Financial markets gave investors a lot to ponder during the Thanksgiving holiday-shortened week.

US stocks closed out the week at record highs on Friday, propelled by technology stocks, while Treasury yields declined and the dollar slipped, reversing eight straight weeks of gains.

There was plenty of good news for markets. Wall Street was optimistic about President-elect Donald Trump’s Treasury Secretary pick, hedge fund executive Scott Bessent, and the possibility of more business-friendly conditions after Inauguration Day.

“This is the exact pick the market wanted,” Ed Mills, a Washington policy analyst at Raymond James, said to Yahoo Finance about Bessent.

Other good news included stable inflation numbers, decent consumer sentiment, and a solid start to the holiday shopping season as consumers took advantage of discounts on electronics and clothing.

The National Retail Federation estimates total holiday spending in November and December will reach as much as $989 billion.

“It’s become a social activity, and I think that’s why we’re seeing some uptick in mall traffic,” former LVMH chair Pauline Brown said.

R.J. Hottovy, head of analytical research at Placer.ai, added, “We’re starting to see a bit of a comeback in those door-busters we saw once upon a time.”

However, tariff talk added uncertainty back into markets, particularly with Trump’s pledge to impose 25% tariffs on all goods coming into the US from Canada and Mexico on day one of his administration and an additional 10% tariff on goods from China.

Trump wrote the tariffs on Mexico and Canada will take effect if the two countries don’t take strong action to clamp down on illegal immigration and illicit drug flows.

“I’m not a fan of broad-based tariffs — they make me really uncomfortable and nervous,” Moody’s Analytics chief economist Mark Zandi said about concerns over a broader global trade war erupting and the potential inflationary effects.

“It will not be good for the consumer,” former Gap CEO Mickey Drexler added.

Still, Trump’s nomination of Scott Bessent to the top Treasury post raised hopes that tariffs will be more measured. And with only 21 trading days left in the year, analysts, investors, and market watchers expect the good news for stocks to continue, barring any unforeseen events.

Year to date, the Dow Jones Industrial Average (^DJI) has risen 19%, while the S&P 500 (^GSPC) has gained 26% and the tech-heavy Nasdaq Composite (^IXIC) has gained 28%.

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The boss of the UK’s financial watchdog has said criticism from MPs that it has failed to reform after years of scandal is “not fair”.

Nikhil Rathi, chief executive of the Financial Conduct Authority, said it is “tackling financial crime… on a scale that has never been done before in the UK”.

He was responding to a report from a cross-party group of MPs which said the FCA was “incompetent” and that its culture has “got worse rather than better”.

It also accused the FCA of failing to properly investigate the banks and other financial organisations it regulates, suggesting it may be too close to them.

The report published on Tuesday came in the wake of backlash against the FCA’s handling of the Neil Woodford investment scandal and other controversies such as its debanking report.

It referenced years of similar criticism from other reports, including a 2016 paper from the New City Agenda which said there was “a deep seated culture of box-ticking” at the FCA.

The report also hit back against the suggestion that the FCA had changed.

“It is imperative the reader doesn’t fall into the trap of thinking that the FCA… has already resolved the long list of problems the evidence that has been painstakingly gathered shows it has, because it hasn’t,” the report said.

However, in an interview with BBC Radio 4’s Money Box show, Mr Rathi defended the FCA against these claims and argued the regulator had improved.

“We will always stay focused on improving our operational performance, but I don’t think it would be fair to characterise the position as nothing has happened,” he said.

He added that the FCA is making “record numbers of financial crime prosecutions” and that it is “one of the most evolved consumer protection regimes in the world”.

The report goes on to state that the FCA may have been “captured”, meaning it is too aligned with banks and other financial organisations to act against them.

It argues there are “unmanaged conflicts of interest” within the FCA because of its role both to protect consumers and promote economic growth.

It suggested the watchdog should be stripped back to a regulator purely focused on consumer wellbeing – leaving the government to focus on economic growth.

