt Lending news.

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https://dailyfintech.com/2021/10/01/this-week-in-fintech-ending-1st-october/

Alt lending week ending 1st October 2021

https://dailyfintech.com/2021/10/01/alt-lending-week-ending-1st-october-2021/

China bans all cryptocurrency transactions

This story caught my eye as it touches on the vexed issue of what is real and what isn’t. Frankly I have never understood the attraction of any crypto currency for the very simple reason that nobody can tell me how much it is worth? As an old fashioned banker I understand realities not ethereal conjecture but I have noticed a trend to conflate certainties with uncertainties and in this case China is saying something quite plainly Chinese citizens can’t trade in this stuff. A lot of my colleagues in the finance business take all crypto currency at face value and why not if you are making money from it. Most of these guys have a vested interest to defend and bang on about the benefits, pick your own currency, don’t trust governments. But ask yourself the question. What would you do if Bitcoin value fell to nothing and you were relying on it? After all the only real value is what someone is prepared to pay for it. Admittedly this is same for any asset but most assets are real, verifiable and can be valued. South Sea Bubbles anybody?

Tough times for Energy suppliers.

The rapid rise in wholesale energy prices has left many of the Uk’s smaller suppliers up the creek without a paddle and dozens of companies face insolvency. Scandals have already started emerging such as large sometimes unwarranted payments to directors lack of proper supply  hedging strategies etc? It looks very much like a bloodbath. Seems like the regulatory regime didn’t work very well. Quelle surprise?  Undoubtedly it will not just be equity which is being lost but some banks will have had their fingers badly burned. It will be interesting to see how well the credit strategists within the banks performed. Did they do their due diligence properly? Did they notice the exposures that were racking up. As an old cynic I very much doubt it but whenever I dip my toes into credit markets I see bad mistakes being made by a lack of proper training in back to basics credit fundamentals. Understanding the business risks in volatile markets is a skill that has to be learned at the school of hard knocks. Perhaps this is a degree course at the university of Clapham Common.

Punters beware both the small print and the downsides of compound interest. Subjects that they will never fully understand!

The Daily mail does a hatchet job on the Equity Release, Lifetime mortgage market. A very significant chunk of lending business. Some poor widow has been taken to the cleaners by an equity release package supplied by that paragon of virtue the Prudential. I have some sympathy for both the poor widow and the Prudential. This was set up some thirteen years ago when interest rates were more, how do we say it reasonable. But in those days the products were much more embryonic. The reason the Prudential entered this market was to provide a hedge against long term annuity liabilities by acquiring long term assets with equivalent yields. That’s why there is an exit penalty but don’t expect everyone to understand this. By the same token don’t expect people to understand compound interest. It’s quite likely that the salesman who sold this (what has turned out to be) crock didn’t understand it either. The FCA will never find the clarity of words to educate people making asses of themselves. The Equity Release business is fundamentally improving in its protection of borrowers just make sure you know someone trustworthy who understands finance to give you a second opinion.

Howard Tolman is a well-known banker, technologist and entrepreneur in London,We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.For context on Alt Lending please read the Interview with Howard Tolman about the future of Alt Lending and read articles tagged Alt Lending in our archives.

Daily Fintech’s original insight is made available to you for US$143 a year (which equates to $2.75 per week). $2.75 buys you a coffee (maybe), or the cost of a week’s subscription to the global Fintech blog – caffeine for the mind that could

https://dailyfintech.com/2021/10/01/alt-lending-week-ending-1st-october-2021/

XBRL News about sustainability reporting, a proof of concept and Italy

https://dailyfintech.com/2021/09/30/xbrl-news-about-sustainability-reporting-a-proof-of-concept-and-italy/

Here are the three most relevant developments in the world of structured reporting we became aware of in the course of last week.

