Vishal Chhibbar is the CFO of EXL, as well as the executive sponsor of the company’s Finance and Accounting Business, based in New York. EXL is an operations management and analytics company that designs and enables agile, customer-centric operating models that allow the firm’s clients to improve revenue and profitability. EXL delivers market-leading business outcomes by integrating cutting-edge analytics, digital transformation and domain expertise into their proprietary Business EXLerator Framework.  The company predominately serves the insurance, healthcare, banking, utilities, travel, and logistics industries, among others.

 Due to having had the opportunity to work and live around the world, whilst capitalizing on diverse thinking and multicultural environments, Vishal has the global mindset to truly understand the challenges of a global company today. Here he shares some of his experiences and plans for the future with Finance Monthly.

You joined EXL in 2009 – how would you evaluate your role and its impact over the last 7 years? What have been your major achievements?

I joined EXL from a great, large corporate environment with the goal to play a role in generating a bigger impact at a smaller company - by creating value for shareholders, value for the company itself and greater value for the clients.

And we’ve done exciting things exactly on these fronts. An example that illustrates this perfectly is the value created for our shareholders. Our revenue guidance this year is $750 million, compared to $180 million when I first joined. Our market cap today is up to $1.8 billion, in comparison to approximately $300 million in 2009. Back then, we had $100 million in cash and had made no acquisitions. In the past 8 years, we’ve made 11 acquisitions, deploying $275 million. We’ve also launched share buy-back programs, which benefit shareholders through a healthy capital allocation strategy.

Operationally, we’ve expanded to 40 delivery locations across 10 countries (compared to 13 delivery locations in three countries in 2009) and we’ve invested heavily in our capability development to keep up with market demand. Our heritage was transactional BPO, but today we are leading players in robotics and analytics, so we’ve been able to invest to increase the value we deliver to our clients.

What further goals are you currently working towards with the company?

Our current goal is very much focused on making sure we have a profitable growth model. This can be challenging because, like many of our clients’ industries, ours is going through transformation and disruption, with companies like EXL moving from traditional “lift and shift” BPO to a focus on value creation and building new operating models for our clients using digital interventions, advanced analytics and domain expertise. We focus on leading this transition in our industry, delivering significant impact for our clients, while also driving both top and bottom line growth for our shareholders. This means charting sustainable double-digital growth at the top and bottom lines.

Another aspect that we are currently focusing on is connected to driving an aggressive M&A strategy that adds capabilities to our growing solution set, while maximizing the value of those acquisitions.

On top of this, we continue to deploy approximately 4% of revenue back into the business, in order to drive new innovative solutions such as AI, robotics and other digital solutions for our clients.

What challenges would you say you and the firm encounter on a regular basis? How are these resolved?

As a company our challenges are twofold. First, we’re focused on how we transform our existing business, which was traditionally a people-intensive business. Second, as we transform, we are cannibalizing revenue through technology, such as automation, so we need to balance that with the ability to grow and add greater value to our clients. We’ve done a good job at this thus far.

Another focus for us, as we go forward, relates to addressing a bigger share of wallet and moving towards becoming a strategic digital transformation partner, rather than simply an offshore solution provider.

How are these challenges set to change, in conjunction with the advent of technologies and the potential future needs of clients?

In the digital age, technology is crucial. Today, due to the rapid pace of technological change, leaders need to be broadly knowledgeable, but at the same time - technology agnostic. There are so many tools and platforms, web services, automation and other digital technology, our own platforms, so the key for EXL is to really understand their strengths, what works best for us, what works best for our clients and combine those with our own domain expertise to come up with the right solutions. What differentiates us is the fact that we blend the analytics with our industry and domain experience, which when combined with technology, allows us to find the solution that works best to solve specific business problems.

 This month, Finance Monthly introduces you to STM Malta Trust & Company Management and its Managing Director and thought leader with twenty years’ experience in the financial services -Deborah Schembri.

STMM primarily provides pensions administration services to international clients. The company is registered as a Retirement Scheme Administrator with the Malta Financial Services Authority. It is also authorised to act as trustee or co-trustee to provide fiduciary services in terms of the Trusts and Trustees Act.

The company administers a number of pension schemes, both trust-based and contract-based. Some of these schemes also qualify as QROPS (Qualifying Recognised Overseas Pension Scheme) or QNUPS (Qualifying Non-UK Pension Scheme) as applicable. STMM is part of STM Group plc - an independent firm listed on the London Stock Exchange. STM Group has offices in Gibraltar, Spain, Malta, Jersey and UK.

