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As we all prepare to try to switch off this month and enjoy the last bit of summer, we present you Finance Monthly’s August 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 August 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 editor@finance-monthly.com 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 www.finance-monthly.com 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 www.linkedin.com/finance-monthly Tweet us @Finance_Monthly Monthly Finance Finance Monthly. Ed i t or ’ s No t e 3 Hello and welcome to the August 2022 issue of Finance Monthly Magazine! 24. 20. Boris Johnson’s Fall & the Future of the British Economy 10. 56. The High-Tech Market Crash: How Businesses Can Pull Through When Will the Costof-Living Crisis be Over? Should I Invest in Bitcoin or Ethereum?
4 Finance Monthly. Con t en t s CONTENTS 10. THE FUTURE OF THE BRITISH ECONOMY THE MONTHLY ROUND-UP News You Can’t Afford to Miss 8. FRONT COVER FEATURE Boris Johnson’s Fall & the Future of the British Economy 10. BUSINESS & ECONOMY How Gen Z is Influencing Green Business Operations The High-Tech Market Crash: How Businesses Can Pull Through When Will the Cost-of-Living Crisis be Over? 16. 20. 24.
5 Finance Monthly. Con t en t s 38. An Introduction to Asset Tacing 64. Should I Invest in Twitter? FINANCIAL INNOVATION & FINTECH In-Store Payment Solutions are the Key to Driving Consumers Offline & onto High Streets Supporting Merchants’ Needs & Maximising Profit: Interview with MiCamp Solutions 46. 50. 50. Supporting Merchants’ Needs & Maximising Profit: Interview with MiCamp Solutions BANKING & FINANCIAL SERVICES Current Hot Topics from the Investment & Crypto Asset Sectors The Role of Due Diligence in the Sanctions Against Russia An Introduction to Asset Tracing The Key Challenges of Asset Tracing 34. 38. 42. 28. Should I Invest in Bitcoin or Ethereum? Understanding Foreign Investment in Brazil Should I Invest in Twitter? 56. INVESTMENT 60. 64.
Finance Monthly. Con t en t s
HCP specialises in off-market and silent offers. Our clients and most properties are confidential, therefore, HCP does not use any website for real estate offers. Instead, a significant network of wealth managers, international legal firms and a few selected magazines are used only. HCP operate in MARBELLA, MIAMI, MONACO, BEVERLY HILLS, HAMPTONS LONG ISLAND and other unique places. The extensive cooperation with property holders and developers, well-known architects and real estate agents put HCP in an excellent position to verify the whole market according to the special requirement of each client. Anja Geselbracht, Managing Director, and her partner firms provide real estate, legal and financial advisory on the highest level. Please contact us personally to find out all about our confidential offers. hcp@international -enquiries.com | +34 632 480 347 Anja Geselbracht CORPORATE OFFICE EUROPE: ABAT ESCARRE 6, 25001 LLEIDA-BARCELONA-AREA/SPAIN experience in international real estate transactions and portfolio management.
8 Finance Monthly. THE MONTHLY ROUND-UP News You Can’ t Af ford to Mi ss The Mon t h l y Round -Up Political Instability Prompts SoftBank to Hit Pause on Arm’s London Listing Japan’s SoftBank has reportedly hit pause on plans to explore a London listing of Cambridge-based chip designer Arm due to the political upheaval in the UK Government following Prime Minister Boris Johnson’s resignation. Johnson, ministers, and executives from the London Stock Exchange have been involved in an 11thhour bid to persuade SoftBank to consider at least a partial listing of Arm in the country. However, higher valuations have recently made New York a more attractive choice for most of the world’s largest tech flotations. “We want to make the UK the most attractive place for innovative businesses to grow and raise capital,” a government spokesperson commented in May. Back in February, SoftBank CEO Masayoshi Son disregarded the UK when outlining backup plans for the flotation of Arm following the collapse of a $40 billion takeover deal by its California-based rival Nvidia. “We think that the Nasdaq stock exchange in the US, which is at the centre of global hi-tech, would be most suitable,” Son commented at the time. However, more recently, Son said London was still an option for the company’s upcoming stock market listing, though added that his top preference was the US’s tech-focused Nasdaq stock exchange.