1  International taxonomy for reporting SASB standards unveiled

An international taxonomy for integrating SASB standards into corporate reporting was released Tuesday by The Value Reporting Foundation. More than 1,280 businesses now disclose ESG data using SASB standards, including more than half of those in the S&P Global 1200 index, the foundation said in the news release.

A long time in the making, this new taxonomy will now likely serve as a building block for the ISSB’s sustainability standard.

2  Using xBRL-CSV for granular data: a proof of concept from XBRL Europe

“Our proof of concept suggests that xBRL-CSV could streamline the reporting process and facilitate users in comparing and analysing information from across different countries and reporting requirements, including extensive and detailed data,” says Vincent Le Moal-Joubel, data scientist and XBRL expert at the Banque de France. 

While a data standard format linking to reporting concepts will certainly find many use cases, any insights into the rationale for small-capping the x in xBRL-CSV would be greatly appreciated.

3  XBRL reporting for Italian Confidi

XBRL Italy reports “another small step forward” in the digitisation of corporate reporting in Italy. Credit guarantee consortia known as Confidi are an important part of the Italian financial landscape. A decree from the Ministry of Economy and Finance has established a requirement for Confidi wishing to offer credit to file their financial statements in XBRL format, as soon as this option is available at the Italian Business Register. 

This is a good illustration of a niche use case in Italy.

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Christian Dreyer CFA is well known in Swiss Fintech circles as an expert in XBRL and financial reporting for investors.

 We have a self-imposed constraint of 3 news stories each week because we serve busy senior leaders in Fintech who need just enough information to get on with their job.

 For context on XBRL please read this introduction to our XBRL Week in 2016 and read articles tagged XBRL in our archives. 

 New readers can read 3 free articles.  To  become a member with full access to all that Daily Fintech offers,  the cost is just USD 143 a year (= USD 0.39 per day or USD 2.75 per week). For less than one cup of coffee you get a week full of caffeine for the mind.

https://dailyfintech.com/2021/09/30/xbrl-news-about-sustainability-reporting-a-proof-of-concept-and-italy/

Risk Exchange Platforms for Reinsurance Gain Prominence

https://dailyfintech.com/2021/09/30/risk-exchange-platforms-for-reinsurance-gain-prominence/

The future of reinsurance (RI) markets is being reshaped by new technology, alternative capital and reinsurers bundling value-added services with reinsurance. These forces are leading to new trends, in a backdrop of changing RI buying patterns, emerging risks and the realities of ever changing regulation. Placement processes have evolved at a slow pace while acquisition costs are on the rise. The reinsurance placement process includes discovering RI prices, agreeing to contract terms and conditions, and allocating limits among several reinsurers. It is a complex, slow and expensive process that involves face-to-face meetings with numerous handovers. The ensuing inefficiency and opacity makes this market ripe for more automation.

The technology to automate complex processes that require intermediation by trusted parties has advanced in the past few years. Helping with the uptick are participants like the Lloyd’s market who have mandated electronic placement. However, several RI contracts are distinctive enough that automated placement is impractical due to the complexity. Property and casualty RI programs being straightforward, lend themselves to more automated placement. Insurtechs such as Tremor saw this opportunity and began in this part of the market.

Auction site Tremor improves price discovery for risks, making transactions more cost efficient. It has found success with more traditional cat reinsurance. Tremor launched a weekly Industry Loss Warranty (ILW) auction in the middle of the COVID-19 disruption to keep delivering liquidity through any potential market dislocation. It provides key marketplace management information making it an effective risk trading platform to draw both reinsurance buyers and sellers.

Features include quoting tools that allow cedents and reinsurers to more precisely express their terms, aggregate reports that offer insight into transactions and the wider market, and a portal enabling brokers to leverage the marketplace on behalf of clients. Reinsurers can add subjectivities after expressing supply curves and capacity limitations. With subjectivities, one layer subsidizes another to maximize a reinsurer’s allocation while ensuring the aggregate price still meets the company’s needs.

