US banks that facilitated the Paycheck Protection Program are now preparing for what may be years of scrutiny from regulators over their role in handing out funds.

Banks participating in the PPP issued loans slated to be repaid by the US government provided that borrowers could demonstrate financial need and used most of the funds to make payroll. 5.2 million loans were issued as part of the scheme, with around $525 billion conveyed to businesses suffering from the impact of the COVID-19 pandemic.

The program began in April, overseen by the Small Business Administration (SBA), and quickly began to attract fraudulent claims. The Department of Justice has charged 82 individuals in 56 cases to date over around $250 million, according to a review from the Project On Government Oversight.

There is now growing concern that banks will face legal challenges over their role in facilitating PPP, provoking internal warnings and compliance reviews. At least four banks have issued warnings to investors about the incoming PPP regulatory and legal risk, Reuters reported, citing the banks’ shareholder filings.

Bank of America wrote in a July filing that its role in carrying out government stimulus programs “could result in reputational harm and government actions and proceedings, and has resulted in, and may continue to result in, litigation, including class actions.”

“We fully cooperate with government inquiries,” a Bank of America spokesperson said.

[ymal]

Wells Fargo also noted in a May filing that it had received “formal and informal inquiries from federal and state governmental agencies regarding its offering of PPP loans”, later confirming that the filing referred to inquiries from regulators regarding PPP fraud.

The SBA has made plans to review PPP loans that exceeded $2 million. Its inspector general has also said that “strong indicators of widespread potential abuse and fraud” within the PPP system would need to be investigated.

Rich Vibert, co-founder and CEO of Metomic, takes a look at the changes the UK financial sector will soon see and how banks can best prepare for them.

With headlines focused on the UK's plans to breach parts of the Brexit agreement, many key business discussions have fallen by the wayside. But, this begs the question: how are banks going to be protecting customer data? And, what data protection regulation is in place to govern this process as GDPR becomes inapplicable?

These are difficult questions to answer and require banks to unpick complex regulation and governmental disputes, before they can even start to implement the tools that will protect their customers.

Securing data privacy

Recent reports show that there’s room for improvement when it comes to the banks’ ability to secure data privacy. According to a Bitglass study, 62% of the data breached last year came from financial services, and with the increased risk brought by COVID-19, the prospect of what could happen to data collected and managed by banks is worrying. Furthermore, back in March, a report by Accenture showed that one-third of financial services organisations didn’t have the technical or personal resources to address privacy risks related to customer data. If these firms haven’t addressed this gap yet, they will simply not be prepared for Brexit and the risk that a potential last-minute change in regulations will pose.

Post-Brexit data protection: what is at stake

After investing two years of work to become compliant with the General Data Protection Regulation (GDPR), banks are understandably unwilling to start again. At present, once we are out of the EU, UK organisations will need to comply with regulation that is yet to exist. Thankfully, there is a large chance that the UK will incorporate GDPR principles into its own law, but uncertainty and confusion still remains. And should new local measures be implemented, banks will need to move quickly to become compliant.

After investing two years of work to become compliant with the General Data Protection Regulation (GDPR), banks are understandably unwilling to start again.

When it comes to data transfers with other European countries the rules will become stricter, adding extra layers of complexity for financial institutions.

As we stand, the UK government has already declared its willingness to reach an adequacy agreement, to maintain a free flow of data between the two regions. However, given the turbulent relationship with the EU, the agreement on such a deal is by no means a given.

Financial organisations also need to prepare for the possibility of a no-deal Brexit, with speculation that this could see companies sending their data to the EU next year and simply not getting it back. For businesses which heavily rely on constant transfers of sensitive data such as bank accounts and income, this is simply not acceptable. Unpicking the mess will require the investment of time and funds that many businesses can ill-afford.

The biggest loser: your customers' data privacy

While a potential headache for financial institutions, the UK’s lack of reassurance when it comes to post-Brexit data protection is even more detrimental to its own citizens. The government’s current track record for safeguarding people’s data leaves much to be desired. The recent admission that the UK track and trace system wasn’t GDPR compliant is just one example that has eroded citizens’ trust. The systematic disregard for data privacy has not gone unnoticed either. 75% of consumers report being concerned with the safety of the information they share with organisations, according to IDEX Biometrics. This has to be addressed if banks are going to survive and ensure that that customer trust is maintained.

A change in mindset

While the future of data regulation in this country remains in flux, we know that privacy and data protection is top of mind for consumers. To maintain the trust and loyalty of their customers, financial services organisations must think ahead and be prepared for any outcome, specifically at a technical level. But many organisations will be concerned about where to begin and how to navigate this journey.

[ymal]

Thankfully, financial institutions can tackle this challenge without exorbitant costs but they will need a change of mindset. They must put customer data at the centre of their strategy and embrace technology that will help them put privacy first.

But this means having a clear understanding of what is happening to customer data at all times. There are simple mechanisms that can be put in place to deliver this level of control and visibility. These include automating compliance and embedding data protection rules into the IT infrastructure. Solutions such as these can be cost effective and have the potential to save thousands of hours in auditing and developing data management processes. What’s more, they will give businesses the right foundation for protecting data, whatever the regulatory outcome of Brexit.

While the future of data protection rules in the UK are still being negotiated, the financial services firms that embrace a privacy-first approach starting now will be better prepared for any outcome in the Brexit negotiations.

Going forward, collaboration with the EU is vital to prevent a scenario where data transfers are blocked. We need to work closely with our European counterparts to create a data privacy framework that's protective of UK citizens without being restrictive to our businesses. Only time will tell, but with the respect and protection of our data is in the hands of governments and businesses, data privacy can no longer be treated as an afterthought. If banks act now, and protect against the inevitable, the ultimate benefit will be earning their most important asset: their customers’ trust.