9 Finance Monthly. The Mon t h l y Round -Up According to the Office for National Statistics (ONS), UK inflation jumped to 9.4% in the 12 months to June from 9.1% in May, hitting a renewed 40-year high and placing further pressure on households. The ONS put June’s inflation figure partly down to a 42% year-on-year increase in petrol prices. Last month, average petrol prices stood at 184p a litre, up 18.1p since May alone. Diesel, meanwhile, increased by 12.7p to 192.4p a litre. Food and non-alcoholic drinks were up 9.8% in the year to June, the highest rate since March 2009. Grant Fitzner, chief economist at the Office for National Statistics (ONS), commented: “Annual inflation again rose to stand at its highest rate for over 40 years.” “The increase was driven by rising fuel and food prices, these were only slightly offset by falling second-hand car prices.” “The cost of both raw materials and goods leaving factories continued to rise, driven by higher metal and food prices respectively.” “These increases saw raw materials post their highest annual increase on record, with manufactured goods at a 45-year high.” UK Inflation Hits 9.4%As Cost-of-Living Crisis Deepens In June, the Consumer Price Index (CPI) jumped 1.3% compared to the 1% increase seen in May, serving as a clear sign that inflation is still running rampant. Compared to one year ago, the CPI hit 9.1% in June, jumping from the 8.6% year-on-year rise seen the month before. The increase maintains the highest inflation seen Political Instability Prompts SoftBank to Hit Pause on Arm’s London Listing in four decades for the US economy. Wall Street analysts had predicted a month-onmonth increase of 1.1% and an annual increase of 8.8%. June’s rise was heavily influenced by higher fuel and food costs. The price of petrol increased 11.2% from May while energy prices rose 60% over the past year. Food prices were up 1% from May and 10.4% over the previous 12 months. Last month, Federal Reserve Chair Jerome Powell vowed that policymakers would not allow inflation to overcome the US economy in the long term: “The risk is that because of the multiplicity of shocks you start to transition to a higher inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening,” Powell said. “We will not allow a transition from a low-inflation environment into a high-inflation environment.”
Bill Blain Strategist Shard Capital Boris Johnson’s Fall & the Future of the BRITISH ECONOMY Finance Monthly. Fron t Cove r Fea t ur e 10
Finance Monthly. Fron t Cove r Fea t ur e 11 If a week is a long-time in politics, then a month is a veritable lifetime ago! AD 69 was the year of Four Emperors in Rome – contenders for the Imperial Purple successively bidding the Praetorian Guard for the right to lead the Empire. The speed at which the Boris regime unravelled in July was shocking enough, but there was something redolent of Imperial back-stabbery in the way his potential successors immediately began bidding for the Dispatch Box with promises of tax cuts and balanced budgets to appeal to the 200,000 odd Conservative Party Members who notionally determine the next party leader and hence the next Prime Minister of the UK. Much mud was slung between the contenders with accusations of every kind of chicanery – but amid the promises, threats and personal attacks, there has been precious little discussion of policy and plans to make the UK fit for purpose as a modern, stable, competitive, and fair economy. Instead, the choice boils down to a hard Brexiteer vs a we-simply-don’t-really-know Brexiteer – who will each try to appeal to the party vote on their anti-European credentials. Determining how to put the UK on the right economic course is critical. We need a plan that micro
and macroeconomic issues – not political slogans; outlining the key objectives necessary for the UK to remain relevant in the modern Global Economy and how we get there. There is absolutely no reason the UK should not succeed. Many of the key parts are in place. Our national finances were strained, but not irretrievably damaged by the pandemic. The economy is functional. There are wage inflation strains – that can be addressed. We remain a wealthy, diverse and demographically advantaged nation. The UK is strong in terms of global softpower – and still punches above its weight in terms of military strength. The danger is that our increasingly factionalised and populist politics remain unfocused on the key economic issues to solve. These are essentially simple – and I’m sure the strategists in Treasury have already got the plans on file ready to hand out to whoever wins: • Addressing the immediate issues of inflation, debt and growth. • How to improve national productivity, promote invention and stimulate the innovation of new industry and business. • Coping and paying for the threat of a global recession. • Reopening trade with Europe to mutual advantage. • Re-establishing energy and food security across the region. • Addressing new threats – like a renewed refugee crisis. • Putting in place an effective and costed energy transition policy that addresses growth alongside ESG. • Reforming the business of government; balancing budgets, reforming the NHS, improving education and defending the nation. • Build a more equitable society by providing social care & support, while ensuring equality and social justice? The issues to solve range across the micro and macroeconomic spectrum - policies to boost productivity, invention, and innovation, facilitating trade and export growth, optimising tax structures, securing micro and macro funding structures, determining and funding the changing role of state and maintaining the UK’s soft and hard geopolitical power in a constantly changing world. Simples. They are long-term objectives, and all of them could be done with enough political willpower. Politics is the business of being elected and staying elected. Since Brexit, making the country actually work has been somewhat neglected. Populist politics and polarisation have dominated the agenda. Even though the Tories were left internally riven by the referendum, they had two key vote winners: i) Jeremy Corbyn, the left-wing leader of the Labour party horrified many natural Labour voters, and ii) a popular populist leader in Boris Johnson who exploited his personal popularity and Corbyn’s unsuitableness to win a landslide in 2019. Boris’ swift tumble from grace will become another footnote on how all political lives are doomed to Fron t Cove r Fea t ur e 12 Finance Monthly.
