Artificial Intelligence (AI) or Machine Learning (ML) is now a hot topic and subject to intense research by the leading players IBM, Google, MIT etc. Whilst it has become a mainstream lexicon it is often only thought of in the more scientific and glamorous arenas such as driverless cars and drone deliveries. These pose all sorts of legal dilemmas, despite Google’s assertion that roads will be safer with driverless cars, how will the legal consequences unfold when there is no immediate human intervention to an accident? Agency and vicarious liability, duty of care and negligence will all have to be reinterpreted in the new area of legal person, which might not be a person but Artificial Intelligence, that is to say software. Progress is being made and I note that this week the US transport regulator has just indicated that a robot could meet the legal definition of a driver. Does that mean Google will now be responsible for insuring your car?

In other areas of AI the world is not waiting for the legal, regulatory and technology worlds to come together, businesses are deploying AI and gaining new insights. Gartner, the research company, has calculated that the world’s information is set to grow by 800 percent over the next five years. This is a problem; how will we cope with 800 times more information? Fortunately, there are companies like RAVN and Blinkist that are addressing data explosion problems like these, they automatically read, interpret and summarise key information from documents and unstructured data. This is both an asset and indeed a threat to knowledge based industries.

In other areas Big Data has quietly but completely changed the way business is conducted, market research is one of them. Analysing masses of information generated by an exponentially growing social media culture AI and ML deliver hitherto inconceivable insights and sentiment analysis. The technology relies on extremely clever algorithms crunching vast data lakes of information. They cannot replace decisions based on human instinct but they can learn from experience and the enormous scale of compute available means they can crunch and model vast data scenarios and tune the algorithms from the results creating self improving software, hence the term machine learning. One of the fastest advancing areas of AI is machine vision, and particularly facial recognition which has all sorts of potential, as of today Facebook can recognise faces better than any human.

IBM have now coined the phrase “the cognitive era” which they say the second age of machine learning. Applying these techniques to vast disparate data sets will allow scientist to look for better ways to tackle cancer or for oil and gas companies looking to improve the accuracy of exploratory drilling.

The technology is equally applied to financial services, Standard Bank have used IBM Watson to speed handling of customer queries, allowing it to identify customers quickly so they can respond faster.

Citigroup have also used Watson's analytics with the aim to improve customer relationships and interactions in the bank.

Customer service, or the lack of it, is highlighted as a major issue by Consultancy.uk in their research into customer experience with UK banks and Mutuals. http://bit.ly/20XpDjB and so AI could help the traditional financial services respond to the threats from the new wave of challenger banks.

There is a flip side to this advance technology, the impact, according to the Economist and researchers from the University of Oxford suggest that 47% of jobs in the western world could be automated within the next two decades. The FT recently reported that scientists have warned that rapid strides in the development of artificial intelligence and robotics could lead to the prospect of mass unemployment.

Conversely businesses like GoDaddy, which mostly service small businesses, argue that this will enable jobs, their vision is based upon AI making non-automatable work more accessible to a significantly greater number of people. For example, a small business owner has to juggle a plethora of tasks, finance, HR, marketing, IT etc. Automation should make the process of running a business less daunting thereby enabling a new and increasing generation of entrepreneurs.

Whilst IBM use the term cognitive era others use the phrase “The Second Machine Age” drawing parallels between how the industrial revolution spread form one industry to the next creating huge disruption, the same is happening now driven by smart learning machines rather than mechanising labour.

AI is then very relevant to the offshore financial services market, as the sector looks to increase efficiency and levels of customer service whilst diligently watching for fraudulent or unusual activity. Intelligence driven from from machines is almost certainly going to play an increasing role, whether we take a driverless Uber to our next appointment or not.

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At the end of 2015 I took a couple of weeks off and made the conscious decision to disconnect from all forms of social media, technology, email and news. It was surprisingly harder than I thought, made slightly worse by having my reading material (fiction) on an ipad. The solution was to delete or move all the apps from the opening screen, there is, now I think about it, a need for a secure folder for apps (and data) on tablets, so for any entrepreneurs out there, the idea is yours for 1%. It took me about three days to stop automatically wanting to check social media and email, much longer than I thought. When I did log back in the valueless content became very apparent and resulted in my unsubscribing from many feeds, 2016 then already feels less cluttered.

During our holiday I was lucky enough to dive with several whale sharks (that is me in the picture above), beautiful graceful creatures that also sound amazing underwater. Having photographed them the dive master asked me to email the pictures to the local marine biologist, forcing me, temporarily, back on to email. This then resulted in me downloading their app, The Maldives Whale Shark Research Program, and struggling with my conscience as to whether that was allowed or not.