A study has made a link between powerful bank CEOs and the risk of money laundering. Syed Rahman of business crime specialists Rahman Ravelli considers the research and argues that prevention is everyone’s responsibility.

It may not please certain figures at the top of a number of financial institutions, but research has linked powerful bank CEOs with money laundering dangers.

According to researchers at the University of East Anglia, banks that have such CEOs and smaller, less independent boards will probably take more risks and, as a result, be more prone to money laundering than those with a different concentration of power at the top.

The researchers’ study examined a sample of 960 publicly-listed US banks for the period from 2004 to 2015. The study’s results showed that money laundering enforcement was associated with an increase in bank risk. From its findings, researchers stated that the impact of money laundering is more pronounced where a powerful CEO is present – and is only partly reduced by the presence of a large, independent executive board. They concluded that banks that have powerful CEOs attract the attention of regulators engaged in anti-money laundering efforts, and that this is especially the case if the bank’s board of directors is small and lacks independence.

The study has been viewed by some as the first to demonstrate that money laundering is a significant driver of bank risk. This effectively means that it can take its place alongside business models, ownership structures, competition in the marketplace and regulation as having an impact on risk.

[ymal]

It is perhaps surprising that previous research on banks’ risk-taking has not explicitly homed in on the possible effect of money laundering, especially as regulators have made no secret of the importance they attach to tackling it. But now, it could be argued, is an appropriate time to make that link. The increased numbers of cross-border transactions – and the sheer scale of many of them – have made banks more vulnerable to money laundering. Regulators are carrying out ongoing assessment of money laundering risks posed by organised crime and those with terrorist links while states – many of which have had obligations placed on them in recent years – are increasing their use of sanctions against countries, organisations and individuals.

The banks that do not recognise and respond appropriately to this state of affairs could well find themselves suffering fines, claims against them and significant reputational damage. Such outcomes are the logical consequences for any bank that can be shown not to have done all it could or should to minimise the dangers of money laundering.

It is worth noting, at this point, the researchers’ argument that the size and independence of a bank’s board can mitigate the impact of money laundering on bank risk but cannot fully compensate for the possible adverse effects. Aside from the study’s conclusions, what also needs to be emphasised is that the shape of fraud and money laundering is constantly changing and developing. As the risks posed by money laundering grow, the regulators adapt to rise to the challenges and the banks themselves have to meet their obligation to identify and assess the risks to which they are exposed. Just as importantly, the banks need to ensure that those risk assessments are kept up to date.

Such procedures can and will, of course, be instigated by those at the top. But regardless of the concentration of power in the upper echelons, once those procedures are in place the bank needs to make sure that its employees understand and comply with them. Those procedures need to be subject to regular monitoring, review and, when necessary, revision to ensure they are effective in countering the threat posed by money laundering. Banks have many methods available to them to ensure this is achieved. It almost goes without saying that banks will have a money laundering officer to supervise all anti-money laundering activities. Investing in anti-money laundering controls involving artificial intelligence (AI) technology is another approach, as it can support enhanced due diligence, transaction monitoring and automated audit trails. But what cannot happen is that the CEO or the board simply issues an edict about the wish to prevent money laundering: genuine prevention will only succeed if it is adopted and carried out by all levels of personnel.

Investing in anti-money laundering controls involving artificial intelligence (AI) technology is another approach, as it can support enhanced due diligence, transaction monitoring and automated audit trails.

The standing of a CEO in a bank and the relative power of its board may well have an impact on the risk posed by money laundering. But a bank will always be vulnerable if its approach to tackling that risk is not embraced by all levels of its workforce.

Katya Batchelor, banking and finance lawyer at Thomson Snell & Passmore, explains the consequences of the LIBOR transition and how firms can ensure they are prepared for it.

Despite the disruption caused by the COVID-19 pandemic, the regulators of the financial sector continue to focus on phasing out LIBOR and the deadline of the end of 2021 has not changed. After this date firms cannot rely on LIBOR being published, and whilst it may seem far away, the far-reaching scope and scale of the transition cannot be underestimated. To support the Risk-Free Rate (RFR) transition in sterling markets, the Bank of England began publishing the Sterling Overnight Index Average (SONIA) Compounded Index, a Risk-Free Rate that had been chosen to replace LIBOR in the sterling market, from 3 August 2020.

LIBOR is all-pervasive in many businesses. The LIBOR benchmark is used in a variety of commercial scenarios, including as a discount factor or reference rate in commercial contracts. LIBOR is also widely used as the reference rate for intra-group lending arrangements.

How do LIBOR and SONIA differ?

There are a number of significant differences between SONIA and LIBOR and the differences will impact the way firms manage their risk. LIBOR is a forward-looking term rate, which means that the rate of interest is fixed at the beginning of each interest period and is quoted for a range of different maturities. This method provides borrowers with advance visibility as to their financing costs. SONIA measures the average rates paid on overnight unsecured wholesale funds, denominated in sterling. It is, therefore, a backward-looking overnight rate, based on real transactions, with the interest rate being determined and published after the period. Compounding is done in arrears, which means that the borrower only knows at the end of the interest period how much interest it has to pay.

There are a number of significant differences between SONIA and LIBOR and the differences will impact the way firms manage their risk.

Borrowers are likely to face operational challenges if they lack certainty as to what payments need to be lined up in advance of the interest payment date. Market participants are actively looking for a satisfactory solution to this challenge as there may now need to be a distinction between an interest period and a payment date, or period to allow time to arrange payment. In order to provide some forward visibility, the parties may choose to start the reference period for the interest rate calculations several business days before the beginning of, and end several business days before the end of, the relevant payment period. Alternatively, parties may fix the rate a few days before the end of the interest period. In addition, borrowers may need to hold additional cash to cover any potential interest rate movements during an interest period, impacting the internal cash management processes.

