This is according to Henry Umney, CEO of ClusterSeven, as he offers his views on the regulatory and risk management trends in the banking and financial services industry for 2019.
Brexit will confound banks in 2019, whatever the outcome
The UK’s departure from the EU at the end of March will continue to have a significant impact on the banking, insurance and asset management sectors throughout 2019, almost regardless of the nature of the final departure. Brexit uncertainty is presently forcing banks to implement their most stringent contingency plans, in terms of re-locating critical business services, processes, and in extremis, specific roles and personnel. To this end, division of data, processes and responsibility need to be managed carefully to ensure these changes are executed smoothly, efficiently and with full auditability. Further complexity is provided by the UK’s Prudential Regulatory Authority’s (PRA) announcement that institutions will be able to continue to trade as branches of their head office, rather than as a (more capital intensive) subsidiary post-Brexit. This, alongside the European Banking Authority’s (EBA) recent announcement that it sees ‘back to back trading’ between the City of London and the EU as beneficial, suggests that there is a willingness to find a modus vivendi that allows complex cross-border transactions and business processes to continue as normal, almost regardless of the final Brexit outcome.
This complex, conflicted environment will place a premium on understanding how disparate business processes and applications, including how end user supported processes (e.g. using spreadsheet-based applications) are configured, allowing institutions to respond quickly to new developments – and potentially even reversing previous decisions about re-locating people, roles and business units.
Regulators and auditors will demand mature model risk management
In the US, the momentum for a mature approach to model risk management will gather further pace as government frameworks including SR 11 7, CCAR/DFAST stress testing and CECL, for example, are more closely scrutinised and audited by regulators. Increasingly these governance frameworks are being extended to include the tools that feed the models and there is recognition of the significance of the spreadsheets and other end user supported applications to the models covered by these frameworks.
This approach to sophisticated model risk management will find favour with European regulators too, a trend that is already in motion with regulations such as TRIM and SS3/18. This is fundamentally driven by regulators’ collective objective of demanding visibility of critical models and enhancing the operational resilience of financial institutions. Effective data management, including that stored in spreadsheet-based and other end user supported applications, is central to these frameworks.
To meet the excellence in data governance and auditability as demanded by the regulators in the UK and US, financial institutions will be forced to apply the same level of controls to their end user supported application environment – as they apply to their broader corporate IT environment. This reflects that spreadsheets are often the ‘go to’ tool in developing a broad range of business and financial models.
The transition away from LIBOR will present a major operational challenge
Due to the enormity of the transition from LIBOR (London Interbank Offered Rate) to alternative reference rates (e.g. SOFR, Reformed SONIA SARON, TONAR), financial institutions will begin adjusting their processes and systems, in preparation for the switch to new reference rates by the end of 2021. The clock is ticking.
With a parallel universe of spreadsheets connected to enterprise systems such as risk, accounting models and a plethora of non-financial contracts, financial institutions will need to ensure that the relevant changes are also accurately reflected in the spreadsheet-based processes. Given the broad range of potential alternatives to LIBOR, it seems possible that multiple replacements may be in use in different jurisdictions. There will be a premium on being able to identify transactions and contracts quickly and efficiently, and applying the appropriate reference rate, quickly, efficiently – and again with full transparency and auditability.
GDPR has the hallmarks of expanding into a global framework, its compliance will need to be in organisations’ DNA
GDPR has all the makings of becoming a global standard. Already, California is taking the lead with the California Consumer Privacy Act (CCPA), which comes into force in 2020. Other US states are also considering similar regulations to protect the rights of their residents.
With a fine of $1.6 billion levied on Facebook this year, the EU has clearly demonstrated that it means business. In 2019, organisations will have to shift their GDPR focus to ‘sustainable compliance’. They will realise that inventorying IT systems for GDPR-relevant and sensitive data was merely a good first step to meet the compliance requirements on 25 May 2018. GDPR compliance will need to part of their DNA – requiring it to be a ‘business as usual’ activity. With unstructured confidential data (e.g. personal details of clients and employees) often residing in spreadsheets, visibility alongside continuous monitoring, controls and stringent attestation of information will be essential to meeting GDPR demands such as the right to be forgotten and data portability. Automated spreadsheet management will become critical to sustaining GDPR compliance.
As an enabler for increased competition and customer choice, open banking is transforming the banking sector for consumers, challenger banks, FinTechs and traditional players alike. The UK’s version of the second Payment Services Directive (PSD2), open banking is forcing UK banks to open their data sets via secure application programming interfaces (APIs), resulting in them re-positioning their services away from being one-stop shops for financial products, to open platforms, where consumers can embrace a more modular approach to banking by allowing third parties to access their financial data directly.
As we enter the second full year of an open banking environment, Kevin Day, CEO of HPD Software, the asset based lending and factoring software platform, discusses the opportunities and challenges that the sector is likely to face in 2019.
Rapid and significant innovation in financial services to grow the market considerably
Open banking’s data sharing rules are aimed at developing new technologies and innovation, which have been advancing at a rapid pace, and which is expected to continue, resulting in increased competition between banking providers and FinTechs. The open API data, which includes account aggregation, improved financial management, credit scoring thin-file customers and integrated lending and accounting platforms allows companies to create bespoke products and target potential customers in a completely new way.
Through such innovation, customers will be able to quickly compare accounts, helping them to understand where to find the most suitable products. Financial management meanwhile could now be offered by an array of financial service providers, from established banks to charities, in a move that encourages customers to shift from traditional ‘under one roof’ banking services to specific, individualised services that are suitable for their personal financial situation. The potential revenue opportunity across a range of SME and retail customer propositions is estimated by PwC to be £2.3bn at the end of 2018, of which £1.8bn could be cannibalised by existing or new players in the market, with the remaining £0.5bn representing new revenue opportunities. Based on forecasts for adoption across the same markets over the next four years, PwC expects incremental revenue will total £1.3bn, where £5.9bn is ‘revenue at risk’.
