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December 6, 2019

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

More insurers say no to coal

The number of insurers withdrawing cover for coal projects more than doubled this year as more financial firms move away from supporting fossil fuel production. A new report found that, for the first time, US insurers are now refusing to offer policies that protect coal production and distribution activities, leaving London and Asian insurers as the “last resort” for fossil fuel providers. (From The Guardian, 2 December 2018)

Life expectancy knowledge turns savers into spenders

An academic study has found that people who find out their estimated life expectancy could be discouraged from opting for a guaranteed income in retirement. This perverse outcome, from a study of 2,000 people, found that 73% in a control group opted for an annuity but the figure dropped to 65% when they used a life expectancy calculator first. An economist behind the study is now calling for Government information and advice service Pension Wise to drop its life expectancy calculator. (From The Times, 1 December 2019)

FCA warns IFAs to think of the clients

The regulator has warned that too many IFAs are not adequately demonstrating that they understand their clients’ needs and are instead acting to benefit their own commercial interests, particularly around defined benefit (DB) transfers. Debbie Gupta, FCA director of life insurance and financial advice, told a Personal Finance Society conference that her team are repeatedly finding instances where customers were pushed towards pension transfers unnecessarily. (From CityWire, 29 November 2019)

Largest firms’ analysts hit by MiFID II

Even Europe’s largest investment firms are cutting their research teams in the face of regulatory pressures, according to a new study. Bank of America found that the number of analysts covering EU equities at firms with a market cap of more than $100bn are down 22% since 2011. Respondents to the survey placed the blame squarely on new MiFID II regulations which saw research fees and trading costs unbundled. (From Financial Times, 3 December 2019)

Lloyd’s launches into space

Lloyds of London has begun to offer a new private space insurance policy to cover explosions, in-orbit collisions and liability for space tourists as the likes of Virgin Galactic and SpaceX become regular space travellers in the coming decades. Eighteen syndicates will now offer policies of up to $25m to cover interstellar mishaps as the new global space industry begins to take flight. (From The Daily Telegraph, 3 December 2019)

Is fintech helping billions or just a lucky few?

Fintech has been heralded as a solution to cure many of the world’s problems, and the billionaires of Silicon Valley like to tout every new app as a positive disruptor to empower the poorest people on Earth. But is the digital revolution in financial services going to help billions or just a lucky few?

Last month, Luiz Awazu Pereira da Silva, the deputy general of the Bank of International Settlements, used a speech to outline some of the positives and negatives that fintech is already having on the world. He noted that the welfare results of the digitisation of financial service so far are mixed and that it might be naïve to see all fintech developments as a force for global good.

There is no doubt that financial innovation brings enormous potential for societal good. There are still 1.7 billion adults in the world who do not have a bank account, which can exacerbate poverty and create significant inequalities. Remittance is also a massive economic driver, so the need for cheap and easy ways to move money across borders is acute.

Mobile money has already allowed hundreds of millions people in Africa and Asia to access basic financial services for the first time. More than one billion Chinese consumers now rely on mobile banking and there are more than 250 million registered users to mobile banking in India, for example.

Technology is also driving down the cost of cross-border payments. The soon-to-be $2 trillion industry has quickly disrupted what was once an expensive and inflexible system, helping increase global remittance and fuel emerging economies.

But fintech isn’t only driving good. Frictionless finance is leading to growth in easy-to-access debt, often via a fintech firm, with new online-only businesses flooding the market with instant unsecured credit. African fintechs in particular have fuelled a personal debt crisis in some economies.

Moreover, the use of technology to make lending decisions has led to fears that algorithms are creating biases that hurt people of certain ethnicities, magnifying inequality problems that already exist in financial services.

Also, there is evidence to suggest that affluent young white people in urban areas are much more likely to adopt fintech products and services. This may create a situation where the rich just get richer thanks to fintech.

So, it may be a little bullish for digital evangelists to proclaim that fintech is wholly a force for good. There are plenty of issues that financial services need to address or risk increasing global inequality. As such, the industry needs to be transparent about fintech’s possible effect on inequality and ensure collectively that financial innovations are leading to outcomes that could help billions, not just the few.

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