Key challenges for lenders and borrowers

Both lenders and borrowers are facing deadlines and challenges, the most important of which is the establishment of market conventions for calculating SONIA compounded in arrears. We have seen some development of tentative standardised documentation – a welcome step. Current recommendations from the Working Group on Sterling Risk-Free Reference Rates state that clear contractual arrangements should be included in all new and refinanced LIBOR-referencing loans to facilitate conversion, through agreed conversion mechanisms or an agreed process for renegotiation to SONIA, or other alternatives. Of course, both lenders and borrowers seek certainty in their arrangements, and the greatest certainty can be achieved by setting out in advance the terms of conversion at a future date.

As always it is essential to keep the lines of communication open between the counterparties, especially when any legacy contracts (existing contracts that do not mature until after the end of 2021) are dealt with.

The importance of due diligence

The process of transitioning for firms is likely to start with a large-scale due diligence exercise. All existing and new documents that include LIBOR provisions need to be reviewed in order to determine what fall-back language is used if a benchmark rate ceases to become available. The changeover from LIBOR to SONIA or to any other alternative rate is likely to impact a number of provisions in facility documents (and documents that are “grouped” with them, like ISDA master agreements or any intra-group funding arrangements), not just the interest calculation. Those include interest payment provisions, payment and repayment dates, break costs and others.

All existing and new documents that include LIBOR provisions need to be reviewed in order to determine what fall-back language is used if a benchmark rate ceases to become available.

A SONIA loan (or any other RFR based loan) does not need any particular interest period selection. Selection of interest periods drives frequency of interest payments to be made and the duration of the compounding period: the longer the period, the more compounding there is.

The parties might want to revisit the prepayment and break costs clauses. Where the loan is not priced against a term benchmark, the arguments for break funding costs are more difficult to articulate. However, a bank receiving an unanticipated prepayment may still look to recover an amount reflecting its shortfall on redeployment of funds.

Looking to the future

There is a real possibility that financial markets will evolve significantly over the next few years and so firms may want to transition to another alternate benchmark as the new financial products and markets become established. Therefore “replacement of screen rate” clauses in new and revised documentation should follow the market standard but allow for any flexibility required by the parties). Also, consider the triggers for applying the new rate. For example, should a new rate apply only if LIBOR is discontinued or should it also apply if some form of LIBOR continues to be published but on a different basis?

Complex financings involve multitudes of different parties and interests so it is important to be aware well in advance what involvement and consents are required; intercreditor agreements often contain restrictions so that the consent of another group of creditors is required to any amendments relating to the interest calculation and payment provisions.

It is essential to be mindful that the transition may result in accounting and tax issues. These may arise because of the uncertainty in the period leading up to the replacement and from the replacement rates themselves. When amending existing facility documentation, lenders particularly must be mindful of their regulatory obligations.

[ymal]

In addition to legacy loans the working group identified a narrow pool of “tough legacy” contracts that cannot transition from LIBOR. The working group defines tough legacy contracts as those which do not have robust fallbacks for replacement of screen rates and are unable to be amended ahead of LIBOR discontinuation. It strongly suggests a legislative route for dealing with such contracts.

The regulator has also identified that certain type of borrowers will ultimately require a forward-looking rate. However, the current understanding between market participants is that such forward-looking term rates may not be available until relatively late in transition process, if at all.

As the end of 2021 is looming, firms must start to prepare to transition away from LIBOR as soon as possible. We recommend conducting a thorough due diligence exercise on all relevant documents to identify the scope of the project and then holding discussions and making a plan for transition with all relevant counterparties. Internally, organisations need to identify systems and processes that need changing and understand how the change will impact them economically and from an accounting and tax perspective. Implementation may be complicated and have far-reaching consequences and it would be sensible to start the process of transition with plenty of time left.

No matter which area of finance or business that you operate in, knowledge of the regulatory climate that you work in is essential. If you are working in the UK, which has one of the world's largest financial services industries and is home to many of the world's most important financial institutions, then you will need to become acquainted with the Financial Conduct Authority (FCA).

This is the government body that is responsible for the regulation of any and all financial services activities that take place in the UK or involve UK-based companies, individuals, and entities. They create and regularly update the framework and regulations governing areas such as trading, banking, currency, accounting, and dividends, to name just a few.

Falling afoul of the FCA can not only be ruinous for your business and career plans, but it can also land you in prison. Furthermore, you will not be able to legally conduct financial services activities in the United Kingdom without the approval of the FCA. With that in mind, let's summarise what the FCA actually does and how their remit affects you.

Preventing Misconduct

The most important role of the FCA is to prevent misconduct by financial services companies. They will investigate and enforce against classic types of misconduct such as insider trading and shadow-banking, but that's not all. They also work to prevent anti-competitive behaviour such as monopoly building, the mis-selling of financial products, and any attempts at market manipulation.

Regulating Trustworthy Companies

The FCA also helps financial services companies by providing them with a badge of legitimacy. For example, if you are looking for a qualified UK CFD broker service, you will find that the most well-regarded companies proudly advertise that they are regulated by the FCA. If a company is regulated by the FCA, then potential customers and clients can know that they are trustworthy and abide by rigorous ethical standards.

[ymal]

Dispensing Advice

The FCA is a massive organisation with thousands of employees and an annual budget of £600 million. Much of these resources are directed towards giving essential legal and compliance advice to the 58,000 companies that the FCA is responsible for regulating. This service is extremely valuable for smaller companies that might not have the resources to fully navigate the regulatory environment on their own. In a business environment where only the top dogs can afford a legal team of their own, the advice provided by the FCA can be a life-saver.

Launching Legal Investigations

The FCA also has powerful enforcement mechanisms and can launch their investigations into companies and individuals, rather than simply referring potential incidents of misconduct to the police. As an arm of the UK government, the FCA reserves the right to investigate any person or entity that they have a reasonable suspicion of being guilty of financial crime. Investigations launched by the FCA can and do lead to the suspension of licenses, multi-million-pound fines, and the arrest and imprisonment of those found guilty of a crime by a British court. That's why compliance is crucial.