The distraction of mobile devices does infringe on family life and I noticed things that I probably would not have noticed as quickly, if at all, had my phone been buzzing. That’s another thing I’ve done, turned off all the none essential alerts, vibrations and pop-up indicators so temptation and distractions are removed. When you think about it, society as a whole has become guilty of this, looking at phones in meetings, mums, dads, kids all intermittently dipping into email, Facebook, Snapchat, Instagram etc, often without thinking about and getting lost there instead of with those around them. There are side effects to this multi tasking, the Institute of Psychiatry at the University of London say that when multi tasking our IQ drops 10 points the equivalent of missing a night sleep. Conversely they say smoking marijuana only reduces it by 4 points, probably best not using that argument with teenagers! This drop is apparently temporary but it underlines the fact humans (men and shock horror women too) are not designed to multitask. Information then should be a tool of empowerment rather than distraction or diversion.

The other thing that caught my attention was that all the staff on this remote island had smart phones, being away from family for months at a time, these devices are essential rather than a luxury. One of the staff told me it was the first and second thing he bought with his pay (the second for his family of course) and that through Skype and Facetime he could see his children grow up. It was obvious that he was missing the tactile nurturing and I wondered if virtual reality might ever get to the point where he could spend time with his family in a virtual environment.
The possibility of consumerisation of virtual reality led me to think about what might happen in
2016

My predictions for 2016

• Sadly I still don’t see virtual reality delivering in 2016.

• I think security will continue to be the biggest issue, driven by the adoption of hybrid cloud, mobile growth and the commercialisation of the Internet of Things across all sectors.

• The talent war shows no sign of abating and will inflate salaries and drive companies to source HR more geographically which will bring with it cultural challenges.

• Big Data will gain even more focus, sensors are being embedded into everything and every sector, telecoms companies have a significance opportunity if they partner strategically.

• Cognitive computing and machine learning platforms will emerge and see traction, this is something I think particularly relevant for the Channel Islands.

• Several well funded Unicorns will not meet their expectations and stumble, sadly repeating the employee trauma seen at Good Technology last year, this could spark a rethink of the start-up culture.

• The result will be it becomes harder for seed backed companies to raise Series A.

• Blockchain will become more widely understood and deployed in mainstream applications without the hype.

• As for driverless cars I think this sums it up very well.

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Unfortunately, there are many people who see the word ‘cryptocurrency’ and will immediately dismiss it as a whacky geek idea that will never gain credibility in a well regulated and sophisticated financial world. The people who think this way are likely to regret their refusal to look more closely. Behind cryptocurrencies is the principle of Blockchain, a powerful invention that is not just going to disrupt, but will revolutionise our relationship with the digital world. This means everything from banking, health, insurance, government – you name it, it’s going to change.

The good news for Jersey is that our government has recognised this fast approaching revolution and has already come to a policy position for the regulation of virtual currencies. Ultimately, the aim of this policy is to further enhance Jersey’s proposition as a world leading fintech jurisdiction at the forefront of this digital transformation.

Jersey has made the decision to regulate at the interface between fiat and virtual currency in order to prevent money laundering and to counter the financing of terrorism. The policy also highlights the fact that our Financial Services regulator is open to and interested in nurturing this emerging industry by introducing the concept of a regulatory sandbox for cryptocurrency businesses. This will allow small businesses to get started and then, once turnover reaches defined thresholds, they will see the appropriate regulations introduced. This pragmatic approach is a clear message to the fintech sector that while Jersey’s highly respected finance industry needs to be protected, the regulator and our government are also open to helping small, innovative businesses to establish themselves and flourish here.

Jersey is a highly innovative jurisdiction for this sector and I predict that licensing and regulating cryptocurrency exchanges will eventually lead to a stabilisation of the currency’s value, which will result in an increase in retail adopting Bitcoin.

Cryptocurrencies are early adopters of blockchain protocols and The World Economic Forum (WEF) expects that by 2027, 10% of global domestic product (GDP) will be stored in blockchain technology. This is extremely significant for Jersey, as we are already establishing ourselves as open to this up-and-coming sector.

This said, there still seems to be a continued reluctance to take cryptocurrencies and blockchain seriously. This is because many are still unsure about what they are and there’s a tendency to assume that they are one and the same. The short answer is, they’re not the same! A cryptocurrency is a digital currency, whereas blockchain is a verifiable distributed ledger of digital events that can be updated only by a consensus of participants in the system, and once information is entered and verified, it cannot be erased.

