The financial services (FS) sector is under more pressure than ever. Juggling the effects of the pandemic, technological disruption and high customer expectations, coupled with maintaining business continuity, has been a difficult balancing act – and yet these factors are critical to FS. Neil Murphy, Global VP at ABBYY, explores how this has led some teams to butt up against the long-held rules and processes of the sector.

In order to see success, banks and FS firms need to take a long, hard look at how their business really works. This means getting visibility into business processes as they actually behave, identifying variances in them, and discovering how they can better meet customer and business needs.

With the world under unprecedented pressure, finding out how best to manage rules and processes can alleviate the strain and set your business on the path to success. Our recent research found that almost half (46%) of banking and FS workers and 30% of insurance staff rigorously follow the rules – giving the industry a good head start in coping with what’s thrown at them.

But is following the rules always the best route? And what happens when employees break the rules?

Rules – there to be followed?

Banking and financial services staff are working harder than ever before to help customers, keep businesses afloat, and also digitally transform. In such a process-driven industry, honing the many rules and processes could be the key to survival in this economy.

Our recent research found that almost half (46%) of banking and FS workers and 30% of insurance staff rigorously follow the rules – giving the industry a good head start in coping with what’s thrown at them.

At this point in time, it’s vital that banks and FS teams check in on their processes often to see where issues lie, which processes are most problematic, and which are ripe for automating. Following the rules is the cornerstone of achieving the potential of digital transformation, according to a McKinsey study which found that half of the value from digital transformation can be realised from as few as 10-20 end-to-end processes.

What tech brings to the table

While digital transformation is nothing new to most banks and financial institutions, now more than ever, they must rely on technology. It will help them conduct better business, comply with regulations, connect with customers, and deal with an ongoing flood of emergency business issues.

Getting your processes in order before automating them is a crucial step to avoiding failure. Yet many banking and FS staff claim that processes are too complex or there are too many to follow.

This is where technology comes in, and encouragingly leaders are open to helping their staff using technologies that can lighten the burden. According to our research, almost all banking and FS bosses think process mining technologies would be helpful to their business (98%), as did 89% of insurance bosses. These technologies can free up time for finance staff, enabling them to work on more pressing business matters that require the human touch.

Bending the rules 

Rigorous rule-keeping is a trait the financial industry needs to uphold, in order to comply with stringent industry regulations. But there is a flipside.

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Key to a bank or financial institution’s success, especially in this digital age, is how they adapt and respond to customer needs. This means that even in a process-driven industry like financial services, employees occasionally break the rules. Sometimes, they have good reason: the most common reason to break the rules is to provide good customer service, which is more critical than ever before. Our research found that 62% of insurance bosses have confidence that their employees break rules so they can meet the needs of customers, and 50% of banking and FS bosses agree.

Relationship-building services like customer care, supplier management, or simply supporting colleagues and staff, can go a long way in benefiting a business and boosting morale. Being willing to bend the rules when it’s better for customers illustrates that rather than financial services staff being solely process-driven, they are driven even more by customer satisfaction.

So where do we start?

Unfortunately, customers are used to delays and layers of processes when it comes to banking. But it doesn’t have to be that way. To better serve customers, while also ensuring staff aren’t straying too far from the rulebook, the FS industry needs to be able to identify the bottlenecks and blind spots in every engagement. They also need the ability to analyse and discover processes using all the data they have.

Process intelligence technologies offer a deep understanding and real-time monitoring of processes. It helps you drill down into the details, explain why processes don’t work and how to fix them, and provides the tools to solve problems a business didn’t even know existed.

Say a customer loses their debit card. They shouldn’t need to go through the time-consuming process of calling various support teams, keying in endless numbers, and being put on hold, only for their account to be frozen as a precaution. By having every process mapped out and every piece of data available on an analytics dashboard, staff are given the knowledge of where customer service bottlenecks lie and why delays happen, so they can resolve issues much more quickly and securely.