If you want to do business in the UK, joining the FCA and paying a membership fee is definitely a worthwhile pursuit. The cost of applying for FCA regulation currently stands at £1500, but this is a worthwhile investment.

Scotland-based renewable energy producer SSE has been fined £2 million by the Office of Gas and Electricity Markets (Ofgem) for failing to publish timely information about the future availability of its generation capacity, the government body reported on Thursday.

Ofgem stated that the disclosure breach related to capacity at the Fiddler’s Ferry power station, which is under SSE’s contract with National Grid. The failure to disclose relevant information could have had a “significant effect” on wholesale electricity rates.

While SSE had not “acted in bad faith,” the steepness of the fine “sends a strong message” to all entities in the energy market, Ofgem stated.

Martin Pibworth, SSE’s Energy Director, conceded in a separate statement that SSE’s approach to disclosure was not in line with Ofgem’s requirement for disclosure to the market at an earlier stage, but emphasised that the company acted in good faith and published contract details “in line with our interpretation of the REMIT regulations at the time.”

“SSE did not benefit from disclosing only once the contract was signed and remains committed to clear and transparent rules for all market participants. We will be pressing regulatory authorities for additional guidance for market participants going forward,” he continued.

[ymal]

Ofgem confirmed that SSE qualified for a 30% discount on the predicted penalty due to its early settlement and cooperation during the investigation.

The £2 million fine was the first of its kind to be issued in the UK and Europe for failure to achieve “effective and timely” disclosure of insider information under REMIT (Regulation on Energy Market Integrity and Transparency).

The Financial Market Supervisory Authority (FINMA), Switzerland’s financial watchdog, announced on Wednesday that it had opened enforcement proceedings against Credit Suisse over a spying scandal that came to light in 2019.

In a statement, FINMA said that it would “pursue indications of violations of supervisory law in the context of the bank’s observation and security activities and in particular the question of how these activities were documented and controlled,” adding that such proceedings “can be expected to take several months.”

Credit Suisse announced that it would cooperate with the investigation “to ensure a complete and expeditious conclusion of the review of this episode and incorporate lessons learned.”

FINMA’s announcement follows the completion of a review of the bank’s corporate governance and its surveillance of former employees. The employees targeted were former head of wealth management Iqbal Khan, who was leaving for a post in Suisse Credit rival UBS, and former head of human resources Peter Goerke.

[ymal]

Credit Suisse CEO Tidjane Thiam resigned in February amid the investigations, maintaining that he was not aware of the spying operation. An internal probe by the company concluded that COO Pierre-Olivier Bouee bore responsibility, leading to Bouee’s termination.

Thiam has since been replaced as CEO by banking veteran Thomas Gottstein.

Helena Schwenk, Market Intelligence Manager at Exasol, explains how banks can use data and analytics to capture customer loyalty.

Driving customer loyalty has always been an important initiative for financial institutions, but COVID-19’s profound impact on the world has fundamentally changed how financial services companies now view loyalty. As more and more interactions shift online to virtual channels; customer behaviour changes as economic constraints hit home; approaches to risk change; and digital sales and services accelerate – the value of progressive data strategy and culture is all the more crucial.

As McKinsey’s recent report highlights, as revenue growth and customer relationships come under pressure, banks will need to rethink their revenue drivers, looking for new product launch opportunities, as well as reorienting offerings toward an advisory and protection focus. Advanced analytics can help identify those relevant niches of prudent growth.

However, the high prevalence of data silos and the unprecedented growth in data volumes severely impacts financial institutions’ ability to rise to this challenge efficiently. And with IDC conservatively predicting a 26% CAGR data growth in financial services organisations between 2018-2025, there are no signs that managing data is going to get any easier.

The financial services sector was already extremely data-intense due its the large number of customer touchpoints and the lasting legacy of COVID-19 will see this expand even further. Beating this challenge will require financial institutions to focus on turning their quantity and quality of their data into governed and operationalised data. To gain competitive advantage and win the fight in driving customer loyalty, financial services firms need to eradicate their data silos and start benefiting from real-time business decision making.

Beating this challenge will require financial institutions to focus on turning their quantity and quality of their data into governed and operationalised data.

Adopt a robust data analytics strategy

Defining a data analytics strategy is crucial for financial services organisations to increase customer loyalty and deliver a better customer experience. A solid data strategy holds the key to uncovering invaluable insights that can help improve  business operations, new products and services and, crucially, customer lifetime value — allowing organisations to understand and measure loyalty.

In addition, a robust data strategy will help organisations keep a sharper eye on customer retention, using data to actively identify clients at risk of attrition, by using behavioural analytics, and then generating individual customer action plans tailored to each client’s specific needs.

In our survey of senior financial sector decision-makers, 80% confirmed that customer loyalty is a key priority, given that consumer-facing aspects of financial services generate revenue and are a critical differentiator. And, according to Bain & Co., increasing customer retention rates by 5% can increase profits by anywhere from 25% to 95%.

Recognise the challenges of customer retention

But increasing customer retention and improving loyalty is not easy. There are ongoing challenges to earn and maintain. For example, 54% of our survey respondents believe that customers have higher expectations of financial services experiences and 42% agree that digital disruptors that support new digital experiences, offerings and alternative business models, are encroaching on their customer base.

At the same time, regulation is a concern too, with 41% saying PSD2 and GDPR are impacting their ability to develop and improve customer loyalty initiatives.

Despite all these challenges, the business impact of poor customer loyalty – such as lost opportunities for customer engagement and advocacy (45%), higher levels of customer churn (45%) and lost revenue-generating opportunities (42%) – is too important to ignore. Given that it costs five times more to acquire a new customer than sell to an existing one — gambling on customer loyalty in today's highly competitive environment is a big risk to take.

