From Eurodollars to Datapounds: AI, data, and the re-rebirth of the City
Britain possesses a unique economic opportunity: to become the world’s leading place for the trade, management, and ownership of data. In doing so it can boost the British tech sector, create a new layer of professional services, and potentially develop new market-leading companies. We sense this opportunity for 3 reasons:
(1) current failings in data management & data markets
(2) the regulatory flexibility and variety offered by Brexit and Britain’s CDOT jurisdictions; and
(3) by direct analogy to London’s historical role as the world’s leading centre for international finance.
Setting the scene: AI, data, and the failings of data markets
Britain’s opportunity arises because of problems with data. Contemporary AI is based on three things: data, model performance, and compute capacity. Data is generally useful to organisations, businesses, and individual people by helping them assess their environment and performance, and to make decisions. Within AI, it is used to train AI models to carry out tasks for organisations and people alike. Model training, especially the training of foundation models, requires enormous datasets; these are obtained through scraping the public internet, licensing (or pirating) books, archives, and academic journals, and from utilizing product data such as that created by the users of Gmail, Facebook, or LinkedIn. Having been trained, AI models are then used to analyse, infer, and automate on the basis of data.
The machine-learning approaches that underpin our era’s vast strides in artificial intelligence thus rely on data, but that reliance comes with a host of issues. Broadly, the issues may be summarised as those of:
Economic Concentration: A handful of global technology platforms control disproportionate shares of valuable datasets, creating market dominance. This changes the economic and international balance of power in ways that are not always welcome
Social Fairness: Individuals and smaller firms may lack visibility into how their data is used or monetized, and have no meaningful leverage in negotiations. Because they have limited rights over data, they are left unable to negotiate higher returns from the commercial use of their data.
Fragmentation: Legal, regulatory, operation, and competitive constraints mean that corporate and institutional data is often very siloed. This means that organizations often cannot use their own data to full effect, and works to prevent them from sharing data with external parties. This means lots of potentially very valuable data sits unused.
Property rights: Data is not legally treated as property in most jurisdictions. Instead, it is governed piecemeal through privacy rights, intellectual property, and contract law. This has worked, up to a point, but it hampers the development of new business models and organisational practices that could deal with issues of fragmentation, fairness, and liquidity.
Liquidity: Due to fragmentation and a lack of property clarity, data markets are relatively illiquid. Data owners and data holders are afraid to share the data they hold, fearing legal and regulatory issues if they do. This prevents data seekers from accessing the data they need and finding the value they seel
Solving these problems would have many benefits. It would promote public trust in technology, provide new ways of distributing value within the wider population, enable businesses to access new and better forms of data, and enable the creation of new business models. Britain has a unique chance to solve all of these, at least in part. It has this opportunity due to its regulatory flexibility.
Brexit, CDOTs, and regulatory opportunity
By passing innovative new data related laws, and experimenting with data related initiatives, Britain can create new markets in data and boost its economic growth. It is empowered to do this because of its unique regulatory flexibility, and the high international reputation of English law and the British professionals services ecosystem.
Britain is no longer a member of the EU. This gives it the chance to chart a separate regulatory path from Europe, the USA, and other international powers. At the same time, Britain has something that most countries do not. Because of its ties to the Crown Dependencies and Overseas Territories (CDOTs), Britain has a set of intimately connected partner jurisdictions, jurisdictions that share the same sovereign and core legal system, and that have large social and professional interrelationships with the UK itself. Two things can thus happen:
British experimentation: The UK can use its new regulatory distance from the EU to chart a separate path as regards data law and AI law. This can mean a wide variety of things. One clear potential win would be to expand EU provisions on API access for personal data. Under the EU Digital Markets Act, major tech firms must provide individuals with real-time API access to their personal data. Britain could use its regulatory independence to widen the set of organisations that must provide this API, and to promote the development of infrastructure companies that can facilitate this - the data pipelines, wallets, orchestration systems, and ownership vehicles to receive, funnel, transmit, and hold this data..