Deborah Schembri, the youngest member and the only woman on the STMM Board, is a Certified Public Accountant, who holds a Masters in Business Administration from Henley Management College, as well as a Diploma in Retirement Provision, pursued with the UK Pensions Management Institute. With over twenty years’ experience of holding senior managerial roles in the financial services industry, Deborah has formulated new strategic directions and implemented the necessary changes, while making a lasting impact in these organizations.

Deborah joined STMM in 2012 and was appointed Managing Director in 2014. Over the past five years, as a result of Deborah’s hard work and entrepreneurial spirit, the Company has registered exceptional and extraordinary growth.

Over the past few years, Malta has established itself as a centre for the management and administration of personal pension schemes. While it has primarily been catering to the UK market, other European cross-border schemes are currently being established and rapid growth in the pensions in Malta market is expected.

The creation of international pension plans in Malta became a possibility fairly recently, as pension provision has traditionally been considered from a purely domestic perspective; however, the increasing mobility of both people and companies has facilitated this paradigm shift.

The Retirement Pensions Act (Chapter 514 of the Laws of Malta) came into force on 1st January 2015. The new Regulations and Pension Rules also came into force on 1st January 2015.

A new set of Regulations and Pensions Rules have been issued under the Act to supplement the legal framework for the licensing and regulation of Retirement Schemes (both Occupational and Personal), Retirement Funds and Service Providers related thereto, as well as for the requirement of recognition for persons carrying on back-office administrative services.

For major multinationals, administering pension schemes in multi jurisdictions can be an expensive and highly complex process. This presents a key opportunity to introduce an international pension solution that enables multinationals to use Malta as a centre from which to manage and centralize their retirement benefits schemes and consolidate their employee pension schemes benefiting from greater economies of scale, while achieving sizeable cost savings by operating from one jurisdiction under one regulatory regime.

As a member of the EU, Malta provides a pan European platform that is secure, well-regulated, and innovative. Backed up by a professional support structure and experienced skills base, Malta's new pensions legislation has been well-received internationally and the provision of international pensions is considered as the next major development in the jurisdiction's financial services offerings.

Benefits of Pensions and Retirement Schemes in Malta

• Retirement schemes and their administrators are licensed and fully regulated by the Malta.
• Retirement schemes and their administrators are licensed and fully regulated by the Malta Financial Services Authority (MFSA).
• Thanks to Malta's EU membership, companies established in other EU member states can sponsor occupational schemes established in Malta.
• Fees for the administration and management of the scheme are comparatively lower than in other jurisdictions.
• A strong regulatory framework and the MFSA ensure the integrity of the plan and peace of mind for the scheme's members.
• Legislation allows for a number of customised structures that suit the requirements of individuals or international businesses.

STM Malta will be pleased to receive any enquires on the below contact details:

E-mail address: info@stmmalta.com

Telephone number 00356 21 333 210

Steve Biggar, Director of Financial Institutions Research, Argus Research, discusses what's driving the recent pullback in US bank stocks and which names Argus has "buy" opinions on.

To learn more about the Fiduciary services in Malta, this month Finance Monthly reached out to Samantha Snow, Client Services Director at Abacus Corporate Services - a leading fiduciary, funds and professional administration service specialist.

Could you tell us a bit more about Abacus and the services that the company offers? What are Abacus’ priorities towards its clients?

Abacus is a leading fiduciary and fund services group, based in Malta and in the Isle of Man. We have an established track record of more than 40 years of excellence in providing fiduciary and professional administration services to an international client base. We pride ourselves on our stable history and our commitment to delivering value combined with top quality in bespoke solutions that are tailored to meet each client’s needs.

Our services include the establishment and administration of tax efficient corporate structures or fund, yachts and aircraft registration and management, statutory and administration services, provision of officers, corporate services and compliance support, tax consultancy and tax planning, VAT registration and administration, bookkeeping and accounting services, and cash management facilities.

Fiduciary services are broad ranging; typically what matters do Abacus assist clients with?

In a fast evolving world it is important for us to be proactive. We are committed to finding new ways in which we can assist clients through the development and provision of new solutions and keeping pace with change and ever more sophisticated tax planning. Whether an investment portfolio, trading company, real property, a luxury yacht or business jet, we can establish an effective trust, foundation, company or fund structure tailored to the needs of our clients and offer associated administration services and back office support at a level they require.

