Finance Monthly - July 2022

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As we wrap up another hectic month and officially enter summer, we present you Finance Monthly’s July collection of articles and interviews covering some of the most talked-about topics in the world of finance. Here are some of our favourite stories from this month’s edition: All of this and so much more - I hope you enjoy the content in Finance Monthly’s July 2022 issue! For more financial news and commentary, please visit our website to stay upto-date on industry news as it happens, join the conversation on our Twitter (@Finance_Monthly), like our Facebook page and follow us on LinkedIn and Instagram (@FinanceMonthly). Best wishes, Katina Male Editor Copyright 2022 Published by Universal Media Ltd The views expressed in the articles within Finance Monthly are the contributors’ own, nothing within the announcements or articles should be construed as a profit forecast. All rights reserved. Material contained within this publication is not to be reproduced in whole or part without the prior permission of Finance Monthly. Circulation details can be found at Universal Media Ltd PO Box 17858, Tamworth, B77 9QG United Kingdom 0044 (0) 1543 255 537 Follow us on Instagram Financemonthly Find us on Facebook Finance Monthly Stay Connected Tweet us @Finance_Monthly Monthly Finance Finance Monthly. Ed i t or ’ s No t e 3 Hello and welcome to the July 2022 issue of Finance Monthly Magazine! 58. Interview with Tech Unicorn Clara 18. A Tale of Two Wall Streets Politics & Markets: The World Ahead 10. Mobile App Trends to Watch in the FinTech Industry 62.

4 Finance Monthly. Con t en t s CONTENTS 10. Politics & Markets: THE WORLD AHEAD THE MONTHLY ROUND-UP News You Can’t Afford to Miss 8. FRONT COVER FEATURE Politics & Markets: The World Ahead 10. BUSINESS & ECONOMY A Tale of Two Wall Streets A Digital Collection Solution to Problem Debt 18. 22.

5 Finance Monthly. Con t en t s 22. A Digital Collection Solution to ProblemDebt 46. Holding Crypto within Private Placement Life Insurance FINANCIAL INNOVATION & FINTECH Interview with Tech Unicorn Clara Mobile App Trends to Watch in the FinTech Industry Embracing Innovation Through Integrated Data 58. BANKING & FINANCIAL SERVICES What are the Key Issues for Charity Trustees? Is Setting up a Fund in Singapore a Good Idea? How to Be Effective in the Fight Against Financial Crime Is the Cost of Insurance Rising with Inflation? Holding Crypto within Private Placement Life Insurance The Importance of Having a Good Financial Plan Digital-First and Not Digital Only in the Financial Services Sector 34. 38. 42. 50. 52. 28. TRANSACTION REPORTS EOL IT Services Joins Tier 1 72. 62. 66. 46. 34. Is Setting up a Fund in Singapore a Good Idea?

Finance Monthly. Con t en t s 6

7 WINNERS EDITION COMING SOON Click here or visit for more information Celebrating the hard work, innovation and vision of the most successful CFOs across a wide range of different sectors around the globe, recognising excellence and achievement in financial leadership. Monthly Finance

8 Finance Monthly. THE MONTHLY ROUND-UP News You Can’ t Af ford to Mi ss The Mon t h l y Round -Up Binance CEO Says Bitcoin Could Remain Below $69K Peak for Two Years According to the CEO of the world’s largest cryptocurrency exchange, Binance, Bitcoin may well stay below its all-time high of $69,000 for the next two years. Changpeng Zhao, founder and CEO of Binance, said investors would have been “very happy” four years ago had they known that Bitcoin was trading at $20,0000 in 2022. Zhao’s comment comes as Bitcoin dropped below that level, wiping out the gains of many long-term Bitcoin holders. Speaking to the Guardian, Zhao said: “I think given this price drop, from the all-time high of 68k to 20k now, it will probably take a while to get back. It probably will take a few months or a couple of years.” “20k we think is very low today. But you know, in 2018, 2019, if you told people Bitcoin will be 20k in 2022, they would be very happy. In 2018/19, Bitcoin was $3,000, $6,000,” he added. Kristo Kaarmann, CEO of £3.9 billion FinTech firm Wise, is being investigated by regulators in the UK after tax authorities found he failed to pay a tax bill of over £720,000. Kaarmann was recently fined £365,651 by Her Majesty’s Revenue and Customs for defaulting on a tax bill in 2018. At the time, a spokesperson for Wise said Kaarmann had submitted his personal tax returns for the 2017/18 tax year late but had since paid what he owed as well as the relevant penalties for missing the deadline. According to a statement from the FinTech company, the UK’s Financial Conduct Authority (FCA) has now launched an investiMajor FinTech CEO Faces Investigation Over Tax Breach gation into the matter, with regulators looking into whether Wise’s CEO failed to meet regulatory obligations and standards. In the statement, Chair David Wells said: “The Board takes Kristo’s tax default and the FCA’s investigation very seriously. After reviewing the matter late last year the Board required that Kristo take remedial actions, including appointing professional tax advisors to ensure his personal tax matters are appropriately managed. The Board has also shared details of its own findings, assessment and actions with the FCA and will cooperate fully with the FCA as and when they require, while continuing to support Kristo in his role as CEO.“