Tremor Technologies’ risk transfer marketplace counts 33 Lloyd’s of London syndicates among the risk capacity providers signed up, representing over $33 billion of capacity. Nearly a fifth of companies signed up to provide capacity are ILS funds.

Akinova allows brokers to list risks with accompanying documentation and conduct auctions with specific capacity providers or the marketplace as a whole. Taking RI online and logging trades electronically is a substantial step forward compared to the current shuffling of papers. The auction functionality combined with market intelligence ensures a more efficient market. Chat and news functionality adds a community building touch.

Vested interests in the current system can be strong, making any change a challenging endeavor. Incumbent underwriters and brokers with profitable, multi-year relationships are likely to resist changes. Established culture and ways of working may block change to entrenched processes. One major reinsurer declined because underwriting was worried about revealing pricing.

B3i is an interesting industry initiative, which has eighteen shareholders including many of Europe’s largest groups including Ageas, Allianz, AXA, Generali, Hannover Re, Liberty Mutual, Munich Re, SCOR, Swiss Re and Zurich. Its Cat XoL is is built on distributed ledger technology. The application supports end-to-end digitization of the placement process from cedent to reinsurer. Parties can negotiate terms, agree rates and complete placements.

Given the rapid and drastic shift to remote working, it was just a matter of time before the reinsurance market would break free from many of its person-to-person interactions. Automated placement is a positive for distribution platforms and insurers. Platforms gain market power, insurers would see rates fail, from lower distribution costs and lower pricing as platforms increase competition among reinsurers. For reinsurers, the implication is more nuanced. Access to risk expands, but so does competition.

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https://dailyfintech.com/2021/09/30/risk-exchange-platforms-for-reinsurance-gain-prominence/

Stablecoin News for the week ending Wednesday 29th September.

https://dailyfintech.com/2021/09/29/stablecoin-news-for-the-week-ending-wednesday-29th-september/

Are Stablecoins superior to TradFi?

Here is our pick of the 3 most important Stablecoin news stories during the week.

An important question was answered this week.  Are we really taking a step forward in terms of value with this new technology over the current Financial Infrastructure often referred to as TradFI?

First a reminder of how regulators would find that the DLT technology is superior to the current financial system, it leaves a very good audit trail of who did what.  The United States Attorney’s office recently filed a civil complaint accusing four digital wallets containing more than 9.8 million Tether (USDT) of being involved in wire fraud, computer fraud, and money laundering

U.S Government sues for millions of USDT purportedly stolen – Nairametrics

Now onto interoperability, in the really new world of DeFi, Solana users can swap wrapped stablecoins via a Mercurial Finance liquidity pool.  Mercurial Finance has launched a liquidity pool for Wormhole wrapped stablecoin assets, the decentralized exchange announced Friday.

  • Mercurial Finance is conceptually similar to Ethereum-native Curve Finance, a decentralized exchange optimized for swapping like-assets such as two different stablecoins. Mercurial is backed by the DeFi Alliance incubator.
  • Wormhole has been expanding aggressively to new asset types, and with new functionalities. Earlier in the month, Wormhole v2 launched to provide a bi-directional bridge for a variety of tokens, including non-fungible tokens (NFTs).
  • In a tweet today, Mercurial Finance wrote that the pools will help ensure the end-to-end decentralization of stablecoin assets on Solana.
  • A press release from Mercurial said that users who provided liquidity to the USDC-wUSDC-wUSDT-wDAI cross-chain pool could earn up to 159.5% APY. The yield currently sits at 33%.
  • Jump Crypto is a lead contributor to Wormhole, and the firm has also backed and helped to develop the Solana-native oracle service Pyth.

Bridged Stablecoins on Solana Get a Boost With Mercurial Finance Pools — CoinDesk

And Finally, validation from the Central Bankers, Banker (BIS or Bank of International Settlements) that stablecoins can dramatically cut the costs of cross border payments.