Can Abacus ensure high levels of regulatory compliance and appropriate degree of protection to clients?

Abacus Financial Services (Malta) Limited is recognised by the Malta Financial Services Authority as a fund administrator and Abacus Corporate Services Limited is authorised by the Malta Financial Services Authority to provide trustee and other fiduciary services. The Authority regulates and supervises credit and financial institutions, investment, trust and insurance business, whilst encouraging high standards of compliance.

Abacus Trust Company Limited and Abacus Financial Services Limited are licensed by the Isle of Man Financial Services Authority, which is the regulatory body for the financial sector in the Island. The objectives of the Authority are to secure an appropriate degree of protection for the customers of financial services providers, the reduction of financial crime and the maintenance of confidence in the Island’s financial sector through effective regulation.

 You offer VAT expertise across both Abacus’ offices – what are the most common matters that you assist with? What does your role as a Client Services Director involve?

I am responsible for leading the Malta team in the development of client relationships and enhancing technical skills with particular focus on the VAT/tax side. Typically, I help clients with providing a range of support services to ensure that their structures and/or assets are effective and run efficiently. Furthermore, I assist them in mitigating their liability to tax during their lifetime and in implementing solutions for wealth preservation and funding long term care.

What attracted you to specialise in VAT and Indirect Tax matters?

I initially began my career as a VAT Assurance Officer with HM Revenue & Customs in the UK -carrying out VAT inspections, then I moved on to work within the accounting and corporate sector. I spent over 15 years specialising in VAT and Indirect Tax matters and working with both domestic and international clients across a diverse range of sectors including the Remote Gaming, Financial Services, Yachting and Property and Construction industries.

What is your outlook on the future of Abacus? 

Both Abacus and its service offerings have established a solid base and experience over the last 40 years, whilst maintaining the founding principles of applying integrity, independence and insight across our clients’ requirements, values which have gained us recognition as a leader in our field. As one of the longest established and reputable service providers on the Isle of Man, we later expanded into Europe through the establishment of a Malta office, as stable, yet progressive jurisdiction. Additionally, Malta also enjoys a positive rating and one of the strongest macroeconomic expansions in the Eurozone.

So, if life truly does begin at 40, and the past 40 years are anything to go by, perhaps the fun really does start at 50… which means Abacus has a lot to look forward to over the next 10 years… and thereafter!

Contact details:

Samantha Snow

Client Services Director

Abacus Corporate Services Limited (Malta)

samantha.snow@abacusmalta.com

+356 20650 500

Luke started his career in Sheffield, working as Finance Officer for Sheffield Union before moving to London to work for Tesco PLC. During his time at Tesco, Luke worked in Central Finance with responsibility for weekly management reporting and working capital, before moving to China with Tesco’s property business in Beijing. Luke’s next move was to Thailand, to work on a series of finance and business development projects as part of Tesco’s local subsidiary, Tesco Lotus. In addition to Luke’s financial responsibilities in Bangkok, he also took on the role of deputy project manager for the launch of the first Tesco Extra in Asia. In 2012 Luke left Tesco to join Tough Mudder in the USA. At this point, Tough Mudder was only 18 months old, but it was already reaching revenues of $70m. In 2014 Luke returned to the UK, working in a senior finance role for Marks & Spencer, focusing on Marketing & Strategy, as well as undertaking a secondment with HRH Princes’ Accounting for Sustainability Project. Here he talks to Finance Monthly about the accounting company he co-founded less than a year ago - Tech & the Beancounters.

Tell us about Tech & the Beancounters. What were its beginnings and how did it develop into the company that it is today?

 We set up Tech & the Beancounters to make finance simple, professional and accessible for everyone. Coming from an industry where I’d seen so many firms supplying outsourced finance at high cost with junior staff, this meant that many start-ups and SMEs could not afford their services or received a sub-standard service. My co-founders and I wanted to change that.

What have been the company’s top accomplishments thus far? 

 Our greatest accomplishment to date has been helping a distressed client through a tough period of trading, helping them to win back the confidence of investors and produce a credible financial plan that allowed the firm to raise debt and equity to secure its position as a going concern.