Anglo-CDOT experimentation: Working with the CDOTs, the UK tech industry can experiment with an array of different variants and practices. Taking the above example of real-time data access and the intermediary structures needed to hold the data provided through APIs, British firms are well placed to utilise the innovations of offshore jurisdictions. Jersey has pioneered a ‘data trust’ structure that can be used for the fiduciary management of data. The Isle of Man, meanwhile, is shortly to pass laws creating data as an asset class, and providing a new corporate vehicle - the ‘data asset foundation’ - to hold it. With clearer rights over data, huge opportunities await. This could include
Data liquidity: As data property rights will be clearer, data holders will feel more willing to provide, license, and exchange data. This in turn will boost the British AI industry
Fiduciary structures: Fiduciary obligations and regulations over structures like the Jersey Data trust and Isle of Man Data Asset Fountains will ensure that data owner/ holders and data subjects will feel more trust in their data, engendering greater public support for AI and prompting the development of new business models
Data securitisation: Because data will be property it can be turned into securities, giving individuals and organisations the opportunity to participate in an array of wealth generating activities
Data collateralisation: As data will now be ‘property’, it can be collateralized, generating new opportunities for financial products and lending
From Eurodollars to datapounds
The rise, death, and rebirth of the City of London
All this is exciting, because there is a direct analogy between the evolution of London’s role in finance and its potential path in data. If Britain and the CDOTs get data right, it can usher in a new wave of economic expansion. To understand why this can be so, we must first look at some history.
For over a thousand years, London has been a centre for international trade. Archaeology and street names commemorate this; Hanseatic Walk, for instance, is named after the Baltic area’s Hanseatic League, a famous - and powerful - association of merchants, who once had their London base there 800 years ago. Innumerable historical records attest to London’s role as a home of merchants and moneylenders. As the centuries wore on and as the socio-political life of England and Britain evolved , the role of these merchants began to change. Some began developing financial products - stocks, bonds, debt instruments - to fund government expenditure, and the international trading expeditions of groups such as the East India Company and the Royal Africa Company.
London’s true pre-eminence, however, arose due to Britain’s victory in the Napoleonic wars and its rapidly-expanding industrial base. During the first industrial revolution, with Britain-made products now exported and used all over the world, the City expanded to new heights. English common law became the legal standard for commercial transactions taking place far away from Britain, often between two non-British parties. The British pound, meanwhile, became the leading international unity of exchange, and a global reserve currency. From Argentina to Shanghai and Cape Town to Melbourne, international trade ultimately connected back to the City.
War created Britain’s financial power, but war also destroyed it. By the 1950s and 1960s, London’s financial industry was a shadow of itself. Two World Wars had bankrupted Britain, decolonisation was changing Britain’s international position, and the United States had achieved unparalleled economic and strategic power. Despite this, with a few years the City of London would again flourish, vying only with New York as the world’s true capital of international finance. Why?
London’s renewed financial predominance occurred due to the rise of the Eurodollar market. The immediate postwar era had seen the imposition of the strict Bretton Woods system of international financial management, and with it strong national controls on flows of international capital. However, by holding dollars ‘offshore’ in London, British and US bankers realised they could trade in dollars without the regulatory oversight of the US monetary authorities. In the 1960s and 1970s, more and more Eurodollars were traded in London. The scene was set for Thaterite deregulation, the Big Bang, and the go-go years of 1980s, 1990s, and early 2000s.
Aiding all of this were the CDOTs, which further facilitated the development of the Eurodollars and of London’s rebirth as a financial centre. The most important mechanism here was the ability of international businesses and individuals to deposit money - dollars, but other currencies too - in the low to no tax local offshore offices of British banks. Banks in Jersey, Guernsey, the Isle of Man and Cayman Islands et al would receive deposits for their clients. These deposits would then be used by the big London based banks in order to fund their activities - lending, trading and the like.
For eurodollars then, read data today. In a direct analogy to the past, Britain and its offshore satellites can work together to create new markets in tradeable data. Data can be deposited in offshore British vehicles. From there, it can be funneled into productive AI applications and - as property - be used in finance. Poviding new structures and laws for data is thus a huge opportunity for the UK, UK businesses, and individual CDOT jurisdictions. J
If Britain gets data and data markets right, it can create new industries, new professional services opportunities, and new world-leading companies. Offshore trading on dollars rebuild London; offshore trading in data can rebuild Britain again. We most move from the eurodollar to the datapound. To do so it, Britain must embrace innovation, embrace change, and embrace its offshore partners - the CDOTs.