A lack of homogenous technical standards may make operating processes susceptible to corruption and companies need to be clear on how they will safeguard their data against fraudulent activity.
Enhanced industry collaboration
Another considerable advantage of open banking is the enhanced industry collaboration that will result from data sharing as providers, traditional banks and FinTech companies will between them be able to offer something that the other cannot. With so many players in the financial services industry, the formation of partnerships between banks and their FinTech competitors will result in increased choice for customers, and will help both players to survive and expand their services in a rapidly evolving industry. Any new products formed through such forward-thinking partnerships will likely see the benefits at both ends of the spectrum.
Traditional customer platforms are going to change
Open banking will enable a new league of consumer profiling that will require minimum effort to find the most relevant information on products and services across the industry that are tailored to their individual needs and history. From personalised investment solutions to retail overdraft decoupling, the shift in data optimisation will become the new normal, altering the way traditional price comparison platforms operate. This movement won’t stop there: bank account and transaction data can provide an opportunity to collaborate across different sectors where retailers, utility providers and tech companies can function together on aggregated data platforms.
Access to consumer data increases responsibility around security
The opportunities created by initiatives such as open banking, which have the potential to transform the industry, of course come with responsibilities, and one of the major challenges will be around managing risks related to security. A lack of homogenous technical standards may make operating processes susceptible to corruption and companies need to be clear on how they will safeguard their data against fraudulent activity. Any major data breach is likely to negatively impact retail customer uptake – many consumers consider their financial data more personal than their medical information. With complex chains of data access, both banks and FinTechs must also consider the obstacles associated with responsibility for any security breaches, and ensure that their software is able to identify, predict and react to risks or breaches in good time.
By bringing third-party providers into the banking system, there is a considerably increased risk of scammers gaining access to customer information.
Liability becomes an issue
By bringing third-party providers into the banking system, there is a considerably increased risk of scammers gaining access to customer information and the finance provider will be liable, unless there is evidence of fraud or negligence. With both banks and FinTechs alike facing increased security threats, without proper legal clarification, it’s inevitable that finance providers will do what is necessary to push liability on third parties.
Open banking is still a relatively new initiative
A lack of awareness and education around the capabilities of open banking will be its greatest challenge in the short term. Finance providers will need to convince customers of the benefits of sharing their data in the first instance, and as yet, banks are not marketing open banking, which directly impacts the ability for it to innovate and provide new propositions.
While the corporate sector and SMEs in particular seem far more willing to embrace open banking, consumer review body Which?, has found that 92% of consumers had never even heard of the initiative. As such, banks and FinTechs need to embark on a considerable education programme for consumers to better understand the benefits of open banking and how it can help them take control of, and better manage their finances, from monitoring spending to making better savings and investment decisions.
For finance providers in the Asset Based Finance space, there are opportunities to leverage efficiencies from open banking, in particular in the area of cash processing with the potential for virtual bank accounts to streamline cash reconciliation. There are also value added services that can be offered to SMEs to assist them with other aspects of running their businesses. Finance providers will need to have an open mind and be prepared to collaborate with FinTechs and other technology providers.
Once banks have stronger propositions to offer their customers, they will become more vocal and the lack of awareness will gradually cease to be an issue. For the financial services industry and new entrants alike, it is important that all parties embark upon this education programme with the proper systems in place for proper levels of monitoring, security and scalability to ensure a success of the industry.
Website: https://www.hpdlendscape.com/
Almost a year in, is MiFID 2 fit for purpose, and what needs to be done to make sure that financial services companies start to comply? Below Matt Smith, CEO of SteelEye, explains.
Failure to comply implied threats of reputational damage and harsh fines from the FCA and so, come implementation day on January 3, those firms which hadn’t digested MiFID II’s 1.4 million paragraphs of rules in time were left living in fear of a crackdown from regulators.
Eleven months in, that crackdown has yet to materialise. And while a number of firms have undertaken the effort and expense to implement MiFID II’s myriad rules in full and have hopefully reaped the benefits of doing so, an equally substantial number haven’t – and regulators appear to be turning a blind eye.
This ‘softly, softly’ approach by the FCA has been picked up by commentators. Gina Miller, head of wealth manager SCM Direct, recently called for the Treasury to investigate the FCA for its failure to enforce MiFID II. This was in response to an April investigation which uncovered fifty firms in breach of MiFID II’s transparency rules. Despite receiving this dossier, the FCA wrote only to eight of the firms.
Given the breadth and complexity of MiFID II, most in the industry weren’t surprised that the FCA didn’t react strictly to non-compliance immediately after January 3. Equally as important as complying with MiFID II was that the markets affected by it continued to function effectively – which necessitated giving some time for the new rules to settle down.
But the lacklustre approach of the FCA is less understandable now we are approaching the anniversary of MiFID II’s implementation day. At the very least, it is unfair to those firms which took the time, trouble and expense to comply with MiFID II right from its implementation date – particularly smaller companies lacking substantial in house resources in technology and compliance.
The FCA’s unwillingness to enforce MiFID II is, unsurprisingly, having an effect on the number of firms making an ongoing effort to comply. As evidence, ESMA recently published its data completeness indicators, which showed a significant shortfall in companies’ compliance with ESMA’s data filing requirements – often submitting unsatisfactory data that is incomplete or late.