 From an internal perspective, a key achievement for me has been the recruitment of our founding team; we have a fantastic Head of Analytics and Head of Business Development, Tech & the Beacounters would not be growing at the rate it is without them.

What are your goals for the future?

 Our short-term goals all involve client care and team development. We have experienced rapid growth to date, but we want to ensure we are constantly developing the service clients receive, as well as make sure we are providing value-add analysis and decision making tools that distinguish us from high street accountants.

 In the medium term we are focusing on improve the “tech” in Tech & the Beancounters. We are developing our website into a more interactive platform that should include online client accounts. Furthermore, we are using some of the latest reporting software, including Microsoft Power BI to improve our interactive financial reports to give client even greater insight into their businesses.

What challenges would you say you and the firm encounter on a regular basis? How are these resolved?

 The most frequent challenge we face as a firm is time pressure. We have been resolute from our founding that our reach does not exceed our grasp, and we are incredibly loyal to our clients. We understand that as we grow, we will need to empower a wider team to take over some of the front-line interactions with clients.

The most frequent challenge we have observed amongst our clients is in forecasting/budgeting: some obsess about plans, some do not plan at all. We have seen several clients de-rail themselves because they cannot decide on a specific budget/business plan or course of action. In response to this, we have developed robust scenario planning tools that complement our budgeting and forecasting models, allowing clients to visualise the different possibilities for their firms and the decisions that will accompany them.

What does the future hold for you and Tech & the Beancounters? Do you have any upcoming plans or projects you would be willing to share with us?

Our focus will always be on sustainable growth – we want happy customers who stay with us for the long-term. We are also developing a new online portal for our clients so they can check their reports and financial information in real-time. There are also a couple of opportunities in China and New York emerging, but I’d like to keep that under my hat for now...

The financial services sector tops the table in deals between large organisations and UK SMEs. Since April 2016, there have been 452 deals, known to have exceeded £6.2bn. This accounts for 41% of the national total volume.

Economic data, released today by national law firm Bond Dickinson, explores mergers and acquisitions, joint ventures and minority stake purchases in UK SMEs from both domestic and international corporates.

Over the last four years, there were 1,864 financial services deals, known to have totalled in excess of £31bn.

Seen against the 7.2% that financial services and insurance contributed to UK GVA in 2016, the intense focus on collaboration with SMEs mirrors the sector's drive to exploit the opportunities presented by fintech.

Across all sectors, between 2013/14 and 2016/17, large organisations are known to have invested over £102bn in 5,447 deals with UK SMEs. This exceeds the £62bn corporates invested in UK research and development between 2013 and 2016*, and represents more than a seventh of the £683bn total UK business investment.

Based on analysis of four tax years of deal data, the findings are detailed in Close Encounters: The power of collaborative innovation.

Ben Butler, Partner at Bond Dickinson, comments: “Partnering with startups has become a key element to the digital transformation strategies which are now of vital importance to the financial services sector’s prospects. Large firms’ ability to innovate can be held back by dependence on legacy systems, while dynamic young SMEs have the advantage of developing from scratch. These partnerships combine the best of agility and scale to deliver improvements for customers and the sector as a whole.

“Despite complex and changing regulation, such as the Open Banking Initiative and PSD2, financial services has faced disruption head-on, embracing the advantages of collaborative innovation and startup incubation. The challenge now is to keep this up and not be distracted by political uncertainty.”

2016/17 fall

Bond Dickinson’s study goes on to reveal that the total number of financial services collaborative deals dropped by 22% in 2016/17.

Deal volume rose from 406 during the 2013/14 tax year, to 426 in 2014/15, to a peak of 580 in 2015/16, before falling to 452 in 2016/17.

However, the financial services sector is slightly more robust than others, as the average dip across all sectors, including energy, insurance, manufacturing and chemicals, real estate, retail and transport was 28%. This is striking considering the possibility of a disproportionate impact of Brexit on financial services.

A move away from M&A

In the majority of sectors, M&A remains the most popular collaboration vehicle between SMEs and large organisations. However, in financial services, minority stake investments made up three quarters (75%) of deals since 2013/14, three times as many as M&As (25%).

Of the 2,409 minority stake purchases conducted between large organisations and UK SMEs between 2013/4 and 2016/7, almost 60% (1,390) involved financial services firms. £14.3bn was invested in these minority stake deals. This mirrors strategic investments in accelerator funds, startup events and incubators, amongst banks in particular, which together create an ecosystem for collaborative innovation.

