Quantitative Easing (QE)

What exactly is QE?

Economic growth has been correlated to both volume and velocity of money. When banks reduce their borrowing and lending to each other (as they did in 2009 due to high interbank interest rates) and when individuals rather save than spend, the flow of capital dries up and the economy contracts. The solution to stop this is to increase liquidity.

However, to get the financial system moving again it is not as simple. Central banks cannot simply force society to borrow and spend money. Therefore, to stimulate the economy, the monetary policy committee voted to reduce the Bank of England’s interest rates after the financial crisis. Subsequently, through open market operations, interbank, corporate and personal loans became cheaper. The basic principle is to flood the market with extra liquidity and encourage borrowing and spending with the new and cheap money. However, banks act cautiously and utilise this ‘cheap money’, to invest in safe government bonds that pay around 2% or invest it on higher risk assets and do not lend it out to firms and individuals as they are seen to be too risky. Therefore, this initiative does not create economy wide liquidity.

The second arsenal that the Bank of England can use to stimulate growth is to buy assets, consequently increasing the size of their balance sheet. They particularly purchase long maturity government bonds in the open market with newly created digital money. Through purchasing large amounts of bonds and affecting convexity, the prices rise and yields drop. With reduced yields, bonds become less desirable for banks and push them to invest in riskier sectors such as stocks, corporate borrowing and real assets. Subsequently, borrowing costs correlated with long-term interest rates such as mortgages/corporate borrowing rates declined, incentivising individuals and corporate borrowers to pull forward future expenditure.

This process of trying to stimulate growth is called Quantitative easing, however the bank of England cannot constantly undertake this as it needs the country to make money.

So what happens when Quantitative easing is phased out?


The UK economic recovery has been steadily expanding for over eight years, more than the average business cycle. Inflation is now significantly above the 2% target, unemployment rate is below 4.3% (the lowest for more than 40 years) and consumer borrowing has been rising at double-digit rates. However, the state of the UK economy is on a tender balance, demonstrated by the fact that the BoE talked about raising rates on a number of occasions, though not acting on their comments. The pressures arise from greater economic uncertainty against inflationary pressures consequential from a weaker pound raising the cost of imports. However, the BoE did state that it would not sell down its £435bn stock of assets until interest rates increased to around 2%. They are currently at 0.5%. Clearly, Quantitative Easing has helped restore the UKs economy, phasing out Quantitative Easing now will help the economy to go back towards the norm of pre-crisis levels, in order to have enough reserves to tackle the next crisis. These reserves are necessary so that quantitative easing can be used again in the future.

Furthermore, through keeping such an unconventional policy in place for a long time has led to distortion in the markets. Deutsche Bank chief John Cryan favoured tightening of monetary policy stating that the time of ‘cheap money’ needed to end as it causes price bubbles and volatility.

Withdrawing QE would entice institutional investors to re-think asset allocations. Similarly, a reduction in the banks’ balance sheets could also resolve the slope of the yield curve, which is abnormally flat. This results in distortions in discount rates and the way in which firms think about investments.


As seen in the US in 2013, when there are rumours of QE tapering off, investors holding bonds rapidly withdrew their money from market – known as a Taper Tantrum. Consequently, bond yields drastically increased. This highlights the fact that timing is everything in QE and a move too soon is likely to put pressure on fragile companies and households by driving up rates on mortgages and loans. The IMF are warning that unwinding QE could cause a super taper tantrum increasing volatility in the markets. It is unlikely that a sell off can be avoided when the ‘unwind’ begins.

In the US, the Fed have also begun to consider for the long-term potential of the economy as the graph below shows. Without QE, rates are set to rise, which may signal the US economy and the world economy potentially overheating. This forecasted rise will affect duration.   

Screen Shot 2019-01-09 at 16.46.12.png

Figure 1: Copyright Financial Times. 2018.

Furthermore, studies have shown that banks have used a large amount of QE to meet their prescribed regulatory buffers. If this money were to be removed, the banks would contest over the remaining liquidity in order to stay within regulations. One way to mitigate against this is to reduce the amount of capital required to be held in buffers. However, this would reduce the banks capabilities to weather a financial storm.