[ymal]

Strive for constant improvement

That said, in a heavily regulated industry with a wave of tech-disruptors, keeping customers happy and loyal is no mean feat. But driving a deeper understanding of customer lifetime value and measuring the loyalty of customers is possible. The good news is that almost all organisations (97%) use predictive analytics as part of their customer insights and loyalty initiatives, with three fifths (62%) using it as a key part. 65% also agree that data analytics enables them to offer personalisation and predict customers’ future behaviour.

Overall use of data analytics is maturing in financial services compared to other industries; 96% of the people we surveyed were very positive about their firm’s data strategy and how it is communicated for the workforce to implement. Although 48% did admit it could be improved.

This consistent need to improve is backed by McKinsey. Its survey of banks saw half saying that while analytics was a strategic theme, it was a struggle to connect the high-level analytics strategy into an orchestrated and targeted selection and prioritisation of use cases.

Revolutionising data analytics

Revolut is one disruptor bank showing the world what a thriving data-driven organisation looks like. By reducing the time it takes to analyse data across its large datasets and several data sources, it has reached incredible levels of granular personalisation for its 13 million global users.

Within a year, the data volumes at Revolut had increased 20-fold and it was an ongoing challenge to maintain approximately 800 dashboards and 100,000 SQL queries across the organisation every day. To suit its demands and its hybrid cloud environment it needed a flexible data analytics platform.

An in-memory data analytics database was the answer. Acting as a central data repository, tasks such as queries and reports can be completed in seconds instead of hours, saving time across multiple business departments. This has meant improved decision-making processes, where query time rates are now 100 times faster than the previous solution according to the company’s data scientists.

Revolut can explore customer demographics, online and mobile transfers, payments data, debit card statements, and transaction and point of sale data. As a result, it’s been able to define tens of thousands of micro-segmentations in its customer base and build ‘next product to purchase’ models that increase sales and customer retention.

The 2 million users of the Revolut app also benefit as the company can now analyse large datasets spanning several sources – driving customer experiences and satisfaction.

Revolut can explore customer demographics, online and mobile transfers, payments data, debit card statements, and transaction and point of sale data.

Every employee has access to the real-time “single source of truth” central repository with an open-source business intelligence (BI) tool and self-service access, not just the data scientists. And critical key performance indicators (KPIs) for every team are based on this data, meaning everyone across the business has an understanding of the company’s goals, industry trends and insights, and are empowered to act upon it.

Predict what your customers want faster

A progressive data strategy that optimises the collection, integration and management of data so that users are empowered to make and take informed actions, is a clear route to creating competitive advantage for financial services organisations.

Whether you’re a longstanding brand or challenger bank, the key to success is the same – you need to provide your services in a timely, simple and satisfying way for customers. Whether you store your data in the cloud, on-premise, or a hybrid, the right analytics database is central to understanding your customers better than ever before. By using data to predict and detect customer trends you will improve their experience and get the payback of increased loyalty, which is even more essential in a post-COVID world.

Keith Pearson, Head of Financial Services EMEA at ServiceNow, explains how banks can ride this wave of changes and emerge more resilient and productive than ever before.

At the start of this crisis, much of the banking industry was in a different position from many businesses. The 2008 recession spurred a need for improvements and, combined with the emergence of tech-savvy fintechs, the industry has seen a major shift as customer expectations have adapted. The pandemic has forced organisations to accelerate innovation already part-underway in the banking industry.

As banking experienced its first wave of transformation, institutions focused on customer engagement, uniting physical and digital channels for an improved customer experience. Banks invested heavily in front office digital technology, creating visually appealing mobile apps, engaging online banking experiences and technologies for bankers to personalise customer engagement.

However, this digital engagement layer is not enough. Regulations like PSD2 reinforce the necessity to remain compliant, adding additional pressure to the digital transformation process which in turn has been accelerated by COVID-19. Banking is therefore in the midst of its second wave of transformation, where financial institutions are creating and seeking out critical infrastructure to better connect underlying middle and back office operations with the front office, and ultimately, with customers.

A Disconnected Operation

Many financial organisations are still struggling because they have yet to streamline, automate and connect the underlying processes that are enabling customer experiences. Which poses the question: why is connecting operations so difficult?

In most cases, multiple systems are still glued together by email and spreadsheets to track end-to-end status. Around 80% of a middle office employee’s time is spent gathering data from systems to make a decision, with only 20% spent actually analysing and making the decision.

In most cases, multiple systems are still glued together by email and spreadsheets to track end-to-end status.

The disconnect negatively impacts customers. For many, experiences like opening a bank account or getting a mortgage involve clunky, manual processes riddled with paperwork and delays. When front and back office employees lack the ability to seamlessly work together, customers can be asked for the same data multiple times, elevating frustration.

Customers have little patience and can be inclined to publicly broadcast problems when left unresolved. In a world of social media and online reviews, this could be detrimental to a company’s reputation.

With digitally native, non-traditional financial services players gaining market traction by offering a seamless customer experience, maintaining satisfaction is crucial for traditional banks to ensure that customers don’t switch. Banks must focus on making it easy for customers to do business with them by offering faster cycle times with more streamlined operations.

The Fintech Effect

Fintechs and challenger banks like Starling have shown what connected operations can do, having been built with digitised processes from day one. Modern consumers expect round-the-clock service from their bank. As financial institutions look to the future, developing a model of operational resilience that is capable of withstanding unforeseen issues, like power outages or cyberattacks, is critical to minimising service disruption. Having connected internal communications between front and back office staff means customers can be notified about any problems, how they can be fixed and when they might be resolved, as well as receiving continuous progress updates instantaneously.