9 Finance Monthly. The Mon t h l y Round -Up British bank Barclays has reached a deal with approximately $2.8 billion (£2.3 billion) to buy specialist lender Kensington Mortgage Company as it pushes forward its influence in the UK housing market. The deal represents one of the bank’s largest recent transactions. Over the past few months, house prices in the UK have continued to soar, with the average price hitting £281,000 in April 2022. This figure is £31,000 higher than the same month a year before. Barclays said the final price would depend on the size of Kensington’s mortgage portfolio when the deal completes. Barclays estimates this sum will comprise around £2 billion worth of home loans. The deal is expected to be completed later this year or early next year. “The transaction reinforces our commitment to the UK residential mortBarclays Agrees $2.8 Billion Deal to Buy London Mortgage Lender Walgreens Boots Alliance (WBA) has confirmed it will retain ownership of British health and beauty retailer Boots after an extensive bidding process for the business. WBA’s move marks the conclusion of a review Market Turmoil Causes Walgreens to Scrap £5 Billion Boots Sale that commenced in January and saw the British retailer valued at £5 billion. WBA said that the sale of Boots attracted significant interest, though global markets have suffered substantially since it launched the sale. Bidders including billionaire businessmen Mohsin Issa and Zuber Issa are understood to have missed out on acquiring Boots, which is the largest pharmacy in the UK. “As a result of market instability severely impacting financing availability, no third party has been able to make an offer that adequately reflects the high potential value of Boots and No7 Beauty Company,” WBA said. Rosalind Brewer, CEO of WBA, said: “We have now completed a thorough review of Boots and No7 Beauty Company, with the outcome reflecting rapidly evolving and challenging financial market conditions beyond our control. It is an exciting time for these businesses, which are uniquely positioned to continue to capture future opportunities presented by the growing healthcare and beauty markets. “The board and I remain confident that Boots and No7 Beauty Company hold strong fundamental value, and longer-term, we will stay open to all opportunities to maximise shareholder value for these businesses and across our company.” gage market and presents an exciting opportunity to broaden our product range and capabilities,” commented Matt Hammerstein, CEO of Barclays Bank UK.

Finance Monthly. Fron t Cove r Fea t ur e 11 Seldom have the markets looked this difficult to read – but they could get worse. Central banks could exacerbate the current uncertainty with policy mistakes, or further exogenous shocks could further undermine sentiment. One area that particularly worries me is political stability. Let’s be blunt, the UK, the USA and Europe are all looking suspect in this regard. We seem to have reached rock bottom in our choice of politicians. Politics & Markets: THE AHEAD Bill Blain Strategist at Shard Capital

ey to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations. They tend to have robust and enforceable legal systems, solid financial infrastructure and a culture enabling transactions and risk-taking. That’s the key to understanding the fundamental strength of the City of London – centuries of stability. All around the world, we are now seeing a rise in instabilities – triggered by supply chain breakdowns, the supply shocks in Energy and Food, and now wage demands. Nations are struggling with inflation, rising interest rates, higher debt service costs on borrowing, rising bond yields, currency weakness, and how to address multiple vectors of financial instability as they try to hold their financial sovereignty together. It’s occurring at a time when we seem to have reached the lowest common denominator in the political cycle. That’s a critical problem – voters need leadership in crisis, and they can easily be fooled by populists. Confidence in a nation’s political direction and leadership is one of the key components of the Virtuous Sovereign Trinity, my simple way of explaining how Confidence in a country, the value of its Currency, and the Stability of its bond market are closely linked. When they are strong – they can be very strong. Strong economies rise to the top. But, if any one of the Trinity’s legs were to fracture, then the whole edifice could come tumbling down. Which is why we should be concerned sterling is down over 10% this year. It strongly suggests global investors have issues with the UK. The UK is a good example of what might go wrong. If confidence wobbles in the government’s ability to handle the multiple economic crises now upon us, particularly the rising tide of industrial unrest as workers demand higher salaries Fron t Cove r Fea t ur e 12 Finance Monthly.

to cope with inflation or servicing the nation’s debt, then the UK’s currency and bond markets could come under massive pressure. Investors will demand a higher interest rate to account for the increasing risk inherent from investing in the UK, while the currency could tumble as investors sell gilts to buy less vulnerable more stable nations. At least the UK is financially sovereign. We control our own currency. Sterling may weaken, but we can always print more to repay debt… Except that would probably cause a global run on sterling as confidence in the UK would further tumble. If the currency leg were to fracture, interest rates would have to rise, wobbling confidence further. The Virtuous Sovereign Trinity sounds stable, but experience shows it can quickly turn chaotic if issues are not swiftly addressed. Clearly, the UK has some current confidence “issues” regarding the incumbent political leadership. The growing perception that Boris is a “lame duck” magnifies internationally held concerns about how his government has failed to seize the opportunities (such as they were) from Brexit, doubts about energy and food security, and the apparent dither in policies are all perceived as reasons for sterling weakness and are another reason bond yields are rising as global investors exit. While the UK’s debt quantum should be manageable – Italy is somewhat different. As part of the Euro, Italy is no longer financially sovereign. It has rules on Debt/ GDP to observe (and ignore). But effectively Italy borrows in a collective currency it has no real control over. It has to plead with the ECB for the right to borrow money and will rely on the ECB to announce special measures to make sure its debt costs don’t turn astronomical. Without the ECB, Italy would be heading straight for a debt crisis. That’s why ECB head Christine Lagarde is desperately trying to guide the ECB towards the establishment of antifragmentation policies to stop Italian debt instability leading to a renewed European sovereign debt crisis. Fragmentation means Italian bond spreads widening to Germany – the European sovereign benchmark. It’s a political issue “Key to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations.” Finance Monthly. Fron t Cove r Fea t ur e 13