In addition, through repurchasing those securities, central banks have been able to increase the size of their balance sheets, which will encourage other financial institutions to follow along the same path. By increasing the size of their balance sheets, and thus their equity capital, financial institution managers will be able to shield the institution against risks of insolvency as well as meet the necessary requirements for growth under the existing Basel III capital requirements set by regulators. However, whether this increase in size is a benefit to banks remain questionable as banks are known to hold non- performing loans, especially the likes of Italy and Greece due to their respective bailouts.

Additionally, since central banks have purchased roughly £11.3 trillion of financial assets since the crisis, unwinding this could potentially cause another. Reducing the new inflows of money could lead to severe asset decline and liquidity disruptions.

So should QE be done

Quantitative easing was a controversial untested policy in which the central banks had no other quick remedy to prevent a severe depression. The timing of when to unwind QE will play a crucial role in either returning economies to the status quo, or completely upsetting what has been dubbed as the ‘new normal’, leading to further financial pressures. The monetary policy should not defer for short term and temporary economic fluctuations. It should provide a confidence and stability for the economy, in order to guide business and financial decisions. The idea is simply that if unwinding QE has ill-effects, cutting rates remains an option to offset this. Therefore, the monetary policy committee should endeavour to explicitly state its agendas for the future ensuring symmetric information between themselves and the rest of the UK Economy and banking industry.

In summary

Quantitative Easing is suppose to help stimulate the economy but it can be a expensive process in which the benefits it provides can be completely undone when a government tries to halt it. However if they see no other option its crucial to attempt to kick start the economy and help it grow.


Bitcoin’s Existence and the Banking Industry


As I’m sure you’re all aware, Bitcoin is a peer-to-peer cryptocurrency, developed mid financial crisis, in 2009. Historically, banks have been cynical and untrusting of Bitcoin and cryptocurrencies, but there are a number of positives to be considered. Despite it being labelled as “a fraud” and “ponzy scheme” by CEO of JPMorgan, Jamie Dimon, it has risen way over $5000 in value. The system uses a shared ledger, known as a blockchain, which maintains and automatically updates a record of all transactions.

What’s so great about Bitcoin?

Well the highly encrypted, anonymous and decentralised cryptocurrency has no need for banks or institutions, meaning no transaction fees and almost instantaneous transfers. This means lower costs, less system based transaction errors and greater transaction transparency, which is beneficial for anyone from the individual to large businesses.

As mentioned, the system uses blockchain technology. If a user decided to change their personal Bitcoin balance, there would be a discrepancy amongst users’ records and the changes made would be ignored. Therefore, Bitcoins can’t be counterfeited, so no one has to worry about dealing with fake Bitcoin.

Although banks were sceptical towards Bitcoin and similar blockchain currencies, there has been increasing interest in the capabilities of the technology. BNP Paribas (France’s biggest bank) has started testing the potential of blockchain technology for post-trade processes. Even JPMorgan has since developed QuorumTM, a new network (with increased security and transaction speeds) using blockchain technology.

Sounds pretty good right, so what’s the problem?

The most obvious issue is its volatility. The market is highly uncertain, due to the lack of regulations regarding profits derived from cryptocurrencies. It’s also worth noting that as Bitcoin transactions declined between May 2017 and July 2017 (figure 1), so did its price. This demonstrates that if the liquidity of Bitcoin were to dry up, there can be a huge drops in value leading to a massive loss for Bitcoin investors.
Screen Shot 2019-01-09 at 16.33.59.png

One of the other issues, surrounds the poor security of cryptocurrency exchanges. Unlike, non-cryptocurrency exchanges there is a lack of investor protections, leaving the cryptocurrencies open for the taking. There have been numerous hacking heists on cryptocurrency exchanges often resulting in the exchange being shut down and filing for bankruptcy as was the case for Mt. Gox in 2014.