Process intelligence technologies offer a deep understanding and real-time monitoring of processes.

But it’s not only useful for directly customer-facing interactions. Take anti-money laundering and anti-fraud compliance efforts. At a time when fraud is more prevalent than ever, nailing the processes that catch odd customer behaviour patterns in your data, and being able to action them automatically, means customers’ accounts are safer and more secure, even with less staff in the office and more fraudsters in the system.

Looking ahead 

A clear understanding of your business’ processes will identify inefficiencies that may be impacting the customer experience – that you would never have known about otherwise. Empowering your staff with the tools to analyse less-structured processes, identify opportunities for improvement, and increase both the speed and accuracy of executing said processes, will reap many rewards.

Not only will it ensure businesses are getting the most out of their huge investment in digital transformation – it will also ensure customers are getting the best possible service. Right now, there’s nothing more vital than that.

With the new IFRS 15/ASC 606 compliance regulations now in place, CFOs need revenue recognition solutions that can handle complex, multi-element arrangements and fast changing product offerings. CFOs can no longer survive in fast paced business environments with a revenue recognition process where you kick off in the morning and sit around waiting for the answer. Real-time revenue recognition reporting is today’s reality. Rajiv Chopra, expert at Aptitude Software explains for Finance Monthly.

I am amazed that in 2018, and with this backdrop, so many CFOs are still not utilizing advances in accounting technology and are overly reliant on manual solutions. Over 75% of prospective clients I am speaking to are still managing revenue recognition accounting with home-grown “band-aid” systems that are reliant on manpower, excel and internal “spaghetti IT” solutions.

These manual solutions, in which the C-suite place their trust, are high risk. There is a high dependency on a select few individuals who are working under intense pressure for sustained periods of time, levels of staff turnover are high, and teams suffer from ‘Excelitus’ and burn out from the boredom of repetitive tasks. The real value of the finance team - providing management with data insights and analysis, is lost.

For example, we saw an $8bn dollar company operating in 160 countries, running 60 plus inventory spreadsheets just to track their sales. It would take 3.5 hours to open these spreadsheets – you can imagine the stress levels when they needed to close the books! Another company was doing 6 million transactions in a quarter, with 19,000 products and running 20 different revenue management systems, just to know where their revenue was. The level of financial risk was frightening with so many opportunities for misses and mistakes.

The question to CFOs and Chief Accounting Officers is why? You’re not saving money when your staff are waiting around for slow systems, correcting errors that shouldn’t be there and spending time on low value, repetitive processes. When we pose this question to CFOs and CAOs, one of the most common answers given is habit. Yet when pressed, they often admit that concerns over cost is often the real reason behind their hesitancy to adopt new technologies and automated solutions.

While the cost of revenue recognition solutions will always depend on the specific profile of an organization, a recent survey from PWC shows that the majority of companies (58% public / 84% non-public) have spent or will spend less than $500,000 complying with the new revenue recognition standards, with implementation costs going up in step with an increased contract volume and complexity (PWC 2018 accounting change survey).

There are several areas where organizations can look to build return on investment, but I believe the human cost of manual revenue recognition is significant and often undervalued by many companies. You just have to look at the high levels of staff turnover in finance teams, also consider the stress levels as they try to close the books manually and deliver substantiated reporting. In their study on the financial impact of staff turnover, Oxford Economics estimates that it costs over $39,000 just to replace a finance employee when you consider the loss of productivity, agency fees, HR and management time.

At our recent RevConnect conference, the benefits of new revenue recognition technologies were described as ‘night and day’ by David Peterson, Revenue Accounting Manager from Ivanti. He explained how, by moving from a spreadsheet-based solution to an automated revenue recognition solution, they had reduced their close from 5 to 3 days, giving his team time to do more analysis and deliver more insights to the business.