Ben Butler adds: “The popularity of minority stake purchases, rather than full acquisitions, shows financial services has found an alternative to the traditional model of buying up startups and attempting to integrate them. This is a new way of harnessing the value of long-term relationships with dynamic startups. A wariness of investing in tech entrepreneurs with fast exit plans could well see this turning into a wider trend in other industries.”

(Source: Bond Dickinson)

As a licensed financial advisor at First Command Financial Services, Theresa M. Mayes is focused primarily on the needs and unique financial concerns of military members and their families. While serving as an Army medic at Tripler Army Medical Center, she earned a Bachelor of Science degree in Psychology from Chaminade University. She later earned a Master of Business Administration degree from Walden University. In 2013, she joined First Command, attracted by the opportunity to put her skills and experience to work in making a positive contribution to the military community. Here she talks to Finance Monthly about financial planning, the financial services sector is Georgia, USA and the challenges that US financial advisors have been faced with recently.

As a professional with a wealth of experience in the sector, what is the current state of the financial services marketplace in Georgia?

Georgia has a booming business economy. According to Site Selection Magazine, it has been the number one state for business, four years in a row. This, of course, brings both an influx of workers and a need for financial planners. The number of FinTech companies across the state is growing; not just in Atlanta, but in Savannah, Macon, Columbus and Athens, too. This is definitely changing the way advisors and wealth managers are conducting business. There is definitely a need for younger talent and a focus on growth and retention.

What would you say are the specific challenges of assisting clients with financial planning?

At First Command, we believe that one of the most important contributors to a healthy financial life is behavior. And sometimes helping clients understand that and stop bad habits can be challenging.  On top of that, we have to constantly evolve our practice to match the industry’s technological advancements and changing regulations.

What are the most important aspects that need to be ironed out in order to achieve satisfactory result and a well-organized financial plan for your clients?

The golden rule of financial planning is to know your client. By actively listening to clients, you’ll gain a much better understanding not only of their current circumstances, but also of their risk temperament and how committed they are to doing  what is necessary to reach their goals. Having that knowledge puts you in a better position to recommend products that are appropriate for their unique needs and objectives.

What are the particular challenges that financial advisors in the US have been facing over the past year in relation to changes in what customers expect in terms of products and services?

Some clients have fast-food expectations: they want it their way and they want it fast. But taking the kind of cookie-cutter approach that calls for is not generally in their best interest.  As professionals, our job is take the time to fully understand each client’s circumstances, temperament and goals before making specific recommendations. Another challenge these days is the abundance of sometimes conflicting, not always accurate information that is available online. I may be biased, but I can’t help but think that there’s a benefit to having a personal financial coach who is willing to sit down with you, listen to what you’re saying (and not saying), answer your questions and explain their recommendations. And I’m not sure a robo advisor is capable of doing all of that.

Can you tell Finance Monthly about your involvement in the community and its impact?

I am currently involved in the Leadership Columbus Class of 2016 – 2017, and it has been an extremely rewarding experience. I’ve been able to meet a lot of great people and learn more about the community than I would have otherwise. I’m also a sustaining member of the Junior League of Columbus and have coached long jump and sprint with a local youth track and field team. It’s been a pleasure to watch all the young athletes grow up and compete in their class state championship meet.

Written by Kamlesh Chauhan, Senior VAT Manager at haysmacintyre

Most businesses in the financial sector are not entitled to reclaim the full amount of VAT that they incur on costs because they are partly exempt for VAT purposes. This is a complex area of VAT, and as the VAT year end approaches for most, now is a good opportunity to take stock of your VAT position. We often find many businesses are not minimising their VAT costs effectively, and are unaware of the requirements around their VAT year end (which is usually March, April, or May).

To complicate matters, rules governing VAT are continually changing due to new legislation, updates in HMRC’s guidance, and various case law precedents released over time. In the current climate, with the need to increase tax revenues, the corporate finance sector is an area that could easily be targeted by HMRC. A simple error, such as treating the VAT treatment of a transaction incorrectly can have knock on effects on your VAT recovery and your annual adjustment figures, leading to a significant amount of VAT being at stake, especially if the errors occur consistently over time as HMRC can assess going back for a four-year period.