because Lagarde is no central banker, but a politician sent in to lead the ECB to the inevitable compromise that rich German workers will pay Italians’ pensions. In the USA there is an even larger political impasse developing. The US Supreme Court’s decision – by 4 old men and one catholic woman appointed by Trump – to deny women the right to control their bodies by undoing abortion rights highlights the increasingly polarized nature of US politics. Republicans, and their fellow travellers on the religious right, are delighted. Democrats are appalled. US politics simply doesn’t work. All efforts by Biden to pass critical infrastructure spending have been stymied. There is zero agreement between the parties – each has destroying the other at the top of its to-do list, rather than rebuilding the economy. The result is increasing doubts on the dollar. It’s a battle the Republicans are winning by dint of managing to stuff the Supreme Court with its appointees. It’s no basis for democracy or market stability. At the moment the dollar is the go-to currency, and treasuries are the ultimate safe haven. It could “It’s occurring at a time when we seem to have reached the lowest common denominator in the political cycle. That’s a critical problem – voters need leadership in crisis, and they can easily be fooled by populists.” Fron t Cove r Fea t ur e 14 Finance Monthly.

change. The world’s attitude to the US is evolving. The West may be united on Ukraine, but global support is noticeably lacking. 35 nations representing 55% of the global population abstained from voting against Russia at the UN. The Middle East and India see Ukraine as a European problem and a crisis as much of America’s making. As the West lectures the Taliban on schooling girls, the Republican party has moved the US closer to a dystopian version of The Handmaid’s Tale of gender subjugation. As the World increasingly rejects America, then America will reject the rest of the World. Time is limited. The Republican Administration, run by Trump, or kowtowing to him, will likely pull the US from NATO and isolate itself. That’s going to become increasingly clear over the next few years. The dollar, the primacy of Treasuries… will leave a massive hole at the centre of the global trading economy. It will be particularly tough for Europe. As we seek alternative energy sources, what happens when Trump 2.1 proves as pernicious as Putin and shuts off supplies? The supreme court decision was clearly timed to come at the Nadir of this US political cycle – a weak president likely to lose the mid-terms in November – when the Roe vs Wade news will be off the front pages. It means the damage to the Republicans in the Mid-Term Elections could be limited – they will still make the US essentially ungovernable for the next 3 years. If the US was a corporate, it would be a massive fail on corporate governance. But it’s not. It’s the current dominant global economy and currency. Politics and markets can’t be ignored. Finance Monthly. Fron t Cove r Fea t ur e 15

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Business Economy. 18. A Tale of Two Wall Streets A Digital Collection Solution to Problem Debt 22.

18 Finance Monthly. Bus i ne s s & Economy

19 Finance Monthly. Bus i ne s s & Economy When you think of Wall Street, what do you see in your mind’s eye? Probably the stock exchange with its gleaming technology. Or bustling trading floors filled with analysts sitting in front of multiple screens, working the phones. Or perhaps a boardroom with plush leather seats, finance moguls hammering out the details of the next big merger. For years, working in these types of environments seemed to be the only way to get things done, both for the security of financial institutions and their clients, and the speed at which decisions had to be made. A Tale of David Rock TWO WALL STREETS

20 Finance Monthly. Bus i ne s s & Economy ut we’re now seeing a divergence among banking behemoths. No longer is Wall Street a united front in corporate American culture. They’re each carving out their own protocols as to when and where work must get done. Citigroup and UBS have taken a hybrid approach, citing the distinct benefits of being together in person while also recognising that working remotely has benefits and creates flexibility for employees. Meanwhile, Goldman Sachs and Morgan Stanley have pushed for employees to return to the office five days a week, saying that everything else stifles innovation, training and mentoring. Many of these large financial institutions have invested enormous resources into office space. Goldman’s headquarters at 200 West Street cost $2 billion to build more than a decade ago and this spring, JP Morgan unveiled plans for 2.5 million square feet of office space in midtown Manhattan. It’s hard to imagine they’d leave these spaces largely empty, particularly when they think there are plenty of people who would be willing to come in and work for them. After all, big banks remain highly desirable workplaces, garnering thousands of job applicants per year only to accept, in Goldman’s case, less than 2% of them – making the institution more selective than Harvard. Of course, the past year has been a grand experiment with different work practices. Wall Street’s banks now have four options: 1. Everyone needs to be back in the office full time. 2. Everyone needs to be back in the office two or three days a week. 3. Everyone can work remotely. 4. Everyone can choose where they work best. From our perspective, we think there’s an important insight that decision-makers are missing. For the first two options, being in the office gives managers the ability (or so they think) to see exactly what their employees are working on when they clock in and out, and who is meeting with whom, raising their sense of certainty. It also gives them a sense of control by dictating when and how work happens. These two actions – raising their sense of certainty and control – may make a manager feel “Big banks remain highly desirable workplaces, garnering thousands of job applicants per year.”