Stocks, commodities, Bitcoin and other cryptocurrencies can all experiencing these dramatic, wild price swings known as “Flash crashes”. However, cryptocurrency exchanges don’t have circuit breakers in place to halt trading during these periods. Kraken (a cryptocurrency exchange) came under attack, resulting in Ethereum (a cryptocurrency) falling by 70% on the exchange and traders’ leveraged positions were automatically liquidated. Naturally, this has a major impact on any portfolio which contains any form of cryptocurrency.

Another concern for the banking industry is the lack of regulation in the cryptocurrency market. Due to the recent fall in the price of Bitcoin, investors are trying to channel into property, but mortgage lenders and brokers who fear breaching anti money-laundering regulations are turning those investors away. Obviously, if the bank were found to have used the same exchanges to trade Bitcoin on behalf of their clients as criminals, then the bank’s reputation would be damaged.

What’s the verdict?

Well it’s clear that investing in Bitcoin is for the more risk-seeking investors. Bitcoins are traded on unregulated exchanges, not backed by any government or central bank. At present, Bitcoin can’t be the solution to creating faster and more secure transactions, as unregulated cryptocurrency exchanges are prone to market manipulation and vulnerable to hackers. Due to the lack of regulations regarding cryptocurrencies, any regulation that comes out will have an impact on the value of these currencies, which makes Bitcoin highly volatile and unpredictable. Currently, there are too many significant drawbacks and risks outweighing the positives, for Bitcoin to be viable as currency or a smart investment decision for banks. That said, there is still plenty to learn from Bitcoin and cryptocurrencies. Although bitcoin has seen sharp falls in recent months it is now starting to hold above $4,000 a coin, but could change at any moment. However, with the major US stock exchange, the Nasdaq intending to launch bitcoin futures in 2019 and bitcoins becoming more widely accepted as a form of payment throughout the world. There’s still hope for the crypto currencies yet…


ETF’s & Smart Beta strategies……..do they work?

The banking industry has seen a countless variety of marketable assets and securities. The introduction of Exchange Traded Funds (ETFs) has brought a more passive approach to investing, with lower management fees, whilst still being able to be actively traded, on exchanges. The growing popularity of such products means ETFs now form an integral part of our assets at ΓΙΩ Management. Global ETF assets have risen from $800bn to $4.2tn (£3.2tn) in a 10-year period by the end of August 2017. Here we consider the advantages and disadvantages of ETFs to the banking industry.

ETFs are designed to track an underlying index’s performance. Therefore, only small adjustments are usually required to bring the ETF back in line with the index if deviations occur. As a result, ETFs have lower management fees, which offers further potential for increased profitability. Also they mitigate the element of managerial risk in comparison with an actively managed fund (known as passive management). ETFs are able to be bought on margin, sold short or held for the long term and traded when there’s a need for liquidity. This increased flexibility along with the potential for increased profitability is why ETFs are now becoming increasingly popular.

Figure 1 shows smart beta ETFs are set to take off. These ETFs focus on factor investing rather than pure asset classes. The aim of these ETFs is to replicate hedge fund strategies at a fraction of the fees by looking at fundamental factors of the assets within these smart beta ETFs. The goal of these smart beta ETFs is to provide clients with even larger returns,

reduced risk and lower costs by constructing a more dynamic, precise and balanced portfolio.

Thanks to ETFs banks can also profit from arbitrage. As market makers and institutional investors, banks have the ability to create a basket of stocks and sell the basket for more than they paid for the stocks in the basket. If either the ETF or the stocks are mispriced, banks can profit by buying the undervalued and selling the overvalued.

It can also be argued that the ability for ETFs to be traded on margin and short sold can increase the volatility of the underlying. A study showed that the daily rebalancing activity of leveraged ETFs and inverse leveraged ETFs increased the intraday price volatility of Real Estate Investment Trusts 75% of the time and the Dow Jones Industrial Index 69% of the time. While high volatility is generally positive for ETFs, periods of low volatility negatively impact leveraged ETFs. 21 of the 42 ETFs were leveraged, and closed for trading in September alone. These ETFs tend to perform well when markets are volatile; however, the equities markets have been calm arbitrage which because of this stability there has been little for ETFs to increase in value

ETFs are vulnerable to turbulent price swings. After ‘The Crash of 2:45’ back in May 2010, regulations were introduced such as market-wide circuit breakers; but in August 2015 these were proved inadequate after another flash crash.

