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Italian regulator fires warning on crypto investing

Greetings.

In this week’s FintechFT, Silvia Sciorilli Borrelli writes about the Italian financial regulator’s warning on cryptocurrencies, I interview the CEO of ethical and halal investment app Wahed and we assess the reasons for Amazon halting its ban on Visa’s UK credit cards.

Italian regulator’s crypto warning

Consob, the Italian financial services regulator, has warned of risks linked to an increasing number of financially illiterate Italians investing in cryptocurrencies.

Its annual study on investment trends in Italy reveals a jump in private investor interest in online trading and cryptocurrencies, a trend that the regulator links to people being forced to work from home because of pandemic restrictions — Italy is not alone here given that millions around the world have turned to retail brokerages during lockdowns.

Paolo Savona, Consob chief, had already highlighted the risks posed by unregulated cryptocurrencies in Italy, where private savings are high and financial literacy is low. More than €1.4tn is sitting in Italians’ private bank accounts so the investment potential is huge.

But of the 2,700 people interviewed by Consob, only half could answer basic financial questions, raising concerns about whether their investments suit their risk profile. Moreover, almost 40 per cent of the survey respondents said they took advice from friends and family rather than professional advisers.

Regulators elsewhere have signalled increasing discomfort over retail investors flocking to cryptocurrencies. Last September, Charles Randell, chair of the UK’s Financial Conduct Authority, warned that vulnerable people risked jeopardising their financial futures in speculation on digital assets.

The Federal Reserve said last November that the US agencies regulating the financial system would give greater clarity on the legality of cryptocurrencies throughout 2022.

The Italian authorities have called for better EU regulation. However, they have also urged the Italian parliament to intervene if international efforts to regulate cryptocurrencies are delayed. The stakes are high in Italy.

Corrado Passera, founder and chief executive of Illimity Bank, told the Huffington Post it was “extremely urgent” for Europe to develop its own digital currency.

“We need the digital euro to spur new opportunities, but also because without it will be very difficult for us to defend our monetary sovereignty, and therefore our political and economic one, too,” he said.

Passera added that it was impossible to understand the implications of the debate without understanding the extent of global growth in cryptocurrencies, which is already leading to disintermediation and deregulation. Despite a dip at the end of 2021, the total market cap of the cryptocurrency market is close to $2.2tn, up from about $750bn a year ago.

(Silvia Sciorilli Borrelli)

Quickfire Q&A

Every week we ask the founders of fast-growing fintechs to introduce themselves and explain what makes them stand out in a crowded industry. Our conversation, lightly edited, appears below.

I chatted with Junaid Wahedna, founder and chief executive of Wahed Invest, which operates the world’s first automated halal investment platform. Launched in 2017, the app excludes obvious categories such as alcohol stocks but also uses debt ratios and other factors to figure out if a stock is applicable. To date, it has raised $40m in Seed and Series A rounds, with Saudi Aramco Entrepreneurship Ventures, Rasameel Investment Company, Cue Ball, Dubai Cultiv8 and BECO Capital among its biggest shareholders. In 2021, it launched its app in the UK market.

Where did the idea for Wahed come from? The idea was conceived in New York City in 2015, where I was working as a Wall Street banker. I was in the back of a yellow cab, and the driver asked me where he should invest. At that time there was a lack of options for him to get the financial guidance he needed about investing in an ethical and halal manner, so he asked his local imam where to put his money. The imam told him Apple stock was compliant so the driver was about to put all his family’s retirement savings into a single stock. That got me thinking that people needed an easy, accessible and affordable halal investing platform.

What are the particular challenges of running a halal investment platform? The biggest challenge is ensuring that the companies in which you invest meet the requirements of the sharia when they are based in economies that don’t have the same requirements. For example, prohibited industries such as pornography and gambling might be considered immoral but they aren’t illegal in a lot of countries. In addition, due to much of the financial system being predicated on interest, it becomes very difficult to avoid or limit, making it more challenging to find applicable stock and shares.

More broadly, how do you approach ethical investing? Part of the challenges come down to how companies are structured and the amount of operations they are involved in, which can make the possibility of activity not meeting ethical requirements much higher. Because investments are made based on publicly available information, reporting can always be set up to reflect what the companies want to be shown. Navigating through all this while reporting remains nascent is a huge hurdle.

Wahed uses a mixed criteria to help us navigate our investments, from debt ratios to negative screening out and increasingly looking at those companies which provide social benefits. Using a mixed criteria allows us to go some way in ensuring that we are ethical since we pick companies which have an established track record.

What considerations came with the launch in the UK in terms of both existing competition and new customers? The UK remains underinvested and there are many underserved communities, such as Muslims, who want to invest in an ethical and halal way. But Wahed’s mission goes beyond that — we want to create an alternative to the debt-based financial system that is better and more sustainable for everyone.

Fintech Fascination

Amazon stops Visa ban — just days before it was due to be implemented. The news that the retailer and payment provider were working on a solution seems to vindicate the industry analysts who predicted it was a negotiating tactic. Visa, which has about a third of the British credit card market, is the only major player not to offer a co-branded card with Amazon in the UK.

Cryptoland saga rolls on — Jemima Kelly reports on developments in the strange tale of a promised crypto paradise island whose promotional video was so widely shared (for the wrong reasons) that it was pulled from their official YouTube channel. Critics were sent cease and desist letters — or “cease and decease” as one tweet put it — without a lawyer’s sign-off and questions have been raised about the assets used in the promo video.

Signal’s payment punt under scrutiny — Lex assesses the latest encrypted messaging app to explore digital payments. Although a small player in the market, Signal’s exploration of anonymous digital payments is unlikely to win over regulators with the option to make payments in a way that could circumvent government oversight.


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