21 Finance Monthly. Bus i ne s s & Economy better, but they aren’t accurately calculating how much worse it could make their teams. According to our research, a majority of employees across a variety of sectors – 54% – don’t want to be back in the office at all and 40% want hybrid options. Only 6% of respondents want to “always or mostly” work in the office. Having to return to the office can threaten people’s sense of status, or their sense of value. They feel untrusted and treated like children. Second, it can affect their sense of autonomy, or our sense of control over a situation, which researchers have found is strongly tied to job satisfaction. Finally, returning to the office also triggers fairness threats, particularly since both the quality of people’s lives and their work performance may diminish when forced back. The real challenge is that returning to the office isn’t a zero-sum game. A manager feeling more in control turns out to be less of an issue than an employee who feels less in control. The reason? In the brain, a drop in certainty or autonomy turns out to be significantly stronger than an increase in the same experience. Our brains are built to pay far more attention to negative experiences than positive ones, perhaps for good reason: if you miss a reward you may miss lunch, but if you miss a threat you might be lunch. The result is that managers may not notice that they feel slightly better, but their teams feel dramatically worse. The big question that no one can answer yet, is the true cost of these different options. When you add in the emotional rawness we all still have from the roller coaster of the past two years – the net effects of offering choice in work environments may outweigh the upsides of mandating people be back in their office swivel chairs. If you require everyone back in and use the real estate, what percentage of employees will you actually lose and what does it cost to replace them? Will that cost matter if others want to come in? Similarly, we know that only 3% of Black professionals want to return to the office full-time and that women prefer working remotely compared to men. Will requiring office time then impact your diversity, if the majority of people who are happy to work nine to five in a city office come from similar demographics? Further, what is the net drop in productivity of making people return to the office, given that working from home is about 25% more productive than working in the office? When viewed from that perspective, it may be best to consider the net effect of all these considerations, compared to the benefits of being together all week. When much of the work can be done virtually, getting together feels special; people are excited to see one another and be productive together. They feel respected and appreciated, instead of being treated like employee No. 749. They’re eager to come to the office for a few days each month for a working session and then grab drinks after. And that, ultimately, may be the best return on an investment you can make right now. 54% of employees don’t want to be back in the office at all and 40% want hybrid options.

Bus i ne s s & Economy 22 Finance Monthly.

Finance Monthly. Bus i ne s s & Economy 23 People oftendon’t like talking aboutmoney. This goes double for debt. But both are unavoidable parts of modern life. And unfortunately, throughout the pandemic, this has only become increasingly true of the latter. The last two years have changed the world in a myriad of ways, one of which is the lingering debt that thousands more consumers are now having to deal with. Unpaid debt or ‘problem debt’ has soared. Pre-pandemic, there were estimated to be just over 1 million UK households facing problem debt. But by mid-2021, Citizens’ Advice estimated that number would have risen to at least 1.5 million. This increase, coupled with a cultural shift that has occurred since we first entered lockdown, has forced debt collection agencies to reconsider their methods. Digital debt collection is helping to transform the industry, not only for lenders but for borrowers too. A Digital Collection Arjun Mitra President of Global Collections at Firstsource Solution to PROBLEM DEBT

24 Finance Monthly. Bus i ne s s & Economy Finding Compassion in Collection Most people would not automatically link compassion to debt collecting, because, in particular, those with problem debt have often only seen the uncompromising face of an outdated industry. But the sector has recently been through a period of self-reflection. Firstsource has been working with creditors and collection agencies for over two decades. Throughout this time, we have increasingly found that using compassion, relating to borrowers, finding ways to empathise with them, has been the best way to recover debts. Building a rapport helps borrowers feel appreciated and understood, leading to much higher rates of collection. One barrier to empathy has been that the number of borrowers has traditionally far outstripped the lenders’ ability to offer this kind of service. It is, in part, this blanket system that has given the industry its current reputation. But the advent of digitised debt collection is poised to change this. How Debt Collection Digitised While anyone would be hesitant to focus too much on the positives that have occurred during the pandemic, there are some rays of sunlight that have shone through. For one, consumers have begun to realise the importance of their voices. This has precipitated the aforementioned cultural change, rearranging consumer hierarchy to emphasise the adage: the customer is always right. And now many industries are looking for ways to become more customerfriendly. The debt collection industry has responded by ramping up its digital offerings. Through the use of various modern technologies, debt collectors can offer a more customer-centric service: • Machine learning: Digital debt collectors are employing machine learning to create tailored repayment plans for each customer. By understanding each borrower’s habits and unique financial situation, collectors can then find the best route to returns. • Personalisedcorrespondence: Customers are offered a range of electronic communication channels through which they can correspond with their collectors. Then, rather than generic messaging, they receive messages with personalised subjects and details about their repayment plan. • Automation: These communications are sent to borrowers through automation, reducing costs for collectors and allowing them to focus on finding new ways to further improve the customer experience. Digitisation has a habit of improving all services, particularly when used as a hybrid service with human interaction, and debt collection is no exception. Many digital debt collectors also offer 24/7 helplines, with phones answered by trained debt collection professionals, for when customers want instant replies from real people. Why Digital Debt Collection Works This digitalisation has worked in line with Firstsource’s findings that compassion is one of the best tools debt collectors have. Organisations like Martin Lewis’ Money Saving Expert, Citizens’ Advice, and a range of charities give advice to borrowers. But a pervading feeling from many borrowers that there is “Pre-pandemic, there were estimated to be just over 1 million UK households facing problem debt. But by mid-2021, Citizens’ Advice estimated that number would have risen to at least 1.5 million.”