Ongoing ambiguity with MiFID II’s rules may be in part to blame. In the build up to MiFID II, many firms didn’t seem to fully understand what was actually required of them. This knowledge deficit was worsened by a lack of clear guidance from the FCA, which has continued.
Across the industry, the FCA has been criticised for this ambiguity, arguing that it makes it near-impossible to comply with the regulation. Even within firms, individuals have come to different interpretations of the rules and, throughout the industry, there is little coherence when it comes to compliance and what needs to be done by when.
The FCA has claimed that its soft approach to enforcing compliance is soon to end, meaning firms could soon have to embrace MiFID II or risk being left behind. But with ambiguity remaining and a number of hurdles ahead, many in the industry are beginning to wonder if the FCA even knows what exactly it is going to be enforcing.
The shadow of Brexit looms large and the future of London as a financial hub is still unclear, as is definitive information on what regulatory regime will apply: a paper backed by ex-Brexit Secretary David Davis suggests numerous reforms to MiFID II. Moreover, the form and scope of MiFID II could soon be set to change considerably, with MEP Kay Swinburne already hinting at the possibility of a MiFID III.
This leaves both the FCA and financial services firms flying blind when it comes to both compliance and enforcement. This climate of uncertainty puts on hold the achievement of MiFID II’s goals of increasing transparency, investor protection and market competition.
If these goals are to be realised, a more responsible stewardship of its own rules – and uniform implementation of them – must be enforced by the FCA. If the FCA delivers on what it promised with MiFID II, out of enforcement a more transparent, competitive and efficient industry should emerge.
Using Google and O*NET data from the past 10 years for typical finance roles, Reed Finance developed the interactive online tool on stateofskills.reedglobal.com. It found that written and verbal communication is prized by employers of finance professionals, with ‘oral comprehension’ (an understanding of what people are trying to say) and ‘written comprehension’ (understanding written ideas and information) ranked as the most valued skills. This is in comparison to traditionally assumed skills such as ‘economics and accounting’ and ‘deductive reasoning’ which are ranked as the fourth and 10th most important.
Reed Finance suggests that this is due to the future strategies of companies wishing to see finance executives take on leadership roles which entail not only technical soundness, but also an ability to inspire and work as a leader of teams – with ‘active listening’ and ‘oral comprehension’ some of the most important skills for a CFO to have.
Firms value ‘human skills’ such as communication over technical accounting skillset.
As such, ‘human’ skills are prominent in successful candidates for roles such as management accounting and FP&A management. This may suggest that these workers have the skillset to take upon more senior roles.
Securing the right talent
Reed Finance found that the level of interest from candidates for the majority of roles in accountancy and finance had been consistent over the past decade, but there are some notable exceptions.
Interest in CFOs peaked in April 2013, higher by 111% in comparison to January 2012. The trend is even starker for finance business partners. From only modest interest in October 2009 popularity has continued to increase rapidly over the decade hitting a peak in July 2018 that is almost 2500% higher. The stark rise reflects a change in the industry towards finance professionals with strong communication skills informing and guiding the business.
Interest in finance business partners has increased from near non-existence in October 2009 by 2333% to a peak in July 2018.
Rob Russell, director at Reed Finance, says: “Businesses are in direct competition for employees that can bring ‘human’ skills to the table, not just technical accounting and number crunching. The influx of AI in the workplace is helping to enhance the numerical skillsets within these teams, so there will be greater time for high-level creativity. Companies want candidates that can communicate, secure business wins and manage teams so that they perform to the best of their ability. These changes to a more fluid, creative workplace are creating great opportunities for those within the finance sector.”
Software use is essential to success but becomes less important with greater seniority
The research conducted also investigated the tools that must be mastered for success in these roles, encouraging businesses to upgrade their software where necessary.
Rob Russell continues: “Every day working with businesses we find that tech is there to enhance the performance of individuals. While candidates should endeavour to keep up with the latest accounting tools on the market, businesses are increasingly looking for those that can win new business and demonstrate a return on investment.
“For candidates, developing the ability to take complex finance information they deal with on a daily basis and using it to answer the question, ‘what does this mean for the business?’ will set them aside from colleagues. This, coupled with commercial nous, has always been an advantage, but now it seems it is even more sought after as business leaders search for the candidates that can secure the future of their business.”
(Source: www.reedglobal.com/finance)
With the enforcement of IFRS 16 ahead of us, as of January 2019, Nick Turner, Country Manager UK & Ireland at Anaplan, discusses with Finance Monthly the potential opportunities therein.
There’s nothing quite like ringing in the new year. Along with the promises of fresh starts and renewed perspectives, it’s that time of the year that we can set—and dare not forget—lofty goals to achieve in the 365-days ahead.
Effective 1st January 2019, IFRS 16 marks one of the first significant changes to lease accounting standards in 40 years.
The new year represents more than an annual reset button and it ushers in more than new beginnings. It also brings deadlines. This rings especially true for corporate finance teams this year, as the IFRS 16 deadline looms.
Effective 1st January 2019, IFRS 16 marks one of the first significant changes to lease accounting standards in 40 years. If they haven’t already made the adjustments, businesses now have a very limited time to ensure that future accounting processes will meet compliance.
Unfortunately, for companies addressing these changes through spreadsheets and aging technology, time might be ticking even faster because these manual tools can turn such operations into a lengthy, burdensome, and complex undertaking.
What IFRS 16 means for businesses
Beginning on the first day of the year, new standard IFRS 16 will be implemented by the Financial Accounting Standards Board (FASB) and the International Accounting Standard Board (IASB). This standard will impact company balance sheets and how many businesses that rent or lease will operate in the future.