Essentially, blockchain is used alongside cryptocurrency to make a record of every transaction, however, its usage is actually universal. This is because blockchain ensures certainty in what is often seen as an ‘invisible’ digital world where internet security is forever an issue. I recently saw Dave Birch, Director of Innovation at Hyperion describe various types of blockchain as part of his presentation at Fintech Jersey 2015 , the island’s first ever fintech conference. His presentation can be found here, I’d highly recommend taking a look at Slide 5, which provides the best explanation of blockchain that I’ve seen!

Blockchain is being identified across the globe. The UK’s Financial Conduct Authority is also looking into its potential benefits, launching an Innovation Hub and releasing the WEF’s Technology Tipping Points and Societal Impact report, which forecasts that tax will be collected by Government via Blockchain for the first time by 2025.

The blockchain phenomenon is not just happening at Government level; recently, a member of a small team working for a Swiss bank at London’s Canary Wharf, tapped a screen and a bond was sold by a company called ABC to an investor called XYZ. This type of transaction is executed millions of times a day by banks globally, but this dummy transfer was different. It was completed via an internal blockchain. Banks are becoming increasingly open to the power of blockchain technology, with many believing that the technology could reduce costs by $20bn (source ft.com) and transform the way the industry works.

Blockchain shouldn’t be viewed as a threat to the banking system, but as an opportunity, which will provide:

• Increased transparency. Blockchain is essentially a global ledger, which can have the effect of allowing free flow of money, taking the risk out of compliance
• Better property records in emerging markets, making everything traceable
• Increasing tradable assets, as all kinds of value exchange can be hosted
• A reduction in the overall cost

The impact of blockchain could be far reaching, with the WEF predicting an explosion in tradable assets as all kinds of value exchange can be hosted. Blockchain is already being proposed for use within the music streaming industry to ensure the transparent distribution of royalties.

Recognising trends in the emerging world is highly important for Jersey’s future economic success. Former Group CEO of Barclays, Antony Jenkins, recently stated that the world’s top banks are likely to cut jobs by half within the next 10 years, as they fight to stay relevant and profitable against ‘unstoppable force’ of technology. Finance is the major employer in Jersey, it accounts for over a fifth of the island’s workforce, however, if you look at the sub-sector of banking in the latest government statistics, employment there has fallen below levels seen before the crash in 2007 and 2008. Banking is not going to return to the status quo of a pre-recession world, Antony Jenkins’ predictions are not years off, they are already happening. The world has moved on and we need to ensure that as an island, we are moving with it.
One day we may look back at the Jersey cryptocurrency policy as a landmark in our island’s history.

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Ahead of running the Channel Island’s first (and now sold out) Fintech Jersey conference in October, I thought it was worth reflecting on the island’s progress thus far.

2015 is shaping up to be a pivotal year for Jersey’s fintech sector. We have attracted a growing number of new businesses to the island and local fintech business exports have continued to grow. Jersey’s success has been based on a combination of experience, innovation and proactively embracing new ideas. The sector is now generating its own activity, this is driven partly by Digital Jersey and autonomously by industry, with events like KPMG’s Fintech Friday. In addition we are experiencing clusters of activity, which are reaching out to a the wider global fintech community.

Jersey as a Global Fintech Hub

Our independence, agility and legal environment has enabled us to charter our own course in building a world class reputation for the delivery of financial services, this combination has resulted in a well established and highly regarded financial sector. Our journey into the global fintech market was a natural development, leveraging our existing strengths and combining them with advanced technology and intellectual property. Our world-renowned finance sector is a natural partner for the technical community, both can take advantage of the opportunities (and challenges) presented by the fintech revolution. The result of this collaboration is evident in the island’s early clusters of fintech specific activity.

Support and Funding

Being an island, Jersey’s size gives us a key advantage, fostering close working relationships. Digital Jersey bridges the relationship between government, the regulator and industry representatives, forming a fintech ‘steering group’ to ensure that there is continued ongoing dialogue. Combined with the Jersey Financial Services Commission (JFSC), we are able build on innovation and implement new legislation at pace. Government recently commissioned a report on innovation and it is in the process of implementing the recommendations in order to further stimulate the sector.

Funding is a key consideration for any business, particularly for start ups and small businesses. There are a number of funding options, from both the public and private sectors, many local and international fintech businesses have successfully gained funding through Jersey. The Government set up the Jersey Innovation Fund, (JIF) allocating £5million as an investment pool to accelerate innovative businesses and support entrepreneurs. JIF continues to seek requests for funding support.