Using automation also means finance teams can leave behind all the rote tasks of data download and copy and paste and focus on data insights and analysis. New technologies also encourage innovation and attract technology-savvy talent. A recent survey from the Association of Accounting Technicians revealed that 75% of finance professionals found that using accounting technology has either made their job easier or freed up time for them to concentrate on adding value to the business.

The benefits for CFOs who have embraced new revenue recognition technologies are extensive. Crucially, they have much happier and fulfilled finance teams. They can also take back control of their environment which can result in increased output, better critical decision making, and more business opportunities.

I encourage all CFOs to stop playing catch up, be proactive and reduce the manual processing of revenue recognition. Empower your team to add value to your business, grow as contributing team members and move away from hours of manual tasks that don’t have a place in the modern CFO office. When speaking about his organization’s move to an automated revenue recognition solution, Mark Flournoy, CAO, at Intuit summarized the change perfectly: “We (finance) are actually now in service to enable the rest of the business.”

Paul Vick Architects recently won Finance Monthly’s Game Changers Awards 2018. They are a growing, agile practice based in West London. Their unique blend of skills and experience is backed up with a client-savvy world-view that sets them apart in their profession as does their 100% planning permission record on over 100 projects. The company’s Cambridge educated Director Paul Vick discusses the challenges faced by clients today.

What are the biggest challenges facing development?

Armed only with a commercial need, a strategic target, and an investment appraisal, risk and uncertainty loom large in the average construction client’s mind. Digital connectivity has laid bare how many different stories there are trying to make sense of the chaos of data and disordered world we work in. They have to stare through the fog of unknowns and lean on past performance, current valuations and economic indicators – any crutch, in fact, to mitigate risk. After all, huge sums of money are involved and whether they spend equity or take on debt, it all has critical implications for the wellbeing of their organisation.

And when the only constant is change, designing only for today’s conditions is a sure way to guarantee a sub-optimal solution.

What are the key issues clients face in relation to UK regulations and what are the incentives to encourage foreign participation?

Planning permission is a definition of viability – without it buildings don’t get built, investment is not forthcoming, and you are left with stranded assets. Stories of intransigent planners, vocal neighbours, mykfcexperience survey and delay are commonplace. Sometimes this is a result of an incomplete understanding of the process and the pressures planners face.

Our job at Paul Vick Architects is to confront uncertainty and negotiate remaining unknowns and trends intelligently in relation to the client’s brief. At the same time, we approach value from the start to enhance your business plans. The model we have developed addresses economic, use, identity, community, environmental and cultural values together to give opportunities for multiple users and positive feedback loops for your benefit. There is not much point in receiving planning permission for a care home, student hostel or hotel without enough rooms to make it viable for example.

The UK is known as being a structured and reliable environment to work for long-term interests – essential to successful construction projects.

The traditional distance of the developer to the user has become shorter. The public nature of development means users and neighbours have a louder public voice. They can be your supporters and market, and the developer seen as a catalyst for regeneration. An understanding of user needs is not just important to the planning process specifically, it is also important to the conception pre-planning and the physical detail delivery of it for user satisfaction.

For an office owner-occupier, that might mean design that attracts the best staff, encourages them to stay longer, work more productively and, ultimately, to make a more profitable enterprise. For investor-developers, that might mean private rented housing designed with a marketing cachet for cultural and social opportunities that commands premium rents, long leases and zero voids. For a museum, it might mean spectacular staging in and outside galleries themselves to create a destination powerful enough to attract people away from their screens.

Can you give examples where you have created value enhancement above client expectancies?

Apartments and Penthouses, London, UK. After some study, we agreed in a pre-application with the council that 100% increase in area would be acceptable. Previous consultants had thought only 25% was possible.

New Mini-Department Store, West End, London, UK. Our design increased the visibility of selected brands and improved the management and speed of stock delivery in store to boost client’s customers’ loyalty.

Daylight Studio, London, UK. Our design anticipated the client’s need to adapt over time to new media and alternative revenue streams, leaving them very satisfied.