failure – and the reasonswillmerit little more than a footnote in the history books. But post-Boris, the brutal reality is there are no more excuses. Conservative Politics have to deliver. The problem for the UK is there are some topics which the Conservative Party simply can no longer address or even discuss without immediately self-immolating. It has become factionalised. Either the Conservatives sort their internal division, or we need a new government pronto. The key issue is Brexit. Six years after the Leave vote, it is still impossible to answer the “Webster Question”: Name a single thing Brexit has made better? (Full disclosure – I voted to leave.) Brexiteers will cite the UK’s swift pandemic response and the AZ vaccine – but that’s a one-off highlighting just how good the UK can be when we put our minds to it! For all the talk of opportunities, new trade deals, and money flowing back into the economy from Brussels – the only real thing Brexit has delivered thus far is hardening antipathy with Europe. Not a single major trade deal outside Europe has been agreed upon. Terms of trade and travel with Europe have got increasingly worse. The right economic response would be to find a compromise with Europe to solve trade issues and increase trade flows – mutually beneficial. In an era when global supply chains are in flux, inflation is rampant, where energy and food security are under threat, the UK needs access – not blocks. Yet, none of the Tory contenders will dare talk about “that which cannot be named”: the UK’s ongoing relationship with Europe. To even mention a Brexit rethink or a more constructive dialogue with Brussels – is Conservative suicide. Such talk would drive the European Reform Group into apoplexy. The Brexit Taliban’s idea of engagement with Europe is to immediately refuse it. No Tory contender can dare upset them. The second issue is the NHS. It is Europe’s largest employer and consumes state resources at a furious rate. It is becoming the black hole at the core of government spending. The Tories know to mention reform plays into the hands of Labour to accuse them of wanting to privatise the much loved (but hopelessly mismanaged) national darling – so Tory policy is to simply feed it more cash and leave reform to the next government. Reforming the NHS can no longer be put off. Government pensions – of which the NHS is the largest part – are going to cost more and more, fuelled by inflation. It has to be reformed, made fit for purpose, and that means a new solution that rewards staff and meets the needs of patients at an affordable cost. That’s the real business of politics – making tough and hard decisions. addresses “Boris’ swift tumble from grace will become another footnote on how all political lives are doomed to failure – and the reasons will merit little more than a footnote in the history books. “ Finance Monthly. Fron t Cove r Fea t ur e 13
Business Economy. 16. How Gen Z is Influencing Green Business Operations The High-Tech Market Crash: How Businesses Can Pull Through When Will the Cost-of-Living Crisis be Over? 20. 24.
Bus i ne s s & Economy 16 Finance Monthly. The UK has become more environmentally conscious in recent years. In fact, the global pandemic encouraged people to become more sustainable, and 36% of consumers report supporting companies that are environmentally friendly. But where do Gen Z fit into this? Reconomy, a leading supplier of sustainable waste management solutions, explores how the younger generations are influencing businesses to be more environmentally conscious and how businesses can lead the way for a brighter tomorrow. How Reconomy Gen Z is Influencing Green Business Operations
Finance Monthly. Bus i ne s s & Economy 17 36% of consumers report supporting companies that are environmentally friendly.
18 Finance Monthly. Bus i ne s s & Economy What does Gen Z think? The increasing interest in sustainability has created a space for young people to campaign for continued action against climate change. And thanks to the powerhouse voices of Greta Thunberg, Vanessa Nakate, and Mya-Rose Craig, Gen Z has become the generation of sustainable activists. According to a survey by Bupa, 63% of Gen Z and millennial respondents reported feeling the burden of climate change, compared to only 37% of Gen X and 28% of baby boomers. This could be a result of powerful media coverage that has raised awareness of the damage being caused by our behaviour. Firstly, Blue Planet in 2017, then the WWF advert ‘Fight for Your World’, which resonated deeply with many, stating that this is the first generation to know that we are destroying the world and the last to do anything about it. These values have gone on to influence the individual behaviours of older generations. And, according to a survey conducted by Deloitte, 39% of adults reduced the number of new goods they bought between 2020-2021 as a result of the values of Gen Z and millennials. How has this affected businesses? Individual behaviours cannot be solely responsible for reversing the negative effects of global warming. As a result, people are looking beyond individual factors by holding businesses and governments responsible for national and global carbon footprints. 34% actively chose to buy from sustainable brands between 20202021. But how do consumers know which brands are sustainable? Marketing campaigns can be utilised to showcase sustainable products or services. This presents brands as desirable to 63% of Gen Z and millennial respondents reported feeling the burden of climate change.