The changes are designed to make it easier for outsiders to compare the performance of different companies.
The new IFRS 16 requirements will eliminate nearly all off-balance-sheet accounting for lessees. Further, it will impact commonly used metrics such as EBITDA and gearing ratios. Why? The changes are designed to make it easier for outsiders to compare the performance of different companies.
Although the changes in performance metrics will make it easier to compare and contrast, they may also affect credit ratings, borrowing costs, and even stakeholders’ perception of a company. This makes it vital that companies understand and prepare for the effects of this new leasing standard.
Technology that turns arduous into effortless
Even though time is winding down on the IFRS 16 deadline, businesses still have an opportunity to implement a solution that can quickly fulfill its requirements—and many are turning to cloud-based, Connected Planning solutions.
Adhering to the new standard with spreadsheets and legacy tools quickly turns burdensome; in contrast, Connected Planning technology supports rapid implementation, easily interfaces with existing enterprise resource planning (ERP) databases, and calculates large volumes of data in real time. Connected Planning gives decision makers instant insight into how to optimise their company’s lease management strategy in context of the new regulations.
The deadline for IFRS 16 approaches and businesses have to determine the best way to comply with the new leasing standard soon. Connected Planning technology offers a way to tackle the complexity of the standard with ease.
The blunt truth is, insiders who are close to critical systems—or outsiders who are skilled enough to exploit vulnerabilities in anti-fraud and other security controls—will steal. They may target assets they’re entrusted to protect or cook the books to hide their tracks; in the end both types of fraudsters aim to make off with significant money. Here Chris Camacho, Chief Strategy Officer at Flashpoint, offers expert insight into fighting fraud right on your business’ doorstep.
Fraud persists, and frankly, it’s not realistic to believe businesses can take measures that will permanently eradicate it. Fighting fraud, however, doesn’t have to be in vain.
Get inside the adversary’s head
Anti-fraud systems may be effective and getting better, but they’re not going to deter a profit-motivated criminal. The challenge then becomes an exercise in anticipating the fraudster’s next move. In order to get inside an adversary’s head, anti-fraud professionals must consider what incentivises a fraudster and what their targets could be. In most cases, this is a simple exercise: credit card data, personally identifiable information (PII), user account login credentials, and other types of proprietary data and information are common targets.
It’s also imperative to consider how fraudsters might attempt to hurdle existing controls in order to access your business’ assets. Multi-factor authentication may protect some payment card transactions, but what about gift cards, for example. Unlike bank-issued credit and debit cards, gift cards are generally not held to strict anti-fraud standards, which is largely why they are a desirable asset among many fraudsters. Illicit vendors selling stolen gift cards have become commonplace on the Deep & Dark Web (DDW) in recent years, leading to an uptick in instances of gift card fraud.
Thinking like a fraudster means considering all of the options available to an attacker and admitting that certain systems or processes may be flawed. Proactively identifying and addressing any weaknesses in existing anti-fraud programs—such as what fraudsters determined are often present within gift card security controls—can help businesses better anticipate and prepare for fraud.
Thinking like a fraudster means considering all of the options available to an attacker and admitting that certain systems or processes may be flawed.
Have eyes and ears on DDW fraud forums
Thinking like a criminal is only one part of this strategy. To accurately anticipate how your company, your peers, or your industry is being targeted, it’s important to have insight into the conversations and behaviours of those perpetuating fraud. Not all organisations are going to have proper visibility into these realms, therefore it’s important to have a trusted partner with eyes and ears on the DDW, for example.
Certain DDW forums focus on fraud, and on these forums, certain trends emerge. For example, discussions related to the lax anti-fraud controls of gift cards eventually manifested in a spike in gift card fraud.
Many fraudsters’ ever-evolving tactics bear little resemblance to the tried-and-true fraud schemes with which most businesses are familiar. Although countless variations of credit card fraud, for example, are generally well-known and well-mitigated in the financial services and retail industries, many businesses continue to incur substantial losses from lesser-known types of fraud. In addition to gift card fraud, refund fraud, health savings account fraud, and rewards point fraud are only a few of many such examples that were initially conceived within the cybercriminal underground before posing a threat to businesses.
The DDW can be a rich source of insight into emerging fraud tactics and schemes. But because accessing and engaging within these online communities can be challenging and risky without the proper expertise and protections, businesses are encouraged to work with reputable intelligence vendors to more effectively, easily, and safely gain visibility into the cybercriminal underground.
Just as fraudsters are extremely resilient, persistent, and resourceful, businesses, too, should seek to emulate these characteristics when fighting fraud. This means approaching fraud from new perspectives, learning about emerging schemes and tactics proactively.
Keep track of regional ties and variations
Analysts have tied different types of fraud certain regions such as Eastern Europe, forcing businesses go to great lengths to gain insight into new schemes and tactics. These types of insights are critical for establishing countermeasures, the most effective of which typically account for the social, cultural, and linguistic nuances known to characterise fraudulent activity originating in certain regions.
But in recent years, new cybercriminal communities and, as a result—new tactics and types of fraud—have quickly emerged in many more regions. Latin America is one such example. While fraudsters in Latin America have long been considered unsophisticated, unorganised, and unlikely to pose any substantial threats to businesses, this community has since evolved substantially. Many businesses that previously had no reason to monitor the Spanish-language cybercriminal underground are now striving to understand and combat threats originating from fraudsters in Latin America. And given that threats and indicators can vary substantially across different regions and communities, keeping track of these variations and new developments is a must for businesses and anti-fraud teams.