For those that receive exempt income, (typically firms that arrange corporate transactions such as M&A activity, debt restructuring, divestments, IPOs or debt and equity private placements) an annual adjustment must be carried out at the end of each VAT year. This requires you to apply the normal VAT recovery method using annual data, rather than on a quarter-by-quarter basis. The difference between what can be reclaimed on an annual basis, compared to with what was claimable in the individual VAT return periods, then forms the annual adjustment which may be in your favour.

Many businesses simply fail to carry out an annual adjustment, or just get the calculations wrong which can lead to being penalised by HMRC, so it’s important to check you are doing it correctly – seeking professional help will of course aid this. It is crucial that you have applied an annual adjustment for each of the last four years.

 If you are partly exempt there is an additional adjustment required for the VAT recovery claimed on expenditure relating to capital assets, including any commercial property (purchase and/or refurbishment) costing over £250,000 and computer hardware costing over £50,000. This is dependent on the change in the annual adjustment recovery rate, from the rate applied to the original year of purchase, and use of the asset to the rate calculated in each subsequent adjustment year for a period of 10 years (an adjustment period of 10 years is applied for all commercial property capital assets). If an asset is disposed of within the 10-year adjustment period, the remaining periods will be calculated based on the VAT treatment applied to the disposal.

In terms of the implications for non-compliance (whether intentional or not), HMRC will seek to charge penalties and interest. The amount will range from 15% to 30% of the VAT owed for a “careless” error identified by HMRC. Deliberate or concealed errors will attract even higher penalties. The actual penalty amount is subject to HMRC’s assessment of whether the business took “reasonable care” or not in making the error.

It is worth considering applying for the use of a special method of partial exemption. For most businesses in the financial services sector, this needs to be agreed in writing with HMRC, otherwise a method based on turnover must be applied. A more beneficial method can be based on the number of projects or transactions being worked on, or based on a sectorised approach with different methods for VAT recovery in each part of the business. Although it can be difficult to agree the method the benefits can be significant. For those with a special method already in place, it is always worth reviewing whether it is still reasonable for the business as this may have been agreed with HMRC some time ago, after which business operations have changed.

It is crucial to keep on top of your VAT position, with regular annual reviews. Failing to do so can leave the business at a disadvantage. We would encourage all partly exempt businesses to seek specialist advice to ensure that they not only avoid the pitfalls, but also take advantage of potential improvements to their VAT recovery position. Regular reviewing of your VAT position by external advisers also demonstrates, if any errors do arise, that “reasonable care” is being taken by the business, which will help mitigate and reduce any penalties that HMRC may seek to apply.

Kamlesh Chauhan is a senior VAT manager at haysmacintyre. He can be contacted on +44 20 7969 5584 or by email: kchauhan@haysmacintyre.com.

One in six small businesses (17%) is planning to employ new staff by the end of April 2017 – with the IT & Telecoms sector leading the employment charge (27%) -– according to the new research from Hitachi Capital’s quarterly British Business Barometer.

The new Hitachi Capital Business Finance data comes as the Federation of Small Businesses has urged The Chancellor of the Exchequer Philip Hammond to boost jobs and long-term growth in the forthcoming Spring Budget. The new Hitachi Capital data suggests many SMEs already plan to hire new staff before April: the areas where they could do with Government support relate to keeping fixed running costs and business rates down.

Beyond being financial growth drivers for the economy at large - and an ongoing source of ideas and innovation - the UK’s small businesses are vital drivers for employment and training to the British economy. The new research by Hitachi Capital Business Finance revealed the younger the small business the more likely it was to be hiring. One in five SME decision makers (20%) from enterprises less than five years old plan to hire new people by April. In contrast, businesses over 35 years are the least likely to be hiring (13%).

For eight of eleven regions polled, typically around one in six small ventures were planning to expand their headcount in the next three months – with London, the South East, North West and Scotland driving activity.

Regional employment over the next three months

By sector, the divergence between regions most and least likely to employ new staff were more pronounced – the biggest opportunity sectors being IT & Telecoms, Financial Services, Manufacturing and Medical.

Employment over the next three months by sector

Gavin Wraith-Carter, Managing Director at Hitachi Capital Business Finance comments: “The Spring Budget is an opportunity for the Chancellor to openly support the growth ambitions of SMEs and the positive contribution they make to the UK economy at large. Many small business owners are concerned about the impact of a steep rise in business rates and have placed importance on cutting fixed costs and better managing cashflow and invoicing to keep their business plans on track.