25 Finance Monthly. Bus i ne s s & Economy shame in being in debt, originating in the power imbalance that exists between debt and borrower, stops many from seeking help. Each of these applications have started to redress this imbalance, placing more of the power with the traditional underdog in the relationship. By providing unintrusive collections that focus on allowing the customer to decide when, why, and how they are communicated with, collectors help break down the stigma surrounding debt. This is the compassion that Firstsource has been injecting into collections. Empowering borrowers lets them know they are valued and not judged, creating a collection service that is simultaneously more friendly and successful at its primary purpose. Real Proof Digital Debt Collection Works These aren’t just pretty words either, the benefits are already translating into real money for organisations that switch to empathetic digital debt collections. The statistics truly prove these methods are wholly more efficient than the traditional approach. The most tangible way of measuring debt collection success is of course through the money repaid. Clients that have implemented the white-label Firstsource Digital Collection Solution have seen resolution rates climbing by up to 400%, while at the same time collection costs drop by 3-4%. In monetary terms, this has resulted in close to £200,000,000 collected each year. Delinquency rates are also vastly improved. By providing individualised repayment plans, borrowers are far more easily able to meet the terms. This has led to almost ten million accounts being saved from becoming delinquent each year. And finally, digital debt collection has also helped boost collectors’ profits by improving productivity. The fully configurable and compliant software easily plugs into their existing stack to begin automated delivery, giving collectors complete control over workflows, processes, and communications. This mitigates compliance and operational risks and reserves employee manpower for more intricate tasks. Employers can use this productivity to scale up their organisations while reducing costs to help for more efficient future budgeting. Reshaping Our Perception of Debt For many, there has been little choice but to enter problem debt since the pandemic began. In some cases, whole industries have tumbled, and the fallout has hit everyday people the most. In response, the debt collection industry must take a holistic approach when dealing with borrowers. Empathy is a powerful tool that has for too long not been properly used by the industry. To reach the growth it strives for, the sector must not be afraid to change, and in this case, that means modernisation. But beyond that, digital debt collection is the best way, not only to improve profit and productivity but to reshape the way society sees debt itself. “Clients that have implemented the white-label Firstsource Digital Collection Solution have seen resolution rates climbing by up to 400%, while at the same time collection costs drop by 3-4%.” “Most people would not automatically link compassion to debt collecting.”

Banking Financial Services 28. What are the Key Issues for Charity Trustees? Is Setting up a Fund in Singapore a Good Idea? How to Be Effective in the Fight Against Financial Crime Is the Cost of Insurance Rising with Inflation? Holding Crypto within Private Placement Life Insurance The Importance of Having a Good Financial Plan Digital-First and Not Digital Only in the Financial Services Sector 34. 38. 42. 46. 50. 52.

What are the Key Issues for CHARITY TRUSTEES? Daniel Chan, Director at PwC Daniel is a Director at PwC and a member of its Charities Management Board, the national leadership team for the firm’s work with charities. He leads on charity audits nationally and acts as Senior Statutory Auditor for and on behalf of PwC, including for some of the largest charities in the UK. He also leads PwC’s thought leadership for the charity sector, including the Charities Award, as part of the PwC Building Public Trust Awards. Daniel is a member of the Charities SORP Committee, which oversees the financial accounting and reporting rules for charities across the UK and Ireland. He is also Chair of the Institute of Chartered Accountants in England and Wales (ICAEW) Charity Committee and a member of the Chartered Institute of Public Finance and Accountancy (CIPFA) Charities and Public Benefit Entities Forum. Daniel volunteers as a Trustee and the Honorary Treasurer of UK Youth, a national youth charity. He also leads PwC’s Charity Trustee Network, an internal community to support people at the firm who hold charity trustee roles or are interested in becoming charity trustees. He is particularly keen to encourage more young people and people from a diverse range of backgrounds to become charity trustees. Bank i ng & F i nanc i a l Se r v i ce s 28 Finance Monthly.