19 Finance Monthly. Bus i ne s s & Economy Gen Z and millennials. However, actions speak louder than words, and delivering results is proving to be just as important as marketing. Sustainability within businesses is itself changing. The commercial landscape for companies is evolving and moving away from a consumptive capitalism approach towards a more regenerative form. Businesses that fail to adapt are likely to face extinction. The shift in consumer behaviours has also encouraged the growth of the green economy, which was reportedly worth £205.76 billion in 2021. This includes over 75,000 low-carbon businesses, such as recycling plants and wind turbine manufacturers, that prioritise the environment and employ over 1.2 million people across the nation. How can businesses tackle climate change? More often than not, businesses are taking steps to become more sustainable. On the other hand, sometimes companies are stuck on a transitional path, stalled by individual cost centres that are preventing holistic decision-making. This can often lead to departments making polarising decisions based on the way that their business runs. In these circumstances, companies fail to recognise the full scope of their resource cycle and all of the benefits that come with having a varied approach. To achieve meaningful progress, businesses should successfully implement sustainable waste management solutions into their culture, structure, and strategy. This might not be implemented straight away for some, although from a procurement perspective, they should be able to make decisions that have a lasting impact on the entire organisation. This has been a challenge for some businesses until recently, as each unit would procure for their own requirement, and there were not as many comprehensive solutions that could consider the whole resource cycle. Overall, there’s no doubt that sustainability is taking centre stage. Baby boomers and millennials have paved the way for Gen Z to campaign for current concerns surrounding the speed of climate change. In turn, businesses are being held accountable for their actions, fuelling hope for a future free from the negative effects of global warming. of adults reduced the number of new goods they bought between 2020-2021 as a result of the values of Gen Z and millennials. 39% Sources https://internetretailing.net/ sustainability/sustainability/a-thirdof-uk-shoppers-demand-greenerproducts--and-will-pay-more-forthem-22190 https://www.glamourmagazine. co.uk/gallery/gen-z-climate-activists https://www.bupa.com/news/pressreleases/2022/gen-z-seek-ethicalworkplaces-as-environ-mentalhealth-burden-bites https://www2.deloitte.com/uk/en/ pages/press-releases/articles/fourout-of-five-uk-consumers-adoptmore-sustainable-lifestyle-choicesduring-covid-19-pandemic.html https://www.prca.org.uk/ReachingMillennials-and-Generation-Z-withPurpose https://www.bbc.com/future/ article/20211105-how-carbon-mightgo-out-of-fashion https://www.theguardian.com/ business/2022/jan/14/dirtygreenwashing-watchdog-targetsfashion-brands-over-misleadingclaims https://www.theguardian.com/ environment/2021/aug/10/uksgreen-economy-four-times-largerthan-manufacturing-sector-saysreport https://www.countryandtownhouse. com/travel/does-carbon-offsettingactually-work/
The High-Tech Market Crash: How Businesses Can Pull Through Bus i ne s s & Economy 20 Finance Monthly. It’s safe to say the past decade has been kind to the high-tech industry. The wide availability of capital, a booming economy, and a significant shift from on-premise to cloud computing created the perfect breeding ground for such companies to thrive and succeed – and that they did.
In 2021, the Big Five tech giants— Apple, Amazon, Google (Alphabet), Meta, and Microsoft—generated a combined $1.4 trillion in revenue. But as the saying goes, “what goes up must come down,” which is precisely what many analysts believe is occurring, with the recent market crash. Fear is spreading quickly that we may be about to enter an era just as bad as the dot-com burst. How bad will it really be, nobody knows. But if one thing is for sure, the companies that put plans in place to ride out the storm will certainly fare better than those who do not. In fact, if we take a look back to the financial crisis of 2008, 14% of public companies managed to achieve a sustained period of growth, largely due to them acting early, taking a long-term approach, and focusing on growth and not just damage limitation. With this in mind, we have created this article with four quick tips that discuss how tech companies can prepare for the unknown and give themselves the best chance of making it out the other side unscathed. Focus on product-led growth With client acquisition expenses skyrocketing and a global recession on the horizon, it may be worth contemplating a shift to product-led growth (PLG), a new go-to-market approach that emphasises the product as the key engine for acquiring, activating, and retaining consumers. Instead of spending money on advertising or sales outreach, the product acts as the company’s marketing engine. Most PLG models give priority to the end-user being able to gain easy access to the software, so they can interact with it and give it a try for themselves. The purpose behind this approach is that it creates an environment where the prospect can discover the product’s value in a situation relevant to their particular wants and needs. Moreover, prospects are significantly more likely to make the purchase and convert from a lead to a paying customer after they have experienced value personally. Finance Monthly. Bus i ne s s & Economy 21
Finance Monthly. Bus i ne s s & Economy 22 Fortunately, PLG is simple to achieve with SaaS sales experience solutions like Walnut, which specialises in facilitating highquality product demos that are engineered to convert from the bottom up. Walnut’s principal goal is to provide the most customercentric experience conceivable by supplying sales representatives with all the tools and capabilities they need to directly appeal to each prospect’s specific wants, needs, and pain points. Walnut does this with its simple, intuitive no-code software, which eliminates the need for back-end teams such as graphic design and IT departments to be engaged in demo production. This gives the teams presenting the demos complete control and creates an atmosphere in which prospects may freely interact with your products in a way that is directly relevant to their requirements, thus facilitating a product-led growth strategy. Drop unprofitable products/services During a market crash, cash is tight. Typically, this results in both consumers and businesses looking for methods to reduce expenses, and tech companies should be no different. However, it’s savvier to take advantage of a recession by eliminating any excess weight that your company has been carrying rather than cutting back on critical business operations. For example, if your organisation has multiple MVP dream projects that are depleting your cash reserves, it would be prudent to postpone them until a later date. Remember that a recession is a great time to focus resources on what is already working for the organisation, not experimenting on unknowns. Reduce customer churn As clients’ budgets tighten, subscriptions