Regeneration of a historic site with 7,000sqm of offices and retail, 80-bed care home, boutique hotel, low-energy homes, and museum, UK. The key objective is to design a destination to drive footfall, room occupancy, and sustainable client revenue.

Start-Up Hub, Innovation Warehouse, London, UK. Eschewing the trendy playroom motif, our fit-out supports growing, developing and selling ideas, and has nurtured several entrepreneurs who have turned into unicorn businesses.

Glass Bridge and Office Fit-Out for Global Communications Company HQ, London, UK. Our design crystalizes an identity that emphasises connectivity and facilitates idea-sharing.

What is your overall vision?

The magic needed to turn the faceless development appraisal with all its risks and changing parameters into successful ‘output’ value is understanding the various ‘input’ values. The examples above are about how user motivation and inspiration are harnessed - attracting them to come, stay, and return, as well as the word-of-mouth marketing will make the development attractive and relevant for longer. Focusing on the user is essential for any business.

Website: http://paulvick.co.uk/

With one in three bank staff now employed in compliance, and financial institutions groaning under the pressure of an ever-increasing regulatory burden, 2018 is set to be the year that RegTech rides to the rescue, stripping out huge cost from banks’ processes.

In the same way that nimble start-ups introduced FinTech to the financial sector, the stage is now set for the same tech-savvy entrepreneurs to apply the latest technology to help tame the regulation beast. 

The challenge is even more pressing now, with the arrival of an alphabet soup of blockbuster regulation including GDPR, MiFID II and PSD2, which will stress institutions like never before.

What is RegTech?

Deloitte has set high expectations for RegTech, describing it as the use of technology to provide ‘nimble, configurable, easy to integrate, reliable, secure and cost-effective’ regulatory solutions.

At its heart is the ability of ‘bots’ to automate complex processes and mimic human activity. And RegTech start-ups are already using robotic process automation to translate complex regulation into API code using machine learning and AI.

The holy grail of RegTech, however, is to strip out huge layers of cost and dramatically lower risk by developing and applying complex rules across all business processes in real-time, automating what can otherwise be an expensive and highly labour-intensive job. Simply put, RegTech promises to do the job faster, cheaper and without human error.

Behavioural analytics

Just like its FinTech cousin, RegTech is already being used for a surprisingly wide range of applications, for example banks are using behavioural analytics to monitor employees, looking for unusual behaviour patterns that may be a tell-tale sign of misconduct.

Brexit will also present a golden opportunity for agile RegTech start-ups whose tech solutions can adapt and transform quickly according to the new regulatory landscape, while traditional institutions struggle with the pace of change.

Unlike FinTech however, which has largely been focused on B2C solutions, RegTech start-ups have to work much more closely with traditional financial institutions. That’s because capital markets are a highly complex, regulated area, where institutions are cash-rich and where access to funding is critical if vendors want to disrupt.

Bespoke solutions

Traditional institutions are also more likely to need solutions that are specifically tailored to the challenges they face, rather than the one-size fits many approach developed by FinTechs. For example, they rely on many different data systems, and this torrent of data often makes it difficult to compile reports to deadline for regulators – a perfect challenge for a RegTech start-up.

RegTech could well be the cavalry, riding in to save the investment management industry from the increasing amount of data being produced that financial regulators want access to. A significant amount of this data is unstructured, making it difficult to process, which adds a greater level of complexity. The flow and complexity of this data is only going to increase, and with it the challenge for banks.

Financial institutions are increasingly pulling out all the stops to crunch data and meet the regulator’s next deadline and in this high-pressure environment teams are not necessarily developing the strategic overview needed to streamline their IT architecture in order to reduce operational risk.

Compliance at speed

RegTech promises to automate these processes, making sense of complex interconnected compliance rules at speed, making compliance more cost effective, while reducing the chance of human error.

It also promises to dispense with the current time lag between a period end, the collection of data by the institution and assessment by the regulator – a process that is always backwards looking.