 “On a positive note, our Spring research suggests that many SMEs are adjusting quickly to Brexit, looking for new markets to expand into and fresh methods to drive growth – and many intend to increase headcount to support these plans. This week’s Budget is a great opportunity for the Government to reaffirm its support for the sector at a critical time.”

(Source: Hitachi Capital Business Finance)

Written by Jon Williams, PwC partner and Member of the FSB Task Force and Stephanie Chang, PwC Assistant Director

Climate change presents risks that are not only being felt today, but will continue to generate both physical impact and low carbon transition risks that could affect companies’ financial performance. Climate policy such as a carbon tax could drive up production costs, while physical climate impacts have the potential to disrupt supply chains. Technological responses to combat climate change could shift demand curves for established markets, and energy policies that favour renewables could leave the value of carbon emitting assets impaired.

Figure 1: Decarbonisation pathways from the PwC Low Carbon Economy Index 2016

As the providers of financial services and capital to companies exposed to such climate risks, financial institutions including banks, asset managers, and insurers are increasingly trying to come to terms with how such risks could transfer to them and ultimately to those whose interests they manage. This necessitates a broadening of the traditional scope of risk management to adapt to the fundamental changes to markets and business models wrought by climate change.

The challenge for the financial sector is that climate-related reporting has historically evolved around environmental metrics such as greenhouse gas emissions or water use. These are useful measures in some instances, such as working out the direct implications of a carbon tax, but may be of limited use in others, for example in trying to understand the implications of changes to the demand for conventional cars and electric vehicles. A further limitation is that such reporting tends to be backward-looking.

The Financial Stability Board (FSB) recognises that without the right disclosures, the financial sector will not have access to the information necessary to make well-informed lending, investing, and underwriting decisions. And if climate risks aren’t well understood and correctly priced, the financial system may be prone to abrupt market corrections. In other words, pricing in climate risk allows decisions to be made based on more complete information, and enables risk functions to move from gatekeepers to strategic business partners.

In response to this, Mark Carney, as Chair of the FSB, established the Task Force on Climate-related Financial Disclosures (FSB-TCFD) which has recently launched their recommendations for improved reporting. We have developed a short summary for business leaders.

At the very least, the recommendations will mean that reporting the financial impacts of climate change will be on the board agenda, as they consider the mid to long term implications of climate risks on their business, strategies and financial performance, for example through the use of scenario analysis. The recommendations are due to be finalised by mid-2017.

Widespread uptake of the recommendations will mean that financial institutions will have access to consistent, comparable data which will aid risk management and disclosure at the financial institution level. A key challenge for financial institutions will be to assess current processes and systems for collecting and analysing such data, and consider how such enhanced information can be best incorporated into existing risk management and financial reporting frameworks.

Those who act first will be best placed to capture the arbitrage while others get their houses in order to price in climate risk. Appropriate pricing of risk should mean that capital is deployed in ways that make financial sense for businesses - including the capturing of climate-related opportunities. Is this perhaps a situation where the planet and profits do not have to be at odds?

For more information, please visit:
http://www.pwc.co.uk/services/sustainability-climate-change/climate-risks-and-the-fsb-task-force.html

Dallas McGillivray is the Managing Director of Fleming McGillivray & Co. Limited (“FMConsult”) and is responsible for the running of the consultancy business. Founded in 2004 and headquartered in London, the company is an independent regulatory, product development and operational/investment risk consultancy, committed to assisting clients in aligning financial services processes with regulatory requirements. FMConsult provides risk and compliance solutions that enable senior management of financial services firms to demonstrate that they and their firm are currently, and will continue to be, aligned with regulatory requirements. Here Dallas talks to Finance Monthly about the compliance consulting sector, the most common issues that his clients need assistance with and offers advice both to potential clients and to his peers who operate within the industry.

What are the most common compliance issues that clients encounter in the daily running of their business? What advice can be given to help companies avoid these issues?

Day-to-day issues vary significantly depending on the size, nature and complexity of the business.  Corporate governance, cross-border promotion of UCITS and AIF’s, regulatory capital including the ICAAP, and CASS issues do come to our attention regularly. I’d say that the best form of defence against these issues is regular training to ensure that line managers are suitably aware.

What types of companies are legally required to have a compliance officer? What are the main purposes of a compliance officer?

Each regulated entity must have a compliance oversight person (Control Function 10) that provides a regulatory oversight to the entities operations. The main purpose of a Compliance Officer is to allow the CEO to sleep easy at night.