Automation can go a step beyond this. Today, customers expect companies to not only do more and do it faster but to prevent problems from arising in the first place. With connected operations and Customer Service Management (CSM), banks can proactively fix things before they happen and resolve issues fast, enabling frictionless customer service and replicating the ‘fintech effect’.

[ymal]

What About Compliance?

In the European Union and the UK, PSD2 and the Open Banking initiative are giving more control to the customer over personal account data. Digital banks such as Fidor and lenders like Klarna are seeking to reinvent banking by offering customer-centric services. But the process of streamlining underlying operations is not simply about providing customers with a fintech-esque experience. More than 50% of a financial institution’s business processes are also impacted by regulation.

Financial services leaders are focusing on streamlining and taking cost out of business operations while also placing importance on resilience. Regulators are pushing banks to have a firmwide view of the risk to delivering their critical business services.

Banks must invest in digitising processes to intuitively embed risk and compliance policies, which are generally managed separately and often manually from the business process, leading to excessive compliance costs and risk of non-compliance. With the right workflow tools for monitoring and business continuity management, banks can minimise disruption by gaining access to real-time, actionable information about non-compliance and high risk areas, encompassing cybersecurity, data privacy and audit management.

Increasing openness of financial institutions to RegTech solutions, or managing regulatory processes in the industry through technology, will prove key during this second wave of transformation. Banks will increasingly move away from people and spreadsheets and toward regulatory solutions that provide a real-time view of compliance and provide an end-to-end audit trail for Heads of Compliance, Chief Risk Officers and regulators.

With a unified data environment aided by technology, financial institutions can drive a culture of risk management and compliance to improve business decisions.

Increasing openness of financial institutions to RegTech solutions, or managing regulatory processes in the industry through technology, will prove key during this second wave of transformation.

Riding the Wave

The banking industry is still in the midst of its second transformation, and the pandemic hasn’t made it any easier. But riding this wave and successfully digitising processes to connect back and front office employees will present a profound difference to customer service.

The bank of the future will be frictionless, digital, cloud-enabled, and efficient; interwoven into the fabric of people’s lives. It will continue to be compliant and controlled but will deliver those outcomes differently, with risk management digitally embedded within its operations.

Demonstrating the operational resilience of its key services will not only drive customer confidence but will also provide a greater indicator of control to regulators and the market, adjusting overall risk ratings and freeing up capital reserves to drive more revenue and increase profitability.

The institutions that will thrive in this increasingly digital and connected world are the ones that are actively transforming themselves and the way they do business now, by taking lessons from fintechs, following regulations and paving the way in defining the future of financial services.

Selecting a forex broker isn’t easy. When doing this, you need to be aware of many things:

• Security and Regulation
• Trading products
• Instruments for Trading
• Trading platforms

Apart from checking these, keep in mind the forex market is uber-competitive. And high competition can offer both advantages and disadvantages. On one hand, you have got brokers lowering their prices to nearly zero just to fetch more customers. On the other hand, not all these forex brokers are trustworthy.

So, is there a way to choose a good broker? We’ll answer that in this article.

There’s no “Perfect Broker.”

Right off the bat, there’s no such thing as a “perfect broker.”

There’s always something. For example, a broker might offer you cheap services. But the same broker has a not-so-good reputation among traders. Maybe it’s not regulated. Or maybe it doesn’t have sufficient fund protection policies. Maybe it’s a scam.

On the other hand, you might find a broker that’s regulated, trusted, and highly popular among traders. Its platforms and trading instruments are excellent. Additionally, customer service is super accommodating and friendly. It has everything you need. But the prices will drain your pockets. Maybe the transaction costs are high. Maybe the trading instruments aren’t cheap.

So, when choosing a forex broker, remember to keep a balance between reasonable prices and excellent services.

Importance of Regulation

Now, you might be looking at hundreds of forex brokers at the moment, and you just can’t choose which one’s right.

To help you narrow down your choices, check their regulatory status. This step is the first and most crucial step you need to take. Regulated brokers typically offer the best policies and security clauses for traders.

But you should not go for just any regulator. There are top tier regulators, and then there are those that just don’t cut.

So, when choosing a forex broker, remember to keep a balance between reasonable prices and excellent services.

Top Forex Regulators Around the World

In the United States:

• National Futures Association (NFA)
• Commodity Futures Trading Commission

In the United Kingdom:

• Financial Conduct Authority (FCA)
• Prudential Regulation Authority (PRA)

In Australia:

• Australian Securities and Investment Commission (ASIC)

In Switzerland:

• Swiss Federal Banking Commission (SFBC)

In Germany:

• Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)

In France:

• Autorité des Marchés Financiers (AMF)

In Canada:

• Investment Information Regulatory Organization of Canada (IIROC)

Trading Products

When we say trading products, we mean every asset the broker offers. And since we’re talking about forex brokers, they should provide forex products. Essential forex products include all the major and minor pairs.

If you’re not familiar with the majors yet, here they are:

• EURUSD
• USDJPY
• GBPUSD
• AUDUSD
• USDCHF
• NZDUSD
• USDCAD

These are the essential pairs you may trade. They get the most significant trading volume in the market, as well as the broadest news coverage. So, it’s easy to buy them and search for information.

[ymal]

Trading Platforms

After checking out what you can trade with the broker, check out where you can trade those assets. The trading platforms are your portal to the market. They’re the bridge connecting you to the world of currencies and currency pairs.

In the forex market, the most popular trading platform is MetaTrader4.

What is the MetaTrader4 (MT4)?

MetaQuotes developed the MT4 in 2005. Although traders can use it to trade stocks, indices, cryptocurrencies, and commodities, they mainly use it for forex trading.

Most forex brokers offer the MT4 platform to clients as an industry standard. It comes with excellent trading features such as the following:

• Built-in indicators
• Timeframes
• Economic calendars
• Drawing tools
• Charting tools

And many more. The MT4 is a useful, high-quality platform every trader needs in forex trading. Also, traders can use them on different devices.