may be one of the first things they decide to cut. To overcome this issue, SaaS vendors could provide clients with incentives or discounts to help them weather the storm. Take Salesforce, for example, which released a new business grant scheme in 2020 designed to help SMBs survive the early stages of the global pandemic. While you don’t have to go that far, things such as modifying subscription prices/plans, providing free trials on paid features, or introducing live technical assistance might help to persuade clients to continue with their existing SaaS solutions until economic conditions normalise. The aim of the game is to provide the most value to clients in order to gain their loyalty and reduce churn. Don’t kill off your marketing Whatever strategy you use, it is critical that you resist the urge to halt your marketing activities when an economic slump is approaching (which seems to be what most companies like to do). For one reason or another, many organisations erroneously view marketing as a cost centre rather than a profit centre, especially when it comes to B2B companies. Unfortunately, organisations that reduce marketing expenditure and trim down content creation rapidly learn that the benefits earned by their marketing team in prior quarters are undone when they are let go or defunded. After all, search rankings deteriorate quickly, bidding strategies become ineffective, and algorithms change. While these companies may be more insulated from the shortterm effects of the recession, they will likely suffer in the medium and long run and may find it difficult to recover the momentum they once had. Conversely, tech companies can use poor economic conditions to their advantage by making smarter marketing decisions. Instead of cutting back, executives should view the recession as an opportunity to leverage a less competitive environment by raising marketing spending. In turn, this could create a competitive advantage over rivals, who could be scaling back and adopting a more short-term approach. Final word Tech companies must use this time to prepare for the worst by implementing strategies to protect themselves from what is to come. Although, as we have touched upon, economic downturns often present an unlikely opportunity for firms to grow. Rather than sitting back and playing defensive, the market crash may actually be a time that tech companies can use to seize a larger market share by ramping up marketing efforts, streamlining their product offerings, and focusing on delivering maximum value to their current user base.
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Bus i ne s s & Economy 24 Finance Monthly. After the turmoil of 2020-21, economists and consumers alike were hoping that 2022 would usher in a slightly smoother ride, and a return to something like ‘normal life’. But it wasn’t to be. Ammar Kutait CEO and Founder of W1TTY When Will the COST -OF-LIVING CRISISbe Over?
Finance Monthly. Bus i ne s s & Economy 25 The recent Ukraine war has been the touchpaper for a multinational cost of living crisis that had in fact been some time in the making. COVID-19, commodity prices and the environmental imperative, to name but three factors, have coincided to push prices of goods and services across the board to all-time highs. The result has been a surge in inflation, with the UK alone now hitting 9% in April. Just as it was with the pandemic, the question on everyone’s lips is ‘when will this be over?’. Key institutions are scrambling to respond, and governments are introducing short-term, palliative measures in the hope of staving off recession. But the true answer may be that increased prices are here for good. It may be that the world needs to adjust to new realities in the way we buy and live. But what are the key costs causing this crisis for consumers, and how are they likely to change over time? Energy The first major culprit in the cost-of-living crisis is energy. This increase was underway well before the recent war, as wholesale prices had steadily risen in response to increased global demand, and the push towards greener but more expensive energy production. These factors are here to stay, and while we may see a stabilising over the next two-three years, a return to previous levels is highly unlikely – and that means a new and more challenging ‘normal’ for consumers. This gloomy prognosis is even more likely for Europeans, now deprived of Russian energy sources that will continue to be shut off or severely curtailed for the foreseeable future. Food Next comes food. Myriad factors are driving up shopping basket prices, but at the highest level, changing weather patterns around the world are responsible for significant disruption in the way the world farms and produces. Critical foodstuffs have been massively affected by atypical weather events over the past few years. Supply chain disruption caused by COVID-19 is another major contributor, with factories and logistics facilities having to limit and re-configure labour usage to limit the spread of infection. Finally, the drive towards sustainability has seen great increases in production costs, as the world increasingly demands that food is produced in a greener way and under improved labour and animal welfare conditions. All of these are long-term factors – adjusting to changing weather patterns, for example, could take the world decades to solve, and environmental concerns are unquestionably here to stay. Again, prices may stabilise in the medium term, but a return to previous levels is almost out of the question. Interest rates Many central banks, including in the UK and the US, are raising interest rates in an attempt to combat inflation. But while those with savings may benefit, the result is also a significant increase in the cost of consumer borrowing. Mortgage rates are going up, as is the cost of credit at just the time when consumers are having to rely on it more than ever. These actions could potentially be reversed in the medium term. If inflation can be stabilised, governments might in 2-3 years be in a position to reduce rates once more – but that ray of hope is dependent on a host of other factors in the wider economy. The value of financial understanding It seems almost certain that a higher cost of living is here to stay. But that doesn’t mean there’s nothing we can do about it. W1TTY is a young finance brand with a growing customer base amongst students and young people. As quickly as we’re taking off, we’re also acutely aware of what our customers are facing in managing their finances as the cost of living crisis continues. In-depth educational services are needed right now to help young people deal with these issues. With so many facing a tougher challenge in balancing their budgets, it’s never been more important that they’re equipped with the understanding, knowhow and responsible signposting that will help them to make prudent decisions about their money. Young people deserve to have bright financial futures. Through a combination of loyalty and reward schemes, gamified learning and personalised features, W1TTY is about empowering our customers with accessible, engaging education and saving incentives. By doing so, it’s our aim that we can help insulate them from some of the worst impacts of the current crisis.