During the first 15 minutes of markets opening, there were 1,278 trading halts for 471 different ETFs and stocks meaning it was not possible to calculate the fair value of many ETFs (see figure 2). Technological improvements are needed to refine the trading mechanisms of ETFs. Without this there are likely to be more erroneous and fake trades, which are accepted by the market resulting in another flash crash.

As the banking industry experiences more technological advances, there will be a shift towards alternative, smarter investment strategies, such as smart beta ETFs over the traditional vanilla market capitalisation weighted ETFs. We are only beginning to witness how technology has the ability to transform big data into information for investors. These new ideas can heavily impact how the banking industry and in particular, ΓΙΩ Management, strategizes to maximise returns for clients. The market for ETFs is set to grow and there may be increased volatility and more innovative forms of ETFs being introduced. Either way, we will seek to capitalise on any arbitrage opportunities. It is unclear whether there currently exists an ETF bubble; however, ΓΙΩ Management believes ETFs can bring a positive change to the banking industry if closely monitored and supported by new regulations.

All the best & have a good day



Farringdon Group



UK ‘Shatters’ Tax Secrecy of Offshore Territories


The tax secrecy practices of Britain’s Overseas Territories have been “shattered” by the UK government, which in a dramatic turn of events, put its support behind an amendment that will introduce public ownership registers.


In the House of Commons today (1 May) foreign office minister Alan Duncan said the government would not oppose an amendment to the anti-money laundering bill, tabled by Labour MP Margaret Hodge and Conservative MP Andrew Mitchell.


Lifting the veil

The government’s decision to support the amendment means British Overseas Territories must introduce public registers that disclose who owns the assets in companies registered in the jurisdiction.

If a territory fails to introduce such a register by the end of 2020, they would be forced to through a Privy Council order.

Before supporting Hodge’s amendment, the government tried to thwart it, by tabling its own watered-down version.

However, in dramatic scenes, the government missed the tabling deadline for their amendments meaning they were not eligible for consideration.

Richard Murphy, tax transparency campaigner and director at Tax research UK, told International Adviser the government had to support the amendment after realising it faced imminent defeat.

“I guess the mess up meant there was nowhere to go,” Murphy said.


Crown Dependencies excluded

The Crown dependencies of Jersey, Guernsey and the Isle of Man were not included in the amendment, however Mitchell said he expected them to follow suit.

Murphy said he believed the dependencies were excluded because there could be uncertainties over constitutional arrangements between the jurisdictions and the UK.

“However, in the Overseas Territories it is absolutely unambiguous that the UK can do this.

“British Virgin Islands (BVI), Cayman Islands, Bermuda and so on are all now subject to this stage in the law, they will have to have open registers, it shatters their secrecy for good,” Murphy said.

Despite not being included, Murphy said he believes the Crown dependencies will be forced to eventually follow suit.

“I think there could be a private members bill, or another amendment the government might put forward to make them comply.

“I don’t think the UK is going to put up with the overseas territories having one standard and the Crown dependencies having another,” he said.



Foreign Office minister Alan Duncan told the House of Commons it was not clear that the UK could enforce such a register on the territories.

He made a point of noting that overseas territories were not represented in the UK parliament.

“Legislating for them without their consent effectively disenfranchises their elected representatives.

“We would have preferred to work consensually with the British Overseas Territories to make those registers publicly available.”


Industry reaction

Geoff Cook, chief executive of Jersey Finance, told International Adviser the island was absolutely in line with the UK in its commitment to combat money laundering and financial crime.

“Information on our central register, which is tried and tested for almost three decades, is available to the people who need that vital information and we are constantly working with law enforcement agencies and other relevant authorities to ensure they have everything they need.