“Daniel is a Director at PwC and a member of its Charities Management Board, the national leadership team for the firm’s work with charities.” Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 29

What are your views on the current state of the charity sector? Charities come in all shapes and sizes and work across different parts of our society. While the charity sector is not homogeneous, and each charity has its own context and circumstances, they exist first and foremost for the public benefit. With an ever-increasing need for charitiesandnosignsof therebeing any less demand going forward, it is important to recognise the vital role that they play in society. The inspiring work of charities has become more visible and it is important that this continues to be clearly communicated with their stakeholders. With a challenging funding environment, a higher degree of regulatory oversight and greater scrutiny by the media, there is increased debate about their role, how they are regulated, the services they provide and the trust placed in them. It is critical for charities to be purpose-led, resilient and innovative. What have charities learned throughout the pandemic? The pandemic has been challenging for many charities, with some very difficult decisions that have needed to be taken, particularly when faced with higher levels of demand but lower levels of resources. Charities have shown their agility and ability to adapt which has given greater confidence within charities themselves to successfully deliver change. Many charities are continuing to look at how they can drive greater innovation, internally within the organisation as well as in collaboration and partnership with others. A culture of continuous improvement is healthy for organisations to stay resilient. Charities - and, in particular, the people involved - have demonstrated immense resilience and resolve to get through the situation together. But, it is recognised that always being in crisis mode is not sustainable and cannot go on indefinitely. There has been an increased focus on looking after their people. The way in which charities have responded to the pandemic can also be characterised as a period of accelerated change, not least in terms of working practices and the use of technology. Charities have needed to examine their business model to ensure that it is focused on delivering their charitable purpose and fit for the longer term. Some charities have taken this step which has led to strategic organisational change in order for them to focus on and prioritise where they can make the biggest difference, reallocate resources where needed and be innovative in what they do. Connected to this is the importance of clearly defining, measuring and reporting of the impact. All of this plays to the importance of continuing to do the right thing and reinforcing trust through having a positive impact on beneficiaries and demonstrating this to their stakeholders. Charities Bank i ng & F i nanc i a l Se r v i ce s 30 Finance Monthly.

should continue to do what they do best: place their charitable purpose at the heart of everything they do, adapt and respond to challenges as they arise, maintain financial resilience, disrupt and innovate, collaborate and partner, challenge and be vocal about their cause. What are some key issues for charity trustees and leaders? Charitable purpose, reputation and public trust remains a key area of focus. This is at the heart of what charities do and this needs to remain at the forefront of their minds. A number of charities have refreshed their strategy, and it’s helpful for us to really understand how they plan to deliver for those they exist to serve over the short, medium and longer-term. And the reputation of charities, overall, has seen a bounce during the pandemic through the impact they have had. Charities have faced different situations with regards to their financial sustainability - some have found it difficult togenerate income with rising demand while others have conversely seen incomes hold steady but an inability to spend on their charitable activities due to the impact of the pandemic, and everything in between. And, looking forward, there will continue to be uncertainties in this area - not least pressures from inflation. For many, there is a squeeze on income while costs are expected to increase. More and more charities are specifically reflecting on their liquidity and reserves policies, and what this should look like for them going forward. People and culture have increasingly been on the radar for charities. The turnover of people in charities is, like for those beyond the charity sector, high - including those who are leaving the labour market altogether - and this results in significant competition for talent. How it feels like to work at a charity is therefore an important element. Key is also the management of volunteers, for which there has been significant interest over the course of the pandemic. Linked to this are discussions around ways of working and use of office space. Some charities fully left their properties during the pandemic and others sub-letting the space they have. There’s a greater focus on how space can be used more effectively, and charities are adopting hybrid working in different ways. There are live discussions over the balance of how often people should come into the office, and this may differ from charity to charity. Many charities looked much more closely at how they use digital and technology during the pandemic, and there are more charities which are actively considering how investments in this area might help their overall charitable aims. There are also more finance teams seeking to understand how systems can enable greater efficiency. What about Environmental, Social and Governance (ESG) matters? ESG is high up on the agenda. This is about how charities do what they do responsibly, with a holistic lens. There is a role for everyone involved with charities to approach this with an open mind, around whether how we do things is the most responsible way that is true to the charitable purpose. The ‘S’ in ESG is what charities inherently do. It’s about their impact and charities can be clearer about this - in their strategy, “Many charities are continuing to look at how they can drive greater innovation, internally within the organisation as well as in collaboration and partnership with others.” Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 31

action and communications. This is an area where organisations outside of the sector could learn from charities. It is also about the way in which the charity interacts with its employees, volunteers, beneficiaries, suppliers, and the communities which they are in and support. It includes areas such as its organisational culture, diversity and inclusion and modern slavery. It is often taken for granted that a charity, by virtue of its charitable status, will operate responsibly but it is important that this is at the forefront of how charities operate. The environmental factors will be core to those charities with this at the heart of their charitable purpose. However, it is not just those charities with charitable objects relating to environmental matters which should take this seriously, particularly with the spotlight on this given by the 2021 United Nations Climate Change Conference (COP26). All charities should be clear on how they have considered environmental factors within their strategy and decisionmaking. Charities should take time to consider what their impact will be on the environment and how to make positive changes to this. These considerations should also be taken into account when considering their investments, and there are now greater, and often more explicit, emphasis on ESG factors. It is also important for charities to ensure that their governance remains fit for purpose, underpinning its values and enabling decisions to be made effectively in considering these matters. This includes the Charity Governance Code, which was updated in December 2020 with an enhanced focus on the principles of ‘Integrity’ and ‘Equality, Diversity and Inclusion’. ESG is shifting the landscape for all organisations, bringing with it a complex set of risks, challenges and opportunities. What should be the key considerations for charities’ financial reporting this year? At PwC, each year, we review the trustees’ annual reports of charities in the Charity Finance ‘Charity 100 Index’ for our Reporting in Charities Award, as part of the annual PwC Building Public Trust Awards to celebrate those that tell their story in an engaging and effective way. We saw that charities took the opportunity of using their reporting to be honest with their stakeholders about the year that they have had and the challenges they have faced. There was a clear differentiation between those charities that embraced openness in conveying the important work of the charity and their direction of travel going forward. They saw their reporting as being genuinely valuable, beyond being a mere ‘finance’ or ‘compliance’ document, as opposed to charities which had cut back on their reporting during this difficult time. There has been continued improvement in the reporting by many charities over recent years, with greater focus being placed on the impact a charity can make, as well as showcasing how good governance and strong financial management can support this purpose. It has never been more important for charities to be clear about what they do, why they do it and what difference their work makes. It is often hard to compare given the breadth and diversity of the charity sector, particularly among the largest charities, therefore it is vital that charities invest in how they communicate their strategy and impact and demonstrate their value to stakeholders. Reporting by charities is a key part of a suite of communications - “It is also important for charities to ensure that their governance remains fit for purpose, underpinning its values and enabling decisions to be made effectively in considering these matters.” Bank i ng & F i nanc i a l Se r v i ce s 32 Finance Monthly.