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Banking Financial Services 28. 34. 38. 42. Current Hot Topics from the Investment & Crypto Asset Sectors The Role of Due Diligence in the Sanctions Against Russia An Introduction to Asset Tracing The Key Challenges of Asset Tracing
28 INVESTMENT & CRYPTO CURRENT HOT TOPICS FROM THE Alexander Culley & Lewis Gurry - C&G Regulatory Solutions Tel: +44 (0) 2380 302 100 | Email: enquiries@cgregulatorysolutions.com Web: cgregulatorysolutions.com ASSET SECTORS Bank i ng & F i nanc i a l Se r v i ce s Finance Monthly.
29 Alexander Culley founded C&G Regulatory Solutions as A.C.Culley & Co. in September 2021 to offer clients first-class support in regulatory conduct and compliance matters. Lewis Gurry joined C&G as a director in July 2022, increasing the firm’s capacity to service a growing client base. The company’s capital market compliance specialists offer a broad range of services tailored to their clients’ individual needs. The team at C&G are not careercompliance consultants. They understand their clients’ needs through years of experience in senior compliance and management roles at investment firms. Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s
What’s the connection between good governance and the Investment Firms Prudential Regime? IFPR looks to streamline prudential requirements for investment firms, shifting the focus away from the risks a firm faces and towards the potential harm it poses to consumers and markets. It covers a wide range of obligations, including capital requirements, liquidity requirements, governance, remuneration, reporting, and the Internal Capital Adequacy and Risk Assessment (ICARA). The rule changes require all investment firms to have robust governance arrangements, including: • clear organisational structure and lines of responsibility; • effective risk identification and management processes; and • adequate internal controls, including administration and accounting procedures. Risk mitigation is at the core of IFPR for which a firm’s management body is ultimately responsible. The management body, and any risk committee that has been established (now mandatory for larger firms), must determine the nature, the amount, the format, and the frequency of the information on risk that they are to receive. Ignorance is not a defence for senior executives overseeing prudential obligations. If senior managers are not receiving sufficient information to discharge their oversight responsibilities then they must demand change. The good governance models we see employed start with ensuring that everyone in the process understands their role in the identification, management and mitigation of risk. This includes the non-executive directors sitting on the Risk Committee. It is highly unlikely that this would be achieved with off-the-shelf e-learning courses. Every business is different and effective training programmes are tailored to each firm’s business model and the inherent risks that it faces. What are some of the most common financial crime trends you’re currently noticing? Phishing scams are on the increase and becoming more sophisticated over time. Phishing is a cybercrime in which a target is contacted by email, telephone or text message by someone posing as a legitimate institution to lure them into providing sensitive data or payment. It can often be difficult to distinguish a phishing email from a legitimate one. However, there are some established red flags that firms can share with employees to mitigate the risk of falling victim to this crime. Sanctions screening has historically been a relatively consistent aspect of a firm’s anti-money laundering controls. Yet, in recent months there has been a significant uptick in global sanctions targeting Russia and other countries involved in the invasion of Ukraine. This has stretched the resources of financial crime teams as they scramble to identify and respond to frequent sanctions updates. Many firms will have gone years without having a client sanctioned and the internal and external escalation processes would have been untested in those cases. Events like this show the importance of well-documented and up-todate policies and procedures. The good governance models we see employed start with ensuring that everyone in the process understands their role in the identification, management and mitigation of risk. This includes the non-executive directors sitting on the Risk Committee. Bank i ng & F i nanc i a l Se r v i ce s 30 Finance Monthly.