Assessment
Just as fraudsters are extremely resilient, persistent, and resourceful, businesses, too, should seek to emulate these characteristics when fighting fraud. This means approaching fraud from new perspectives, learning about emerging schemes and tactics proactively, and seeking third-party services and expertise when necessary. While businesses have little control over the existence of fraud, they can control the extent to which they prepare for and mitigate this ever-evolving threat.
A greater proportion of IT decision-makers in the financial/banking sector see key financial services regulations as a driver of innovation (34%) than regard them as a barrier to it (24%).
More than a third (34%) of IT decision-makers across the UK financial sector regard key financial services regulations such as PSD2 and FRTB as a driver of innovation within financial services organisations, while fewer than a quarter (24%) see them as a barrier to it. That is according to survey of IT decision-makers across a range of financial and banking sector organisations, including retail and investment banking, asset management, hedge funds and clearing houses.
The survey, commissioned by software vendor, InterSystems, also found that just 20% of these decision-makers believe their organisation is very well prepared for the roll-out of the new regulations.
Graeme Dillane, financial services manager, InterSystems said: “Historically, firms have responded in a piecemeal fashion by putting in place new siloed applications to meet the needs of each new ruling. The latest round of regulations raises the stakes by effectively demanding businesses break down their data silos, better integrate their data enterprise-wide, and analyse it in real time in the context of new event and transactional data. All of that makes it vital that organisations innovate now.”
To lay the foundations for innovation, firms need automated systems. Currently, however, automation levels are low. Just 21% of the sample said they had fully automated the processes they had put in place to meet regulatory and compliance demands. 33% said they had not automated them at all.
More positively, the survey indicates that IT decision-makers across this sector are aware of what needs to be done to change this. Nearly two thirds (66%) said that they expect innovative technology will have an important role to play in ensuring regulatory compliance for financial services businesses over the next five years.
“It’s clear that financial services businesses increasingly understand just how crucial it is to actively innovate in order to address the challenges presented by the latest industry regulations,” says Dillane, “and the good news is that we are starting to see evidence on the ground that they are seeking out new solutions to help ensure their compliance.”
(Source: InterSystems)
IFRS 16 – a new Accounting standard as per 01.01.2019. GRENKE gives you an overview of the main changes for lessees applying IFRS 16.
As global business and cross-border transactions have proliferated, there are significant implications for commercial customers who rely on banks and payments providers to provide a flawless service faster than ever. So how do can the financial services sector put value back into the process? Below Abhijit Deb, Head of Banking & Financial Services, UK & Ireland, Cognizant, explains for Finance Monthly.
Consumers now expect easy and immediate payment services, no matter where they are or what they are buying, whatever the payment method. It may be symptomatic of the ‘age of instant gratification,’ but it also demonstrates how people value financial agility. This was highlighted by a recent system failure with the UK’s Faster Payments System that caused mass inconvenience and frustration among consumers. Whether paying a friend back for last night’s dinner or sending emergency funds to family travelling overseas, the offerings of digital banks such as Monzo and Starling are testament to the industry’s efforts to keep up with rapidly evolving consumer expectations. This trend has now also filtered into the business world.
The technological saturation of the financial services industry has been met with an increasing affinity for risk amongst business customers. Churn has never been easier. If one bank cannot meet their needs, customers can leave, and it has never been easier for them to switch financial providers in a congested market. In essence, the evolution of the payments ecosystem encompasses much more than innovation targeted at consumers.
Understanding the value of payment data
Of course, there are some interesting examples of innovation in consumer payments. Gemalto’s biometric bank card, for example, highlights that the area is steadily advancing, despite scepticism that there will be mass consumer acceptance.
However, the pace of change is accelerating rapidly in terms of offerings. For instance, blockchain is being harnessed by banks and technology vendors as a prime enabler of an instant B2B payments infrastructure. Industry players realise that the methods that can derive benefits today are largely based on a better understanding of the value of payment data.
While such data has mostly been used to create a hyper-personalised customer experience for consumers, it is increasingly being harnessed in services to businesses, even outside the financial services sector with companies such as Google recently purchasing Mastercard credit card information to track users’ spending to create an additional revenue stream.
This evolution of B2B product consumption is emerging as a key theme across the broader financial services market and is increasingly allowing businesses of all sizes to ‘window shop’ for the products and services they want the most. Providers are racing to commercialise the increasing amounts of account information, a trend that has increased in the wake of regulation such as PSD2 (the Second Payment Services Directive). By doing so, they can position themselves as the customer’s ‘digital front door’ to a wider range of services such as financial advice, merging the dimensions of ‘fast money’ (a consumer’s daily spending) and ‘slow money’ (future spending, saving and investment).
Adopting innovations such as automation, means that banks and card providers can help their commercial customers transform payments into a process that can add real value and allow the integration of additional services. By making financial reporting much easier, organisations can glean better insights into data showing purchasing trends among their customer base. The emergence of machine learning and self-learning systems will make this process much more efficient, even incorporating features like automated financial advice or fraud detection to become commonplace.
Consumption models are changing
Therefore, as payments processors and providers realise the opportunities in the business payments ecosystem, innovation accompanied by a commoditisation of payments services is on the increase, characterised by providers trying to add more value in the supply chain. Although currently most relevant to the SME market, companies of all sizes are being targeted with added value payments services such as reporting, to help them make better decisions. For example, retailers working with Barclays have access to add-ons and third party apps via the bank’s SmartBusiness Dashboard, including basic analytics to see what customers are spending their money on. This information can then inform marketing schemes that tailor product promotions to specific customers.
Ultimately, the more choice the customer has and the more informed they feel, the more likely they are to return to the same bank to take out a loan or use other services.