According to the report titled “Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments” published on Tuesday, CBDCs can reduce the transaction throughput of cross-border payments from three to five business days to only a few seconds.  

Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments (bis.org)

“A prototype of multiple Central Bank Digital Currencies (mCBDCs) developed by the Bank for International Settlements Innovation Hub and four central banks demonstrated the potential of using digital currencies and distributed ledger technology (DLT) for delivering real-time, cheaper and safer cross-border payments and settlements.

The mBridge project is a cooperation between the BIS Innovation Hub Hong Kong Centre, the Hong Kong Monetary Authority; the Bank of Thailand; the Digital Currency Institute of the People’s Bank of China; and the Central Bank of the United Arab Emirates.

The common prototype platform for mCBDC settlements was able to complete international transfers and foreign exchange operations in seconds, as opposed to the several days normally required for any transaction to be completed using the existing network of commercial banks and operate in a 24/7 basis. The cost of such operations to users can also be reduced by up to half, according to this report.”

CBDCs can cut cross border remittance costs by half: BIS report (cointelegraph.com)

So in summary, this week we had more confirmation that this new stablecoin technology is faster, better and cheaper than TradFI.

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Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.  

We have a self imposed constraint of 3 news stories per week because we serve busy senior Fintech leaders who just want succinct and important information.

For context on stablecoins please read this introductory interview with Alan “How stablecoins will change our world” and read articles tagged stablecoin in our archives. 

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https://dailyfintech.com/2021/09/29/stablecoin-news-for-the-week-ending-wednesday-29th-september/

Part 4 Place your bets on this behemoth battle

https://dailyfintech.com/2021/09/28/part-4-place-you-bets-on-this-behemoth-battle/

It is easy to place your bets as all three companies are publicly traded. Square is part of the Fintech 50 Index. Facebook and Twitter are big media businesses.

Bias disclosure. While I have no commercial stake at time of writing I do have two biases.

1. Daily Fintech is a media business writing about Fintech and building Fintech spin off ventures;  so Jack Dorsey running both a media and a Fintech business seems quite normal to me.

2. If I was given a choice of hanging out with Jack Dorsey or Mark Zuckerberg, I would choose Dorsey (although I have never met either).

There  are two major players in Finance:

1. Bitcoin, a decentralized, permissionless network/currency.

2. Cenralised Banks and the Governments who license/regulate the Banks.

Facebook is trying something hard – to compete with Banks while pleasing the Governments who license/regulate them.

The Twitter/Square strategy is simpler and more radical, betting on a decentralized, permissionless network that Banks and Governments would love to stop if they could.

Facebook is doing a delicate dance with regulators. This delicate dance takes a looong time, thus over 2 years since Facebook announced Libra and we have nada, but it will work in the end. Governments/regulators know how to work with a centralized business where you can negotiate with a CEO; a decentralized, permissionless network with no CEO is a scary alternative.

Placing your bets is really a bet on the centralised history/current reality versus the decentralised future.

My bet is on the decentralised future for three reasons:

1. All. centralised. systems. are. hacked. All of them, including Twitter in July 2020, and even the best managed banks. This is a massive risk.

2. Cannot do evil (programmed into decentralised networks) is better than “we promise to do no evil” by managers of centralised businesses.

3. The Internet is decentralised, even with huge centralised businesses making the big money today.

Some subjects are too complex for our short attention spans, so we do 4 posts one week, each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

Part 1

Part 2

Part 3

Part 4

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https://dailyfintech.com/2021/09/28/part-4-place-you-bets-on-this-behemoth-battle/

Evergrande is the trigger to a crypto economy

https://dailyfintech.com/2021/09/27/evergrande-triggers-crypto-economy/

China has banned Bitcoin more times than I can remember. On Friday, China declared that all crypto transactions are illegal driving a sell-off of Bitcoin, Ethereum, and other cryptocurrencies. The market value of the world’s cryptocurrencies tanked to a low of about $1.8 trillion, falling roughly 9% and losing $188 billion in value within just three hours of China’s announcement, according to CoinMarketCap.