intertwined with and underpinned by, a charity’s accounts for the financial year - to demonstrate their charitable purpose, achievements and future plans, as well as provide greater insights into their financial resilience. However, reporting is not necessarily about saying more - often, less is more - but it is about continuous improvement. If readers can’t see the wood for the trees, that is also a barrier to highquality reporting. Reporting that is open, balanced and authentic, and clearly communicates their purpose, strategic priorities and values in the context of the sphere in which they operate, can help to bring what the charity does to life. Charities staying true to their purpose is at the heart of building public trust, and it remains critical for charities to communicate and engage effectively with their key stakeholders in ‘walking the talk’, ‘living their values’ and demonstrating their contribution and impact to their beneficiaries and wider society. Any final thoughts for charity trustees? It is an exciting, albeit uncertain, time to be involved in the charity sector. I would encourage all trustees (and those who are interested in becoming trustees) to actively engage with a wide range of areas. In many respects, the issues facing charities are often similar to those in the corporate world, albeit with a different lens. While charities can learn from organisations beyond the sector, charities should also not shy away from being an example to companies in their areas of strength. PwC London - “While charities can learn from organisations beyond the sector, charities should also not shy away from being an example to companies in their areas of strength. “ Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 33

34 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s Teo Wee Hwee is a partner leading tthe Real Estate, Asset Management & Family Office Tax Practice at KPMG in Singapore. His team consists of 8 partners and over 40 staff focusing entirely on servicing fund managers, family offices and institutional investors on tax advisory matters. With almost 25 years of tax advisory experience, Teo specialises in fund formation and has structured numerous funds that invest in a diverse range of asset classes, such as hedge, real estate, infrastructure, private equity, venture capital, private debt/credit and digital assets. Besides structuring third-party funds, he is also involved in advising ultra-high net worth (UHNW) individuals in setting up their investment vehicles and management offices in Singapore. Tapping on his expertise in mergers and acquisitions, as well as international tax, Teo has also advised multiple clients in acquiring their investments across the Asia Pacific, Europe and US. Teo Wee Hwee Partner, Head of Real Estate, Tax and Head of Asset Management & Family Office KPMG in Singapore Is Setting up a FUND in SINGAPORE a Good Idea?

35 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s In the last 25 years of your career, what would you say are the key tax considerations relating to fund formation? Any differences depending on the asset classes? As it is widely believed that a fund is a mere pooling vehicle, any tax should therefore only be levied at the investors’ and at the investments’ level. As a result, in the past, the main tax consideration has always been focused on ensuring that the fund achieves tax neutrality, a concept that is used to describe the nonimposition of taxes on income and gains and withholding taxes on profit repatriation and return of capital. This objective is quite simply achieved through setting up the fund in a jurisdiction with a favourable tax regime or through a tax transparent structure. However, the key considerations relating to fund formation have evolved tremendously over time. Increasingly, we see added complexities arising from ensuring that the fund structure considers tax implications at the investment level. For instance, if you are setting up an open-ended Pan-Asian real estate fund, the structure must allow the fund to leverage on both treaty benefits and taxadvantaged domestic structures in the target location. These objectives must be balanced with the fund’s marketability, which is also important in determining the fund’s legal form and location. The level of complexity varies across asset classes. Hedge funds possess relatively flat structures and are generally the least complex while setting up a fund that invests in hard assets such as real estate and infrastructure (including renewables) involves greater rigour. This complexity arises from multiple tax considerations on various levels, as such funds tend to have many layers of structures. Funds focusing on private equity, venture capital and debt possess moderate complexity. Lastly, complications in funds focusing on digital assets largely result from the fact that tax treatment of such assets are relatively untested, and many tax incentive schemes globally typically include only conventional capital market products but not digital assets. Traditionally, funds are set up in tax neutral locations such as the Cayman Islands but the fund management functions are often located in a different country such as the US, Singapore, Hong Kong, UK, etc. Are you seeing the onshoring of funds in Singapore and Hong Kong as an increasing trend and if yes, what are the possible reasons? Such a trend has been observed in recent years and can be attributed particularly to changing policies, perceived risks and innovation in fund structures. Setting up and maintaining funds in traditional tax haven countries such as Cayman Islands have become significantly costlier due to increased regulations. On the contrary, it is becoming more cost-competitive to set up funds in countries such as Singapore, especially because of governmentissued grants to enhance attractiveness. “Singapore is a leading financial services hub and is regarded as being transparent, stable and a gateway to the Asia-Pacific region. “