With so many contributors to the payments ecosystem, and an increasing number of organisations using the analysis of payment data as a key differentiator against competitors, it is crucial that banks, regulators and payments processors co-ordinate their efforts and use the best technology available to create an efficient system. And with the Faster Payments Service deal up for renewal, a system that underpins most of the UK’s banks and building societies, perhaps it is time for the government to consider how it can best support a payments infrastructure that works for all.
It’s been exactly a year since Harvey Weinstein was first accused of sexual harassment and assault. Since then, more than 50 women have made allegations against the Hollywood mogul, whilst the #MeToo movement has rapidly spread around the world with a shocking number of powerful men across a number of industries being pushed out of jobs and publicly accused of sexual misconduct. But despite the widespread popularity of the movement, it seems like the finance industry has been, to an extent, immune to claims of sexual harassment. Of course there have been cases that have been reported in the past twelve months, with Merrill Lynch employee, Jean McCrave Baxter, suing the firm over sexual harassment and discrimination being one of the most recent examples. Yet, many women in finance who have been harassed are reluctant to coming forward to talk about the abuse and most of the very few individuals who have spoken up openly about it have chosen to remain anonymous.
What’s hiding behind the silence?
We all must remember Sallie Krawcheck’s story about a man she met at a conference organised by Sanford C. Bernstein & Co., where she was Research Director, who invited her to his hotel whilst “sticking out his tongue and wiggling it at [her]”. After moving to Citigroup in 2002, Mrs. Krawcheck found out that her harasser was about to get a job at the bank and told its CEO about the experience she’s had with him. After the Chief Executive’s suggestion that maybe this was all a misunderstanding, she threatened to quit, which resulted in Citigroup agreeing not to hire him. Krawcheck said that she’s decided not to name her harasser only because she got her revenge. “He wasn't in a position of power, and I got him back later", she says.
The first female trader to be invited into the partnership of Goldman Sachs, Jacki Zehner, on the other hand is withholding the name of her colleague who pulled her out of a taxi as he wanted to take her into his home after drinks because she’s too afraid. She also adds that she would never forgive herself for not reporting him.
Earlier this year, WealthManagement.com reported on the case of a personal banker who was working for a major firm in California and was responsible for 20% of the company’s clients. One of them, a Chief Financial Officer, used to ‘aggressively flirt with her’. “He would say: ‘When are you going to take me to the opera? When are you going to take me to a sporting event?’; I would say: ‘I will take you any time you want to go. You would take a date, and I would bring my husband.’ And he says: ‘No, I want this to be just you.’” On another occasion, she was sat at her desk when another client showed up. “This guy happened to walk in, and in the midst of me having a conversation with these other people, he turned my chair around, kissed me, and laughed”, she explains. “I got up, and I went into the manager. He responded: ‘I expect you do whatever it takes to keep that client.’ So I quit. I walked out the door. It was pretty traumatic because I worked hard to get to that position.”
In January 2018, Bloomberg interviewed 20 women who used to or still work on Wall Street and yet again, asked not to be identified. And although #MeToo has triggered some changes, these 20 women say that throughout their career, they have been ‘grabbed, kissed out of the blue, humiliated, and propositioned by colleagues and bosses but have stayed quiet because of cultural and financial forces that are particularly strong in banking’. These women worry that they have a lot to lose by reporting it and no certainty about what they could gain - all on top of legal agreements that ‘muzzle’ them.
Some may argue that the finance industry has already had its #MeToo moment in the mid-90s when a group of female employees from California to New York sued the giant brokerage firm Smith Barney Inc. for alleged sexual harassment, hostile work environment and job discrimination. The lawsuit prompted a number of other companies to put harassment procedures and mechanisms in place. And although we’ve reached a point where all major financial (and not only) institutions have policies for reporting harassment in place, a WealthManagement.com survey showed that 66% of the women who have been harassed or witnessed harassment did not use the protocols in place to report the incident. The list of reasons included ‘fear of retaliation and ostracism within the office, the fact that the offender was the victim’s manager or a belief that the complaint would not be taken seriously’. One respondent remembers the one time she informally addressed an instance of sexual harassment that she’s been subject to and the response she got from her management - laughter and an explanation that this was ‘the nature of the beast’.
A lot can be said about the culture within finance, or ‘the nature of the beast’. On a global scale, the financial sector suggests a culture where it’s hard for women to thrive. Long hours, the travel and the pyramid-like structure that includes a lot of junior women, but disproportionately fewer and fewer of them as you get toward the top. On top of this, financial firms and institutions are built on relationships, they value discretion, demand sacrifice and fixate on reputation. The culture in their firms could be so intimidating that some of the women that Bloomberg interviewed for example are scared that bringing a sexual harassment claim to light could permanently alienate bosses, colleagues, and even rivals. Many in finance tend to attribute it to an industry norm, believing that this is the way things get done around here and victims need to develop a thick skin and get on with their life.
Alan Moore, Co-founder of XY Planning Network, a support network for advisers looking to serve next generation clients says: “There is a generation of men that simply don’t recognise harassment when they do it or when they see it. Women have been told time and time again, either verbally or through inaction, that harassment isn’t a big deal. You should just put on thicker skin and get over it. And so we haven’t given women a way to actually end the harassment without basically having to quit their job and move on.”
The unique nature of the culture makes removing oneself from the situation and moving to another company seem like the easier option – you won’t have to talk about it, you won’t have to face judgement and you won’t have to feel embarrassed. Even Sallie Krawcheck and Jacki Zehner, some of the very few women in finance who have had the bravery (and maybe the strong reputation) to open up about the traumatic experiences they have been victims to, have chosen not to ‘name and shame’ their harassers.