Cryptocurrency is the talk of the town and global regulators have been quick to identify the potential for it to be used in financial crime as the primary regulatory risk. There have been well-publicised difficulties with UK crypto firms obtaining authorisation from the FCA in recent months. The FCA is reportedly unimpressed with the high number of financial crime red flags missed by crypto firms, whilst representatives of crypto firms said the regulator had been slow to approve applications and was often unresponsive. How have these changed recently? The increase in remote working during the COVID-19 pandemic certainly saw a spike in reports of phishing attempts. We can only speculate as to the cause. Perhaps employees who would once turn to each other to discuss an odd email in the office are less likely to from home? Or perhaps fraudsters saw an opportunity for a wider victim pool as people spend more time in front of their screens during global lockdowns? Whatever the reason, it shows little sign of slowing down so firms are looking to enhance their cyber security to defend themselves and their employees from this financial crime. The increase in global sanctions was directly linked to Russia’s invasion of Ukraine. Some months down the line, we continue to see new names added to global sanctions lists whilst the invasion remains ongoing. It is not just the sanctioned entities that are impacted. We are becoming aware of delays to payment processing whilst compliance checks are carried out on payments. Firms can suffer issues with cash flow and frustration from clients as they continue to navigate the banking system in compliance with global sanctions. Crypto regulation is still very much in its infancy. In the UK, the FCA recently launched a series of ‘crypto-sprints’. The objective of the events is to seek industry views around the current market and the design of an appropriate regulatory regime. Hopefully, this initiative will foster a productive working relationship between the regulator and practitioners, leading to an effective regulatory framework. Now we’re on the subject of crypto regulation, what are the key features of the proposed Markets in Crypto assets Regulation (“MiCA”) that practitioners should be aware of? The MiCA borrows heavily from the second Markets in Financial Instruments Directive (MiFID II). Therefore, practitioners who are familiar with MiFID II will have a head start in navigating the MiCA regime. Whereas MiFID II captures investment firms, MiCA seeks to regulate: (i) issuers of crypto assets and stablecoins, (ii) crypto exchanges (think multilateral trading facility (MTF) for Bitcoin and such like); and (iii) wallet providers. Like MiFID II investment firms, these crypto actors would be required to meet minimum capital requirements. For example, a crypto MTF would need to be capitalised at a minimum of €150k under the proposals. As well as striving to enhance financial stability in the crypto assets space, MiCA also introduces conduct of business requirements Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 31
32 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s to offer protection to consumers. Crypto-asset white papers would have to be “fair, clear and not misleading”. Crypto-asset service providers must strive to obtain the “best possible result” when executing orders for crypto assets on behalf of third parties. Issuers of asset-referenced tokens would be required to implement procedures for handling complaints. Again, these selected conduct-related examples illustrate that the influence of MiFID II on the development of MICA has been pervasive. Added to this are requirements for crypto-asset providers to implement systems and controls to detect potential market abuse perpetrated by their clients. When is MICA likely to enter into force? Is there anything crypto-asset services providers can do now to prepare for its implementation? It is mooted that MiCA will enter into force in 2024. By reviewing the requirements in MiCA as early as possible, existing entities that could be subject to its authorisation requirements have an opportunity to put themselves in a strong position. Those who are familiar with implementing other major EU regulatory packages such as MIFID II, the European Markets Infrastructure Regulation (EMIR) and the Alternative Investment Fund Managers Directive (AIFMD) appreciate the importance of getting off to a good start in developing regulatory change programmes. The time and resources required should never be underestimated, particularly where achieving compliance is heavily dependent on technology. Furthermore, starting early helps the senior management of a business forward project capital and cost requirements. This is key to avoiding nasty surprises, enabling a crypto-asset business to face the future with confidence. MiCA is perhaps the most notable regulatory initiative emanating from the EU that will not have been contributed to by UK policymakers. How is the regulatory landscape for crypto assets evolving in the UK in comparison? In March 2022 the Bank of England’s (BoE) Financial Policy Committee (FPC) published a report entitled “Financial Stability in Focus: Crypto assets and decentralised finance” that provides insights into the possible trajectory of regulatory reform in this area. From a macroprudential perspective, the FPC observes that there is “limited interconnection” between the UK financial system and crypto
33 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s assets at present. Nevertheless, the FPC acknowledges that disruptive and traditional finance are likely to become increasingly intertwined. Accordingly, the FPC is keen that gaps do not emerge or widen in the regulatory perimeter that could pose a threat to financial stability. The FPC cites some initiatives that have already been taken by UK authorities to address some of the macro and micro-prudential risks posed by crypto assets. For example, the FCA references the Dear CEO Letter published by the Prudential Regulation Authority (“PRA”) on 24th March 2022 concerning the treatment of crypto-asset exposures by banks and investments firms that fall within its remit. Furthermore, the FPC considers the implications of conduct and financial crime risks in its analysis. For instance, measures taken by UK financial regulators to hinder efforts to use crypto assets as means of circumventing HM Treasury’s Russia sanctions were welcomed by the FPC. In our view, lawmakers should take care to ensure that crypto-asset regulation in the UK is not comprised of a patchwork quilt of initiatives. Plainly, such a landscape would be difficult for their intended subjects to navigate. Moreover, this is liable to creating exactly the types of gaps that the FPC hopes can be kept to a minimum. At the root of this is an apparent contradiction at the heart of UK policymaking. One month the Chancellor of the Exchequer announces a crackdown on crypto-asset promotion, the next he is extolling the benefits of making the UK a “crypto hub”. Regulation will always lag technological innovation (although it can sometimes encourage it too – Regulation National Market System is often credited with fuelling the growth of high-frequency trading in the US). Still, poorly conceived regulation that merely reacts to present demands or fears is likely to lead to suboptimal outcomes – for both the regulator, the regulated and the consumer. The well-documented difficulties that crypto-asset providers have experienced in seeking anti-money laundering registration with the FCA exemplifies this point. The FCA’s aims are laudable: it is using the tools at its disposal to try and cover a perceived legislative gap to protect consumers from unscrupulous actors. Nonetheless, this approach risks forcing legitimate actors offshore. UK consumers would likely still find these actors. Is this desirable? So much to ponder! Finally, what can firms do if they are struggling to stay on top of all this change? Engaging a high-quality consulting firm to assist with regulatory change management can really pay dividends. This is especially the case in crypto assets. Ever greater financialisation has resulted in the most liquid cryptocurrencies becoming underlyings for exchange-traded derivatives and contracts for difference. It has also led to regulatory concepts governing traditional investments gaining influence in disruptive sectors. Consequently, seasoned investment compliance professionals can help crypto-asset firms build an optimal governance and control framework. This will become critical to meeting the challenges posed by the fast-evolving regulatory environment. Whereas MiFID II captures investment firms, MiCA seeks to regulate: (i) issuers of crypto assets and stablecoins, (ii) crypto exchanges (think multilateral trading facility (MTF) for Bitcoin and such like); and (iii) wallet providers.