36 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s Furthermore, many institutional investors such as sovereign wealth funds and pension funds are moving away from such a structure because of the potential reputational risks. Certain family offices and UHNW investors are also moving away from such structures, fearing that association with such structures would result in them being targets of tax audits. From a tax perspective, particularly for the purposes of accessing treaty benefits, if the fund and the holding company are set up in the same country, this could arguably reduce the risks of being accused of treaty shopping. For instance, many Asian-focused funds are set up as Singapore limited partnerships (LP) with whollyowned subsidiaries in Singapore. Another contributor is arguably the development of new fund structures offering fund managers and investors more flexibility than before and catering to the various needs of each segment. For example, Singapore fund managers may set up their fund vehicle in the form of a Variable Capital Company (VCC), LP or unit trust. Could you briefly discuss the key benefits of domiciling funds in Singapore? Singapore is a leading financial services hub and is regarded as being transparent, stable and a gateway to the Asia-Pacific region. It is renowned for having an open and well-regulated economy that is well-served by a vibrant ecosystem of service providers such as banks, tax and legal advisers. Using Singapore entities within a fund structure is ideal for several reasons. Singapore has a wide network of over 90 double taxation agreements and a flat corporate income tax rate of 17%. It has a measured approach to regulation with agencies such as the Monetary Authority of Singapore (MAS) and the Economic Development Board adopting probusiness policies. Singapore is also a common law jurisdiction and offers a variety of legal entities and arrangements, such as companies (private limited and VCC), trusts or partnerships. To offer a conducive operating environment to the asset management industry, tax incentive schemes are also available for qualifying funds and asset managers. What about those who want to set up a fund management company in Singapore? What do they need to consider? First, the fund manager should consider whether the fund management company (FMC) is

37 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s required to obtain a licence from the MAS to conduct regulated fund management activities in Singapore. There are two selfinvoking licence exemptions whereby the FMC either manages a fund that invests solely in immovable assets, such as real estate and infrastructure funds; or provides fund management services to related corporations, such as members of the same group of companies. The second exemption is typically utilised by single-family offices (SFOs). If the requirements for exemption are not met, the FMC would have to apply for a licence with the MAS. They may apply for a Capital Market Services licence, where one key feature is the unlimited assets under management (AUM) (typically for mutual fund/hedge fund managers) or register with the MAS as a Registered Fund Management Company (typically for those who manage smaller funds). Next, Singapore offers tax incentives such as the Section 13U (Enhanced-Tier Fund Tax Incentive Scheme) and Section 13O (Singapore Resident Fund Scheme) schemes, which provide for tax exemptions on certain income or gains derived by the funds. One key condition of note is that the fund must be managed by a licensed (or exempted) fund manager in Singapore. Furthermore, FMCs may be eligible for a concessionary tax rate of 10% under the Financial Sector Incentive–Fund Management (FSI-FM) scheme. This is for fund management companies which manage only incentivised funds and commit to, amongst other things, growing their businesses (such as through AUM or headcount) in Singapore over a specified period. Are there any specific rules governing the taxation of carried interest in Singapore? No. In the absence of any deeming provisions in Singapore, the tax treatment of carried interest would prima facie follow its legal form. For funds managed in Singapore, it is common for carried interest to be structured as investment returns and paid out as dividends or partnership distributions if the carried interest recipients have invested a meaningful amount of capital to show alignment of interest with investors. Whilst less common, carried interest is sometimes structured as a performance fee payable to the FMC. In what way is Singapore a favourable location for setting up a family office and what are the types of structures available? Apart from the key benefits mentioned earlier, Singapore operates in a time zone which allows for greater convenience and ease of communication when servicing clients in Asia. The multi-racial society also means multilingual capabilities. Singapore has a good reputation and infrastructure with an unbiased, fair court and legal system, a strong regulatory framework and a stable political environment. The structures typically used by Singapore SFOs include private limited companies, VCCs and/ or trusts. These allow flexibility and enable effortless assimilation into various categories of wealth planning structures. What about someone who desires to set up a multi-family office (MFO) in Singapore? How is it different from setting up an SFO in Singapore? One key difference lies in the licensing requirements. MFOs require an MAS licence to conduct fund management activities, while SFOs typically qualify for licensing exemption. A huge limiting factor for time-sensitive investments by MFOs lies with the approval process of the licence, which may take up to 9 months. Furthermore, FMCs may qualify for the FSI-FM scheme, subject to conditions met. The intention of this is to incentivise fund managers to grow their AUM/fund management activities in Singapore. This scheme ismore targeted towardsMFOs since SFOs’ main objective is generally to grow and preserve family wealth. However, the MAS is prepared to approve FSI-FM applications made by SFOs on a case-by-case basis and if conditions are met.

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