“You can have protocols in place that look great in theory, but if nobody is ever actually disciplined for having harassed somebody, then those protocols start to look like your complaint goes into a black hole and you never know what has happened other than you start to fear that you’ll be retaliated against”, says Eric Bachman, a Principal with Zuckerman Law and the Chair of their discrimination and retaliation practices.
“It’s really necessary for [firms] to be out in front of this and treat this like a real business problem that they need to be figuring out the solution to and giving it the appropriate prioritisation within the organisation”, Bachman continues. “And until that happens, you’re going to keep seeing sexual harassment problems in this industry.”
Arguing that every single woman working in finance has been harassed without addressing it was never my intention. I’m confident that there are countless women working in the financial services sector, who have reported the incident or whose gender has never sparked any problems – some even use it to their advantage. However, although the situation is improving, I believe the industry still has a long way to go – more women should take inspiration from women’s voices in other industries and more management teams should persuade female employees that making a complaint is not going to adversely impact their careers.
Sources:
https://money.cnn.com/2017/11/01/pf/naming-sexual-harassers/index.html
http://www.jackizehner.com/2017/10/19/metoo/
https://www.wealthmanagement.com/industry/nature-beast
https://www.bloomberg.com/news/articles/2018-01-11/why-wall-street-hasn-t-had-its-metoo-moment-yet
https://www.washingtonpost.com/gdpr-consent/?destination=%2farchive%2fbusiness%2f1996%2f11%2f06%2f26-women-sue-smith-barney-allege-bias%2f595f6d40-b69c-45cf-a1f8-a56c3167bcf8%2f%3f&utm_term=.9bf24b50233e
https://www.vanityfair.com/news/2018/02/inside-wall-street-complex-shameful-and-often-confidential-battle-with-metoo
Equiom is an international professional services provider with a strong presence in Europe, Asia, the Middle East and the Americas. The company specialises in providing bespoke solutions to both private and corporate clients to assist with all of their financial planning and wealth protection requirements. Here, Richard Tribe, Head of Equiom Private Office and Laura Brown, Senior Manager, Equiom Jersey discuss what’s involved in offering a premium service to clients.
What are the typical challenges that clients approach Equiom with in relation to the management of their finances?
Richard Tribe: Equiom Private Office deals with the more complex wealth structuring cases, where clients are seeking completely bespoke solutions.Typically this would involve a wide range of assets, often spread internationally, that perhaps need consolidating into a structure (typically a trust or foundation) that both protects the assets and affords sensible future succession planning.
Laura Brown: Confidentiality is another consideration. Many of our clients are residents in countries where significant wealth can be a security issue and so, utilising suitable structures can reduce, or remove, such concerns. Of course, the clients are always fully aware of their obligations around full disclosure and transparency for tax reporting purposes, and we work very closely with their legal and tax advisers to ensure any structuring is compliant and fit for purpose.
Can you outline the process you go through to assess your clients’ current financial situation and assist them with identifying financial goals and concerns?
Richard Tribe: We are often asked to review a client’s current situation, which can be quite an involved process. If there are structures already in existence, these will need to be looked at carefully to ensure they are still providing suitable protection. Then, we will discuss with the client their future plans and requirements, and ultimately determine how best we can achieve their goals.
Laura Brown: The concerns of wealthy families are often very similar, regardless of their nationality. As mentioned previously, protecting the family wealth is often the main priority, but educating existing and future generations is always an important consideration, as is philanthropy. We are seeing more and more families who want to give something back to society and so part of our remit is to work with them to put suitable plans into operation. Impact investing is gaining real momentum at the moment and a lot of my clients are increasingly interested in structuring part of their wealth into these areas.
Tell us about Equiom’s Private Office services. What is the typical client that they are aimed at?
Richard Tribe: Equiom Private Office (EPO) was launched earlier this year. It is not a product offering, but more specifically a specialist team dedicated to providing clients with the highest levels of professionalism and personal service. Once we understand the client needs, we can draw on the variety of expertise across the entire Equiom Group to establish the most appropriate team to provide the optimal solution. Transparency and trust are fundamental to this approach and these are established through building a deep understanding of clients’ needs and their ongoing objectives. EPO has been very well-received in the market as it is an entirely unique approach, which I believe is unmatched among other service providers.
What are the most common tax planning solutions that you offer to your clients?
Laura Brown: When sitting down with both current and prospective clients to discuss their requirements in terms of wealth and estate planning, we first have to consider the tax implications both in Jersey and in any other jurisdictions where the client resides or holds assets. Where a client is considered tax resident is an important consideration, as is where a client is considered domiciled or deemed domiciled. The changes to the UK domicile laws and how UK property is taxed when held in offshore structures, which became effective in April 2017, have had a significant impact on wealth planning for clients who either reside in the UK or hold assets there. Aspects such as these greatly influence the advice we provide to clients.
What options are available for those who want to manage tax on their estate in Jersey?
Richard Tribe: From a Jersey perspective, Equiom can offer a range of solutions to clients who are looking for effective wealth and estate planning options. One such option is a Jersey trust. The trust is Jersey law governed but does not have to have Jersey resident trustees, though in many instances having Jersey resident trustees can be beneficial. The Jersey Government does not levy fees or any other duties when creating a trust or during the life of the trust. In addition to this, Jersey law contains specific provisions which do not comply with forced heirship laws (laws of certain countries which require specific portions of a person’s estate to be left to specified persons). To put this more plainly, a settlor can transfer his or her assets to a Jersey trust during their lifetime and Jersey law will not give effect to any rule of another country relating to inheritance or succession which says that such a transfer is not allowed. This means that a Jersey trust allows the settlor the absolute freedom to decide who will inherit the trust assets.