It also suggested that the FCA’s leadership should be replaced “if necessary”, calling its current leaders “opaque and unaccountable”.

Mr Rathi said the issue of growth versus consumer protection “requires a debate”, but that Chancellor Rachel Reeves was pushing it to pursue growth.

He accepted that promoting growth can mean increasing risks for consumers, pointing to changes it made to allow more companies to list in the UK, such as on the London Stock Exchange.

“We were very transparent all the way through that discussion over the previous 18 months that this would bring more risk into the system, [but] it was judged that this was necessary,” he said.

“That does mean that over time a few more things will go wrong, but the risk appetite in the economy needed to adjust to support the growth that the economy needs.”

On the issue of accountability, Mr Rathi said the FCA appears before Parliament and select committees and publishes more data than “any other regulator in the world”.

A Treasury spokesperson told the BBC: “Many of the issues explored in the report have been extensively reviewed, and as a result the FCA has made a number of changes.”

The European Union has published a report exploring the potential for permissionless blockchain in traditional finance (TradFi). It argues that permissionless blockchains should at least be considered as options for TradFi and financial market infrastructures. However, adoption should happen in a cautious manner.

Fabian Schär of the University of Basel is the paper’s author. He wrote one of the most cited early papers on Decentralized Finance (DeFi). While Mr Schär is a proponent of permissionless blockchains and DeFi, the paper is nonetheless objective and thorough.

It argues that permissionless blockchains can be more neutral than private ones, and in turn encourage competition. Unfettered access enabled by public blockchains contrasts with the siloed permissioned blockchains that are proliferating. While public blockchains have drawbacks, there are many widely known workarounds to their challenges, particularly by adding permissions at the smart contract level.

Mr Schär proposes that permissionless blockchains can provide an interoperability layer for layer 2 blockchains, including regulated ones. When smart contracts are on a single chain, they are capable of being composable into more complex functionality. Composability is possible across multiple blockchains but is weaker and messy. We’d note the point about composability is sometimes a blind spot in the TradFi space. Our recent report on DLT payments highlights that some application designs overlook composability and how to address that.

The EU paper doesn’t gloss over the drawbacks of public blockchains, such as scalability, privacy, finality and governance. It delves into each topic, as well as the contentious issue of maximal extractable value (MEV) in which block proposers sometimes reorder transactions at the expense of blockchain users, a type of front running. Mr Schär describes each challenge and the pros and cons of the various workarounds.

Why permissionless blockchains are so topical in TradFi

Clearly asset managers are attracted to the potential of permissionless chains with the likes of BlackRock and Frankin Templeton launching on-chain funds.

From a policy perspective, the paper is timely for three reasons:

In the latter case, one example is Singapore’s global layer one (GL1), a public, permissioned and regulated blockchain, which looks similar to a permissionless blockchain.

The EU DLT Pilot Regime

In early 2023 the EU DLT Pilot Regime came into force, which relaxes some regulations relating to central securities depositories. Most importantly it allows the use of permissionless blockchains. We’ve previously written about DLT Pilot Regime candidate 21x, which plans to operate a trading and settlement infrastructure on a permissionless blockchain. Many of the workarounds mentioned in the EU paper will be put into action by 21x and other DLT Pilot Regime participants.

For example, 21x participants are restricted to known entities and it uses a central limit order book. Hence, market surveillance will result in the identification of MEV activities and the seizure of a frontrunner’s on-exchange assets. If there’s an issue with the blockchain infrastructure then the assets can be moved to a different blockchain.

Another reason why the paper is timely is the ongoing debate by the Basel Committee on Banking Supervision, which recently imposed tighter rules for permissionless blockchains, particularly for tokenized assets that are likely to take many of the precautions mentioned in this paper. This encourages the banks to only engage with permissioned blockchains and creates a divide between them and asset managers who don’t face the same restrictions. The Basel Committee also published a paper addressing potential workarounds, but the EU paper is more technical and goes further.

For anyone wishing to really understand the ins and outs of permissionless blockchains in the context of TradFi, this paper is a must read.