“Our position is clear: we don’t allow the identities of beneficial owners to be hidden, and you can’t buy or form ‘shelf’ or ‘shell’ companies in Jersey.

“We’re proud to have a rigorous checking process, and that means we’re one of the few jurisdictions that can have absolute certainty about its business practices, and who it works with – now, and in the future,” Cook said.

Courtesy of International Adviser


All the best



Farringdon Group

+60 3 2026 0286

UK Inheritance Tax Receipts Reach Record £5.2bn



The UK government hauled in £5.2bn ($7.2bn, €5.9bn) of inheritance tax receipts during the 2017/18 tax year, a figure 8% higher than the previous year.


The 8% rise, representing £400m, for the latest tax year comes despite the government introducing the residence nil-rate band (RNRB) allowance in April 2017.

The RNRB, combined with the traditional nil rate band, allows married couples to pass on a family home worth up to £850,000 tax-free.

Under the government’s current plans, the RNRB will be increased each year until 2020, when a married couple will be able to bequest a home worth £1m tax free.


£400m more

The latest rise extends the steadily rising trend for return for the government from this tax, with HM Revenue and Customs data showing that  inheritance tax receipts have increased by 100% in just seven years.

In a Financial Times article, HMRC said it expected inheritance tax receipts to fall as the RNRB allowance increases.

“The allowance was only available from April 2017, much of the tax received dates from before the new relief took effect,” HMRC told the Financial Times.


Order to chaos

Despite HMRC expecting inheritance tax receipts to drop, many experts say people are not taking advantage of the allowances as they are extremely complex.

In January the UK Treasury acknowledge that inheritance tax is “particularly complex” and requested that the Office of Tax Simplification (OTS) carry out a review.

George Bull, senior tax partner at RSM UK, said the review provides a “crucial” opportunity to simplify inheritance tax.

“Without a doubt, there is a continuing need for these reliefs but somewhere along the way they have lost their original focus. Now is the time to review that,” Bull said.


I would also have to agree, so many of the people I meet do not think of doing a review or find it difficult to discuss, however this is so important not just for succession planning but to secure your lifetime’s work, savings, investments without paying HMRC even more.

I would be happy to meet for coffee, either in person or conference call and we can discuss things further.

All the best



Farringdon Group

+60 3 2026 0286

Courtesy of International Adviser


Setting Up an Offshore Company & What does it Mean


Setting Up an Offshore Company & What does it Mean


If you are running a business overseas and your revenue is not sourced from your country of residence, you may want to seriously consider an offshore company. BVI, Samoa, Seychelles, Marshall Islands, Belize, Anguilla; these are tax efficient countries.


What does that mean?

It means tax efficiency on income, profits, capital gains and estate. Therefore, there is more leniency with the authorities with tax returns and reporting and some may not require any (Please ask me for more info). Except for the Seychelles, all other jurisdictions have no requirement to file annual returns also.


Many people don’t realize the ease of maintenance – there is no annual statutory filing to worry about like Singapore or a Hong Kong company since there is no requirement to lodge any returns. The client just needs to pay the annual fees at the time of renewal and that’s it.


In terms of costs to run, they are also pretty small. You can set up a company for a few thousand dollars and annually they cost less than a 1000 dollars to run. When you consider that you may be paying 20% or more in tax on company earnings that can be significant in terms of saving.


If you are concerned about disclosure, you needn’t be; directors and shareholders information are not on public records and this information is not searchable even if 3rd parties pay for a company search. Such information is kept at the Registered Office and Registry (for register of directors only) and if anyone requests for such information, the request will be forwarded to the owners but nothing will be provided, unless there is a court order for various other reasons.


Offshore companies are also widely accepted and understood by the international financial community – it is possible to open bank accounts in Singapore and all that is needed is a bank visit and possible interview. We can also arrange for offshore bank accounts in Mauritius, Puerto Rico and Cook Islands. No visit is required for these offshore banks.


If you have an interest why not get in touch?


I can be contacted at syeomans@farringdongroup.com or +60 2026 0286

All The Best