We speak with Colin Tansley, Managing Director at Intelect, about all things due diligence. DILIGENCE in the SANCTIONS Against RUSSIA DUE The Role of Bank i ng & F i nanc i a l Se r v i ce s 34 Finance Monthly.
Firstly, would you please briefly explain what Due Diligence is? Due Diligence is a process that should be undertaken to better understand the person, organisation, or business you are considering transacting with. Think of it as a risk management activity. It is an essential element of business and for those companies regulated for the purposes of money laundering, is fundamental to their compliance with legislation and good governance. In my opinion, Due Diligence is an investigatory function and should be treated as such. A failure to conduct it appropriately leaves the business exposed to a range of issues including regulatory intervention, reputational damage and has been seen in the media many times, including court action. When is Due Diligence most commonly used? Companies that work in the financial services industry are well acquainted with Due Diligence. It is an obligation that they must undertake to ensure that funds or other assets they are receiving are not tainted from any connection to money laundering, tax evasion, criminality, terrorism, weapons of mass destruction or anything that may cause their organisation harm. However, there are other applications for it, mergers and takeovers are good examples. What does the process for Due Diligence typically look like? I always say when I train compliance officers that the depth of information obtained from the client or business is fundamental. So, the first stage in the process is collecting data from the subject, this can be referred to as KYC, or ‘Know Your Customer’, and it should be thorough. What I mean by that is things like full names, previous names, physical and email addresses, a certified full-colour image of an identity document and proof of address, such as a utility bill are the minimum requirements. At that point, an initial assessment should be undertaken to identify any obvious exposure or issues. It might be that the customer lives or operates in a high-risk jurisdiction, or their business offers products and services that are beyond the tolerance of the organisation that is considering onboarding them. To fully understand those risks is where Due Diligence can assist, and where people like me come in. It tends to be the case that I will be contacted and engaged directly by a client. For reasons of confidentiality, Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s 35
36 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s I always suggest that we sign a Non-Disclosure Agreement (NDA). Once the objectives and terms are agreed upon, I commence a desktop investigation where I will exploit online sources to gather information. I analyse what I find and subsequently provide a written report. It is for the client to then decide whether they wish to continue with the proposed business relationship. What factors commonly complicate Due Diligence? Typically, not obtaining the right information from the subject of the Due Diligence enquiry or, not enough of it. A failure to do so will invariably lead to both ineffectiveness and inefficiencies because the first thing that must be done is to verify what you have. If you are not in possession of the right data, you may well be looking for something that doesn’t exist, or worse still, end up putting a lot of effort into researching what turns out to be a false positive. There are of course other factors that complicate the process. In most cases, Due Diligence is conducted online, be that via open sources, subscription databases or a combination of the two. The Internet is awash with information, it has been described as ‘drinking from a firehose’. So, the sheer volumes of data, and being able to differentiate between good, bad, malicious, and misleading information is a key skill. Language is an area that can also cause problems. If you are an English speaker then you are in luck because that is the most popular language on the World Wide Web. Chinese and Russian sites are becoming increasingly popular though, so if you want to delve deeper you need reliable tools, or people, to help. Some of the most complex issues are the verification of the source of funds and source of wealth. This is where you often have to be ethically creative when identifying sources to achieve your objective, social media is a prime example. I think I also must mention the expectations of managers, many of whom employ staff to conduct these types of investigations, with little or no training. Conducting a few Google searches is not Due Diligence and certainly would not be sufficient to satisfy a regulator in the event of an issue arising. What role has Due Diligence played in the recent sanctions against Russia? A thorough Due Diligence investigation should go as far as to identify links between companies and individuals. One of the issues for anyone conducting Due Diligence in relation to the sanctions and Russia is finding those links. As a former police officer, I have always found it helpful when investigating, to try and think like the person I am researching. If I was a wealthy Russian and wanted to avoid sanctions, then I would hide behind layers of companies, people, or complex structures to obfuscate my involvement. A good investigator will be looking for the clues, the patterns and sometimes the absence of certain information to make those connections. This takes knowledge, skills, and time. I think it is difficult for me to judge what the role of Due Diligence has played in recent sanctions against Russia at a global level. I can however tell you that I conducted a recent investigation that found links to Russian individuals and companies that were not obvious or evident. It was arduous and time-consuming, my worry is that things may be getting missed and that has implications at several levels. What are some of the most interesting or challenging investigations Intelect Group has worked on recently? I consider myself very lucky to have been involved in all manner of investigations, many of which have their own individual challenges. When I joined the police service in the early 1980s there was no Internet and you had to get out and speak to people. The world is very different now, information is online, and it can be created and removed in seconds. We have social media and online
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