A forex broker can also offer platforms other than the MT4. The newer platform and successor of MT4, the MetaTrader5, is also now available in many brokerages. Other times, forex brokers develop their in-house platform. Such platforms typically fit the more specific needs of the broker’s clients.

Read Broker Reviews

Reading a forex broker review goes a long way.

When you finish checking the broker’s background, products, and platforms, it’s time to read from people with first-hand experience with the broker.

Reviews from websites are usually a treasure trove of information about the broker. They talk about more things other than products, platforms, and regulatory status. You’ll get to know the broker’s customer service. Are they accommodating? Friendly? Are they rude? Unprofessional?

You’ll also know how the broker ranks in comparison with others in the field. Are they popular among traders? Do they receive negative reviews from angry traders?

Moreover, with readily available access to different broker reviews, you will not be dealing with a broker with zero clues on what you’re looking at.

Reviews from websites are usually a treasure trove of information about the broker.

Conclusion

With the advent of retail forex trading comes the emergence of retail forex brokers. You can search for thousands of brokers, and you will see how the industry is booming.As a trader, it’s your responsibility to check the broker information as thoroughly as possible. Never forgo the background check.

Finally, finding the right broker is one of the first crucial steps you’ll take if you’re serious about succeeding in the forex market.

The COVID-19 pandemic has rendered daily life unrecognisable, and across the globe people are trying to determine how to navigate the strange new world we are living in. At the same time, businesses are having to alter their practices to keep functioning despite the changes that the rapid spread of COVID-19 has caused. The pressure is being felt across all sectors and financial services are no exception.

However, despite the uncertainty of the current environment, regulators still require businesses to comply with certain standards - as made clear in the recent information published by the FCA, which lays out the expectations of the regulator over the coming weeks and months.

With this in mind, there are steps financial services businesses can take to stay on the right side of the FCA during these unprecedented times. Imogen Makin, Director at DWF, outlines the most important ones to consider.

It's All in the Timing

There will undoubtedly be some teething problems for businesses as their workforces get used to the mass remote working required to comply with the current isolation rules. The FCA, and other regulators, know that this situation has never occurred before, and are therefore understanding of any problems or issues encountered in transitioning to this new way of working. However, the key here is just that, that these problems should be identified and reasonable steps taken to rectify them sooner rather than later.

Financial businesses must make it a priority to deal with any problems efficiently and effectively to minimise the risk of criticism from the FCA. Enforcement outcomes over the last few years suggest that firms' response times, both in terms of the identification and rectification of any problems, are important.

Keep an Eye on Your Employees

Another key issue linked to business being done from home is potential market abuse. Firms’ systems and controls for the prevention and detection of market abuse has been an area of focus for the FCA for some time, and the risks around mass remote working have brought this back to the forefront of the FCA's agenda. The FCA has stated that firms could consider whether they need to introduce enhanced monitoring, for example, in order to mitigate market abuse risks.

It is clear from the FCA Primary Market Bulletin published on 17 March 2020 that the regulator expects  firms to continue to comply with their obligations under the Market Abuse Regulation and relevant FCA rules, notwithstanding the operational difficulties they may be facing. Firms therefore need to ensure that their analysis of market abuse risks in this new working environment is clearly documented, alongside any actions taken to mitigate them.

The FCA has stated that firms could consider whether they need to introduce enhanced monitoring [...] in order to mitigate market abuse risks.

Reduce Work-Related Travel

Further to the new rules brought in by the government to only travel when it is essential, the FCA published a statement outlining the responsibilities of Senior Managers to determine which employees must continue to travel to work.

Senior Managers responsible for identifying which of their employees need to travel to the office or business continuity site should document clearly the rationale for requiring any work-related travel and ensure that this is kept to a minimum in order to both appease the FCA, and keep their workforce as safe as possible.

Treat Your Customers Fairly

The disruption caused by the COVID-19 pandemic is unchartered territory; it has affected education, work, and almost all aspects of everyday life.

With this in mind, it is important for financial services businesses to consider that their customers are likely experiencing many stresses and uncertainties themselves and so regulators, including the FCA, have made it clear that they expect customers to be given flexibility and leniency, for example, in relation to mortgage payments.

Firms will need to ensure that they strike the right balance between protecting consumers' interests, whilst also maintaining their own liquidity and financial resilience, all of which are important in the eyes of the FCA.

[ymal]

Communication Is Key

As in all successful relationships, communication is key - and the relationship between firms and regulators is no different. The FCA accepts that businesses are doing all they can to keep functioning during these extraordinary times, but they are nevertheless still required to comply with their Principle 11 obligations.

Firms should make sure they maintain an open dialogue with the FCA and inform them of problems sooner rather than later; for example if a firm is unable to meet FCA requirements in relation to recorded lines, the FCA has stated that it expects to be notified. The FCA's publications in relation to COVID-19 suggest that the regulator is prepared to be forgiving as long as firms have kept them informed and have taken reasonable steps to deal with any challenges that arise.

No Need to Panic

Firms regulated by the FCA do not need to fear - everyone is getting to grips with the new working environment simultaneously and some initial challenges are inevitable. The FCA has demonstrated that it is willing to be reasonable, but it will not allow COVID-19 to be used as an excuse for bad behaviour. The points outlined above provide a few tips to FS businesses to maintain good relations with the FCA for when the world returns to normal (whenever that may be).

Cloud computing is one of the most transformative digital technologies across all industries. Cloud services benefit businesses in so many ways, from the flexibility to scale server environments against demand in real-time, to disaster recovery, automatic updates, reduced cost, increased collaboration, global access, and even improved data security. Numerous financial institutions around the world are already reaping the benefits of cloud infrastructure to fit their technology needs today and help them scale up or down in the future as economies evolve. According to research by the Culture of Innovation Index, 92 per cent of corporate banks are already utilising cloud or planning to make further investments in the technology in the next year.