When starting up a new business or expanding into a new business sector, what regulatory issues should proprietors have in mind to avoid future compliance issues?

In order to avoid future compliance issues, proprietors need to be mindful of capital requirements, client documentation and systems.

What’s your golden nugget of advice for other professionals operating within compliance consulting?

Understand your client and know their risks. Do not be a “box ticker” like so many compliance consultancies.

What have been your biggest achievements in your career thus far?

I think my biggest achievement to date is being the Global Compliance and Operational Risk Director of a very large and diversified global business and implementing an operational risk based compliance approach across all jurisdictions.

What does 2017 hold for you and Fleming McGillivray & Co.?

The challenge is to grow strongly in a controlled way and to ensure that all of our clients continue to see value in the operational risk based approach that we provide. To build on our investment risk business

Anything else?

Compliance starts at the top and if the CEO does not understand that then the Head of Compliance must consider his/her options or his/her career will be short-lived.

Looking back on last year's FinTech predictions, not many commentators accurately predicted where we would be entering 2017. As a professional advising both established financial institutions and new entrants, Claire sees an exciting year ahead and shares her key predictions with us.

I believe that the UK will forge ahead as a global FinTech leader despite Brexit. Building on its sandbox initiative and the signature of several FinTech co-operation agreements with regulators in the Far-East, the FCA will continue to launch progressive initiatives and reach outwards. As it did in 2016, the FCA will continue to provide leadership on global regulatory thinking and initiatives.

The growing trend of collaboration between FinTechs and incumbents will intensify in 2017.  Due to a more challenging landscape for those looking to raise capital in Europe and the US, FinTechs will be increasingly willing to partner with incumbents in return for funding and market access, which will drive increased M&A activity. On the global stage, the explosion of Chinese FinTech activity and investment seen in 2016 will continue and Chinese FinTech will keep on dominating.

We will begin to see the impact of the regulatory initiatives designed to open up retail banking and payment services such as the EU's second Payment Services Directive ("PSD 2") and the UK open banking initiative. Several new intermediaries will enter the market, not just in payment services, but also across the spectrum of comparison sites and personalised financial management services.  Some interesting business models and collaborations between banks and intermediaries will emerge as intermediaries own more consumer relationships.

The rise of APIs will bring increased threat of fraud and potential data breaches. The ability for consumers to share retail banking transaction data history with third parties via open APIs from January 2018 (as part of the open banking initiative) aims to stimulate competition for the benefit of consumers, but many will need comfort around security and potential for unauthorised use. Technical solutions for control of on-line use of personal data by the consumer (possibly blockchain-based) will gain traction.

Regulation of peer-to-peer lending will be tightened, impacting the existing business models and practices of some players.  This, combined with a changing economic landscape, will result in casualties, but tightened regulation will also increase consumer confidence and pave the way for sustainable businesses as the market matures. One of the newly authorised UK challenger banks will team up with a peer-to-peer lender.

2017 will be the year in which Bitcoin achieves legitimacy. Overall global economic uncertainty will drive investors to look at Bitcoin as an alternative safe haven investment. The resulting increase in Bitcoin activity will in turn drive adoption, with more retailers willing to accept it and transaction volumes significantly increasing. This will move regulation of crypto-currencies up the agenda and we will see developing regulatory frameworks contributing to the legitimisation of Bitcoin and cryptocurrencies as a new asset class.

The proliferation of blockchain applications being piloted by the banks will encounter a wave of realism as the scale of the challenge of moving from testing to real life deployment becomes apparent. The hype will subside as projects stall but investment will continue and more clarity will emerge on the applications of the technology likely to succeed and the platforms which will dominate. One of the key issues for blockchain in 2017 will be how far trust has been affected by last year's "hack" of The DAO – a crowdfunded investment community built on the Ethereum blockchain platform.

AI and Machine Learning will be big FinTech trends in 2017, encompassing everything from algorithimic trading to personal finance bots. There will be more scrutiny from regulators on how investment decisions are being made as AI and deep learning play a greater role in investment systems. 2017 will also see banks responding to rising demand from the Gen Z and millennial cohort for chatbots (most likely through integration with existing social chat channels or smart assistants).

All in all, I believe that 2017 will mark a further leap in the evolution of FinTech and the world of financial services will continue to undergo a major technology-driven change.