What’s happening in the Jersey Fintech Scene?

There is a diverse cross-section of fintech business currently operating in Jersey, spanning banking, KYC, payments, insurance, portfolio management and market analytics, cryptocurrency and blockchain technology.

Establishing the New Finance Jersey chapter has been another development. This facilitates a global fintech reach, linking us to digital hubs in London, Hong Kong and New York. The Jersey chapter holds meetings to showcase local talent and discuss emerging trends surrounding fintech.

The Future

The island wants to attract innovation and grow its digital skills base, both through importing talent and business, and encouraging home-grown innovation and skills development. We will continue the on-going engagement between industry, Digital Jersey, the regulator and government to ensure that the island responds with speed and agility to market trends.

In terms of disruptive fintech business, which is innovation that will eventually replace existing business, peer-to-peer lending is already well established and a growing number of Jersey financial service businesses are investigating the implications of machine learning and artificial intelligence for their business. Those willing to embrace this technology, particularly when combined with new regulation, are able to accelerate beyond their competitors. Ultimately, the finance sector has to embrace fintech and take advantage of the latest innovations to provide a better customer experience and maximise returns.

Innovation will also bring new skills and access to new global markets, which will benefit the island as a whole. We anticipate a growth and shift of our existing finance sector towards further adoption of fintech solutions, with a parallel development in complementary and disruptive technologies to ensure the Jersey’s offering is multifaceted.

I look forward to the upcoming Fintech Jersey 2015 conference, which will also spur new ideas and build new relationships, as well as offering Jersey key insights into what the global market is doing and what we need to do to stay ahead of the curve.

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The whole fintech sector has exploded over the last five years, with Europe leading the charge as the fastest growing region in the field. According to a report by Accenture, global investment in fintech reached a staggering $12.2billion in 2014, tripling the investment report from 2013. Globally, fintech is fast becoming one of the most rapidly expanding areas for investment and technological opportunities.

In Jersey, we describe fintech as:

“The use of innovative digital tools or technology, to deliver or facilitate financial activity. This activity could be regulated or unregulated and could be considered disruptive or constructive to existing practices.”

Jersey is one of the world’s leading international finance centres, and the fintech sector has the potential to build on our pre-existing strengths. We are well-regulated, with a pro-business environment that attracts entrepreneurs and start-ups from across the globe, and we’re also growing our digital and creative skills base, so you can see why fintech is a really exciting opportunity for the Island.

Fintech will lead to the transformation of the entire financial services industry over the coming years; we will see both existing institutions improving their services, and new players complementing or disrupting them. This is why cryptocurrencies and their underlying technologies are important to Jersey – these include Blockchain and platforms for decentralised applications, such as Ethereum. It is essential for Jersey to embrace this technology; if we do, we have the potential to become a magnet for innovative start-ups in this area, which will generate new opportunities for the finance community.

That said, we understand that there are many considerations which come with the development and application of cryptocurrencies. The consultation paper on cryptocurrency and regulation recently issued from Government has highlighted several points of discussion in this area.

Digital Jersey has been working in collaboration with the Jersey Financial Services Commission (JFSC), the Joint Financial Crimes Unit, States Law Officers and Jersey Finance Limited (JFL) on the consultation paper, which you can read in full here, to tackle a key issue in the world of cryptocurrencies: regulation. The consultation paper takes into account a wide range of views from leading organisations and sets out how various jurisdictions from across the globe are regulating this industry, highlighting the risks that the Government believes are associated with virtual currencies in their current form, including money laundering and terrorist financing risks. Using all of this information, the paper discusses a number of options for regulating virtual currency activity, and considers whether there is a case for adopting a standard for distributed ledger technology and the possibility of pan-Channel Island work in this area.

The consultation is open from 9th July until 7th August, but more importantly there will also be an opportunity for individuals to make comments on the consultation paper at the consultation seminar, which will take the format of an open workshop on 3rd August, 12pm – 2pm at St Helier’s Town Hall.

So what is the initial stance of the digital industry on all of this? Well, it’s important to both protect our jurisdiction from risk and create a framework that is business-friendly and beneficial to the innovation and development of the virtual currency sector and our local digital economy as a whole. We welcome the purpose of the consultation and would like to urge as many people as possible to join this discussion, as this could be pivotal for the Island’s development in this sector, and the future of our digital and finance industries.