The Bank of England is the latest financial institution to announce it has opened bidding for a cloud partner to support its migration to the cloud. Craig Tavares, Head of Cloud at Aptum, explains the significance of the Bank's decision to Finance Monthly.

As the UK’s central bank seeks to move to a public cloud platform, IT decision makers are likely to encounter hurdles along the way. Figuring out the right partner will be half the battle for the Bank of England; it can be very difficult to identify and map out the broader migration and ongoing cloud infrastructure strategy.

The central bank’s cloud computing approach reflects an evolution in the way financial organisations are viewing data and the applications creating this data. The industry wide shift to viewing data as an infrastructural asset could have precipitated the Bank of England’s own move to the cloud. As such, the organisation should consider these four areas to determine their cloud strategy and partner -- performance, security, scalability and resiliency.

Figuring out the right partner will be half the battle for the Bank of England.

Performance

Traditionally, financial institutions are known for their risk aversion and have been hesitant to undertake digital transformation due to their reliance on legacy systems. Fraedom recently found that 46 per cent of bankers see this challenge as the biggest barrier to the growth of commercial banks. But due to issues surrounding compliance, moving completely away from legacy systems isn’t always an option. This is no different for the Bank of England which is looking to move to a public cloud platform in order to enhance the overall performance of customer payment systems in the new digital age.

Legacy IT systems can prove to be a challenge for financial organisations looking to move applications to the cloud. Outdated processes often lead to system failures, leaving customers unable to access services, resulting in increased customer loss. However, with public cloud it is crucial to find the right combination of cloud services by defining the proper metrics for application performance and storage of critical data.

Legacy IT systems will need to co-exist with new or refactored cloud-based applications. Because of this, the bank will need to consider different strategies using hybrid cloud and multi-cloud architectures to align performance and cost. And when it comes to time-to-revenue or time-to-value the bank will be looking at traditional IT methodologies while leveraging cloud native approaches. The cloud native approach will lead to adopting DevOps as a new culture and Continuous Integration and Continuous Delivery or Deployment (CI/CD) as a process. These practices automate the processes between software development and operational teams which as a result will allow the bank to deliver new features to customers in a quicker, more efficient manner.

Depending on the hybrid IT architecture being used and whether the approach is traditional IT or cloud native, there will be different ways to ensure the best application and data lake or data warehouse performance. In order to do this, the bank will need to partner with a technology expert who will be able to offer guidance on the different levels of technology stacks required during the cloud migration.

[ymal]

Security

Central banks have traditionally kept close control of their IT systems and long expressed concern over the security of their customers’ information and financial transactions. As such, migrating to a public cloud platform and handing over to a cloud partner could heighten these worries. Global banks are expected to adhere to strict regulations to reduce the number of security issues within the financial sector and all new technology implementations must be compliant.

As complex regulatory requirements – such as the Markets in Financial Instruments Directive (MiFID) and Anti-Money Laundering rules (AML) - continue to cause a barrier to cloud adoption in the financial sector, the Bank of England should consider a partner that is able to adapt to high regulatory demands. As such, a three-way partnership should form between the Bank of England, cloud consultants and cloud service providers. This particularly applies if the UK central bank were to take on a multi-cloud approach – leveraging Amazon, Azure or both. This way, the three can be aligned and acknowledge the journey the bank has taken so far as well as the future of the financial organisation from a regulatory standpoint.

Adopting a partnership approach decreases the risk of security breaches which often cause client relationships to disintegrate.  In the past, security was treated like a vendor-customer relationship rather than an important partnership from day 1. Data is a major focal point in this discussion -   how the bank is protecting customer data or how they are managing financial data. Cooperation between partners ensures the configuration of every cloud service being used has the right security measures integrated into it from the start observing compliance requirements like GDRP, data sovereignty and data loss prevention.

Adopting a partnership approach decreases the risk of security breaches which often cause client relationships to disintegrate.

Scalability and Resiliency

With a growing abundance of data, The Bank of England will need a cloud platform that will allow them to scale up or down accordingly. Fuelling the growth of the bank’s data are its applications, which also need special scaling and resiliency considerations just like the data itself.

Keep in mind, cloud is not an all or nothing discussion. Not every application the Bank of England has needs to go to the hyperscale public cloud. For example, it may start with a progression to private cloud and then to a public cloud vendor agnostic framework based on the scaling and resiliency needs. The financial institution should understand which applications are best suited for the cloud at this time and which will be migrated at a future point. They should ensure that cloud is an enabler and not a detractor. It’s important to understand the cloud journey is an ever-changing process of evaluating business goals, operational efficiencies and adopting the right technologies to meet these outcomes at the right point in time based on ROI.

The UK central bank should consider moving to a container-based environment and cloud platform services (but as mentioned, in a hybrid cloud architecture), technologies that will enable an efficient process of building and releasing complex applications with the right scale in/out and uptime capabilities. The bank may incorporate Site Reliability Engineering (SRE). SRE is a discipline that leverages aspects of software engineering and applies them to infrastructure and operations challenges. The key goals of SRE are to create scalable and highly reliable software systems.

[ymal]

The Bank of England has come to recognise the significant impact cloud can have on the business and the benefits cloud technology will bring to their customers. Banks will become leaders in setting the bar for other organisations and industries when it comes to moving to the cloud. However, when it comes to choosing the right collaborator, The Bank of England should seek a cloud partner who is able to meet their business objectives, understands both traditional IT and cloud native approaches, along with hybrid multi-cloud and the data challenge which includes performance, security, scalability and resiliency.  Working with the right Managed Service Provider (MSP) partner can provide them with the necessary expertise and developing solutions that bridge the gap from where they are today, to where they want to go.