Laura Brown: Another option is the Jersey Foundation.The Jersey Government enacted the Foundations (Jersey) Law in 2009. Foundations are required to have a charter (which is open to public scrutiny) and a set of regulations (that are private). A foundation is a legal entity that is managed by a council of persons who can be natural persons or corporate bodies though at least one of the council members must be a Jersey regulated entity (known as the qualified member).The foundation has beneficiaries but the Foundations (Jersey) Law stipulates that the foundation council will not owe fiduciary duties to beneficiaries nor will beneficiaries be entitled to information about a foundation’s assets unless the beneficiaries have a vested interest. Jersey foundations have characteristics of both a company and a trust which makes them interesting entities for taxation purposes. A Jersey foundation can be drafted in various ways which affects the tax treatment in different jurisdictions.
About Equiom
Equiom has been advising wealthy families and multi-national businesses for decades. The services we offer have evolved over the years with changing market needs. With a thorough understanding of the current generation and the most experienced professional team across the globe to cater to each individual situation and client, we are well placed to find the optimal solution for our clients’ needs.
For more information on Equiom Private Office or to connect with a member of the team, contact privateoffice@equiomgroup.com.
Website: www.equiomgroup.com
Equiom (Guernsey) Limited and Equiom Trust (Guernsey) Limited are licensed by the Guernsey Financial Services Commission. Equiom (Isle of Man) Limited is licensed by the Isle of Man Financial Services Authority. Equiom (Jersey) Limited is regulated by the Jersey Financial Services Commission. Equiom (Luxembourg) S.A is supervised by the Commission de Surveillance du Secteur Financier (CSSF), the supervisory authority of the Luxembourg financial sector. Equiom (Malta) Limited is authorised to act as a trustee and fiduciary services provider by the Malta Financial Services Authority. Equiom Trust Services Pte. Ltd. is licensed by The Monetary Authority of Singapore. Equiom Trust Services (BVI) Limited is regulated by the British Virgin Islands Financial Services Commission. Equiom S.A.M. is authorised to act as a trustee and fiduciary services provider by the Ministry of Finance in Monaco. Equiom Trust (South Dakota), LLC is licensed in Guernsey by the Guernsey Financial Services Commission and in South Dakota by the South Dakota Division of Banking.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.
John Kissane is the NY Area President and a Health & Welfare practice leader at Arthur J. Gallagher & Co. - one of the world’s largest insurance brokerage, risk management and consulting services firms with operations in 34 countries and client-service capabilities in more than 150 countries. Founded in 1927 by its namesake, Gallagher fosters a differentiated culture that reflects the company’s roots as a family business and the focus on delivering top-tier capabilities to clients. Below, John speaks to Finance Monthly about the employee benefits services that the company offers and tells us how employers can succeed in an increasingly difficult labor market.
Tell us more about the employee benefits services that Gallagher provides?
At Gallagher, we work hard to understand our clients’ industries, the markets in which they operate, and the unique constraints and opportunities that can affect their success. Rising healthcare costs, workforce issues, hiring challenges, legal risks, competitive positioning, financial strategy, compliance requirements—all of these factors impact employers’ ability to reach their full potential.
We are driven by a desire to help our clients - it’s something that all insurance companies strive for; better outcomes from better performance. That’s why we’ve developed Gallagher Better Works℠, our holistic approach to employee and organisational wellbeing. A better workplace attracts, engages and retains top talent at the right cost. This approach centres on strategic investments in employees’ health, financial wellbeing and career growth. It utilises data to gather insights and apply the best practices that promote productivity and growth.
Through the delivery of Gallagher's comprehensive approach to benefits, compensation, retirement, employee communications and workplace culture, our clients can optimise their annual talent investment, mitigate organisational risk and maximise profitability. Best of all, they gain a competitive advantage as a workplace that simply works better.
What trends are you seeing in the current health insurance and benefits landscape and how do you intend to keep up with these?
Healthcare costs continue to rise and we have seen an increase in creative funding mechanisms focused on bending the trend. Reference-based pricing, gap plans and split-funding products are a few examples. The need to control the cost of care and manage the health risk of employee populations has led to an explosion in solutions over the years. Gallagher is a trusted adviser to our clients. As such, our focus is on solving their challenges and recommending solutions that make sense for their specific organisational goals and objectives. This allows us to be entrepreneurial, and through our global network of professionals, we are connected to a vast array of vendors that can help meet our client’s needs.
What is the biggest challenge that employers face today? What would be your solution?
Attracting and retaining employees is a huge challenge, made more urgent due to the strong economy. Cultural and technological dynamics add to this – younger employees resist the idea of building a long career at one company, while at the same time they require proper skills and training to be productive while there.
How can employers succeed in an increasingly difficult labor market? You start by building a better workplace – one that truly engages key talent. Organisations must align their people strategy with their business goals. By focusing on the full spectrum of organisational wellbeing – and supporting their employees’ physical and emotional health, talents, financial health and career growth ‒ employers are able to realise a better return on their benefits investment.
What do you find businesses commonly fail to consider when it comes to employee benefits?
Far too often, companies fail to take a holistic, long-term approach to their benefits and compensation programs. In the struggle with managing healthcare costs, the “just get through the next renewal” mindset still exists. A recent survey of employers shows that 68% consider benefits and compensation cost management a top priority, yet 64% don’t have an effective strategy in place to achieve that goal. With multiple priorities, competing for employers’ attention, many turn to familiar tactics that no longer work.
A multi-year strategy that encompasses the entire total reward proposition and leverages insights, data analytics and best-in-class tools can lead to reductions in costs without sacrificing the value of the benefits offered to employees and their families.