Follow this link to register for the seminar here

in JIF board, innovation, innovation fund, Andy Jarrett, jersey, USP

This year’s Enterprise Week events in Jersey were designed to spur business leaders and practitioners across the island to join in the conversation about what the future holds and how to shape it.  This blog is my take on the debate and the inspiring conversations that have taken place during this fantastic series of events, especially following Friday’s event ‘The Brave New World of Business Funding’.  The panel at this event included members of the Tourism Development Fund, venture capitalists/investors, banks, lending companies and entrepreneurs. Its focus was the mechanism of funding that startups and new ventures need to get going.

Having worked with several startups to help them gain access to funding, I was extremely interested to learn what the typical timescales were.  The example given was a request for a £500k loan or investment, based on a comprehensive proposal. The private lenders and banks suggested that for a well researched proposal, complete with all the relevant documentation and also fit in terms of personality with the applicant, the optimistic timeline for funding access was in the region of up to a week, it is worth noting these loans will be based on the usual forms of security. The full-time venture capitalists estimated approximately four to six weeks, the length of time determined by their desire to build relationships and confidence in the executive teams rather than access to money per se.

Which got me thinking – given the need for speed in accessing funding, and the important role for the Jersey Innovation fund in supporting business growth, how does how JIF compare and what can be done to accelerate this process, which has in the past reportedly taken up to six months? 

It is worth noting that there are complexities in a JIF application:

  • The JIF panel do not actually control a fund in the traditional sense, they in effect make a recommendation to the government to loan the money on an unsecured basis. The unsecured nature is a significant differentiator

  • Given the loan is unsecured the timelines between the alternative options should be viewed in that context

  • Unlike other VC models where applicants are coached before they present to investors, applicants to JIF have different levels of experience meaning that some require a number of iterations and take longer

  • Perhaps most importantly though, the JIF panel are not in control of the complete process, far from it, just one example is that each loan requires its own bespoke contract between the government and the applicant, this takes time

  • The processes the JIF panel adhere to include amongst other things are economic impact assessment which is provided to other departments who follow their own processes

  • So unlike a VC or finance company the JIF process has many stakeholders and interconnected processes which do not always match with the pace and urgency of the digital world.

I reflect then that whilst it appears that the JIF process is longer, given a like for like applicant the JIF board strives to work in similar timeframes to VC’s. However the process as a whole, with the hand off to various department which adds time to the overall process and needs attention.

Given the need for speed and also the funding gap at the start up/seed level what options can be considered?  I asked the panel at ‘The Brave New World of Business Funding’ event the following:

“Would a Jersey SEIS (Seed Enterprise Investment Scheme), which underwrites investment into start-ups with tax credits for example, generate more local support from Angel, Seed and High-Net-Worth investors and stimulate the local economy with business and innovation?” The answer was a resounding ‘yes’, with the general sense that investors really did want to invest in the local community, and that something like this would make a significant difference.  

Conclusion

Tech businesses in need of funding work better with smart money and the ability to leverage contacts, so timing is critical to maintain momentum and, in some cases, first mover advantage.  As constructed, the JIF fund can be part of this solution but is far from being the total answer – it was not constructed to be this and operates within the constraints and governance that are imposed.

My conclusion is that the funding ecosystem in Jersey needs further evolution with vehicles, especially in seed and start up space that:

  1. Releases capital to businesses in a matter of weeks.
  2. Leverages people and businesses with industry expertise to deliver smart money.
  3. Generating real stimulus and sense of community.
  4. Crowd funding solutions and / or a platforms to match investors and ideas.
  5. Jersey SEIS or similar to stimulate investment.
  6. JIF as a blend of finance support.
  7. Enable and attract entrepreneurs and provide support, in addition to money to help them succeed.

The JIF board and fund could evolve to support a Jersey SEIS scheme, in this I envisage they would evaluate the applications, critically in this model thereafter there would be no need for other intervention. Part of the JIF fund would be set aside for the JIF board to manage and used to mitigate any tax credits for failed businesses. This would facilitate faster investment through local investors with smart money, delivering on points one, two and three above, whilst continuing with the unsecured JIF loan where appropriate.

The knock on effect of this has the potential to provide Jersey with a USP beyond other tech locations where access to smart funding is available as well as unsecured loans, which would act as a catalyst to inward investment of businesses.  It would generate GVA, jobs and support the creation of new tech startups. 

This sort of approach would leverage our existing strengths, including our vibrant finance community, while also helping us to diversify  - a winning combination that we are all hoping for.  Furthermore, as we have seen FinTech emerging as an evolution of the traditional finance sector, this approach would also highlight opportunities. 

Digital Jersey will be publishing a paper on SEISs and what benefit they could have to Jersey later this week.