Everything to do with crypto in China is illegal. In May, the Chinese state warned buyers they would have no protection for continuing to trade bitcoin and other currencies online, as government officials vowed to increase pressure on the industry. In June, it told banks and payment platforms to stop facilitating transactions and issued bans on “mining” the currencies – the trade of using powerful computers to make new coins.

Now the crypto ban in China includes enhancing enforcement against illegal mining, as well as prohibiting all financial transactions involving crypto. The Chinese central bank also announced that any trading, order matching, token issuance, and derivatives on cryptocurrencies are illegal, including services offered by overseas entities made available within mainland China.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Please participate in our Crypto Wallet Survey, we could use your help. It’s seven simple multiple-choice questions about crypto wallets and you should be done in 60 seconds. The survey is completely anonymous.

In a statement, the People’s Bank of China (PBOC) said the rules are necessary to “maintain national security and social stability.” What a crock…

China has taken steps to curb the rise of cryptocurrency since at least 2013, but with crypto markets booming in 2021 and the gradual rollout of China’s state-backed digital yuan, the government is getting more serious about cracking down on crypto.

Winter 2013: Banks are banned from bitcoin
China bans banks from handling bitcoin transactions, calling it a “virtual good” and not legal tender. BTC China, the country’s largest bitcoin exchange, stops taking deposits in yuan under pressure from payment processors and the government. The price of bitcoin dropped by more than 20% to below $1,000.

Spring 2014: Penalties for banks
The Chinese government announces that it would penalize banks that took part in Bitcoin transactions. The price of bitcoin dropped from $585 to around $513.

Fall 2017: ICOs and exchanges are banned
China bans initial coin offerings (ICOs). Crypto exchanges are banned in China. Citizens largely get around the ban by using offshore exchanges and peer-to-peer trading. Bitcoin’s price fell by $200, from $4,584 shortly before the announcement to around $4,350 per coin.

Spring 2021: Mining crackdown
China cracks down on crypto mining, as mining activities start to threaten the country’s environmental goals. The government bans financial institutions and payment companies from providing crypto-related services. The price of bitcoin fell by 8.5%.

Over the years, the Chinese government has cracked down on bitcoin several times, this year alone it’s been twice. Each time this happens, the markets react with a price drop, but each time the effect is smaller and more short-lived. If China continues on this course, crypto will shift to countries with more stable regulatory environments, which means more predictable liquidity and healthier, more robust trading across the globe.

Banning Facebook or Google and replacing them with localized equivalents may be simple. But it’s far more complicated to ban bitcoin. Despite having imposed all kinds of bans, bitcoin continues to exist in China for one simple reason: people want it. For the same reason, Nigeria hasn’t been successful with its bitcoin ban either.

China is so hostile to economic freedom, banning its people from participating in what is arguably the most exciting innovation in decades, but the truth is that China needs bitcoin just as much as the US needed it in 2008.

Sooner or later, the next crisis will hit and Evergrande could be the one, doing as much harm as Lehmann Brothers did, leading to the last global financial crisis in 2008. While we never learned from Lehman Brothers and the financial system remains very fragile, a great thing that came out of the crisis was bitcoin.

The Evergrande crisis may have affected the price of bitcoin and depending on how China finally handles the situation it may affect it even more.

With this financial crisis, another great thing will also begin. We will see bitcoin hit all-time highs, but more importantly, we will transition to a crypto economy in more countries, beyond El Salvador. The ripple effects of the Evergrande crisis will create financial instability around the globe and push the use of cryptocurrency in daily life. Every country may not be like El Salvador and simply flip the switch, but this is the course we are on.

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https://dailyfintech.com/2021/09/27/evergrande-triggers-crypto-economy/