Under the RegTech model, powered by data analytics and AI, information is in real-time and self-correcting to ensure the regulatory process remains dynamic and relevant.

The scale of the advantages promised by RegTech, are such that banks successfully harnessing its power will strip out huge amounts of cost from their processes, which can then be invested in business-critical innovation, giving early adopters a clear competitive advantage over the rest of the market.

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John Cooke, Managing Director

Black Pepper Software

JADE+QA is an International design studio, founded by British Architect Martin Jochman Dip Arch, ARB (UK) RIBA based in the UK, Hong Kong and Shanghai. In 2013 Martin, who is the original Concept and Scheme Design architect for the Shimao Wonderland Intercontinental Hotel in a Quarry, signed contract with the developer Shimao to complete the design and overview the construction. Since then, Martin’s studio JADE+QA has designed a number of high-profile projects in China and South East Asia.

 Prior to setting up JADE+QA, Martin has had over 25 years of UK and international design experience as an Associate and Design Director with an international design consultancy winning numerous national and international competitions and awards. He has worked in the UK, Europe, Dubai, Hong Kong and China on many high-profile projects, including the Jumeira Beach Hotel, the Wild Wadi Waterpark in Dubai, Tianjin TEDA towers, Wuhan Pebbles mixed development and other important landmarks. Here he discusses the construction sector in China and the work that his company has done thus far. 

As a professional with over 25 years of experience in design and construction, what would you say attracted you to the field?

I come from artistic background with both of my parents being creative artists . This has obviously influenced me from early age to look at professions which could combine my interest in arts with other subjects  I was interested. Architecture thus became quite obvious answer and I have therefore chosen this profession quite early in my life for my future occupation.  I have been very fortunate to have had an opportunity to study at an excellent architectural school in Bristol and this creative environment has reinforced my resolve to become architect. To me Architecture is more than just a profession. It becomes almost an obsession, where each new design project is a new adventurous challenge, testing one’s ability to come up with new innovative solutions. No design problem is ever same. I am happy to say that even after almost 40 years, I am still excited and filled with trepidation when facing a blank piece of paper to start sketching new concept ideas.

What would you say are currently the biggest challenges in the field in China?

There are several major challenges that a foreign architect has to overcome in China. Firstly, the contractual process differs quite a lot from the UK practices. Whilst the overall principles of the design process are same, the contractual relationships, especially not giving the architect full authority to implement his design direction and the disjointed nature of the design/client team can be quite counterproductive.

Quite often, the “foreign’ architect, who relies on a Local Design Institute to submit the drawings for approval, is only given a limited scope, producing a Masterplan only or a Concept and Scheme Design, without the continuity of involvement in the construction detailing and construction itself.  Communication and difficulty with coordination between the various parts of the project team can also contribute to the lack of overall control over the design process. This has great impact on the quality of the resulting building that ultimately depends on the quality and experience of the client and his management team.

We have been lucky to have had very experienced and professional clients, whose teams have avoided this situation - especially with our hotel projects in the Shimao Quarry Hotel, where the quality of the client’s management, both during the design and on site, has been exceptional.

The second major issue has always been the quality of workmanship on site. Again, as with design, the contractual authority of the designer is missing, with primary driver for the project being the budget and speed of construction. This often leads to cutting corners and reduction of the build quality.

What are some of the key issues that you and your client frequently face in relation to Chinese regulations? 

A number of Chinese regulations, especially in design of residential buildings, limit the design scope of a given project. For instance, orientation of residential buildings only in north/south direction, so they end up being arranged in regimented grid pattern, which doesn’t allow for the variety and richness we expect in our residential layouts in the UK.

For instance, our innovative ‘Vertical Shikumen’ residential concept for Shanghai was declared ‘suitable for Singapore, but not for Shanghai”. The regulations of internal bathrooms and kitchens also determine the overall residential planning and character.

However, on the other side , in our Shimao Quarry hotel, the local Authority in Songjiang has been impressively flexible and has allowed, in this building, which as an ‘upside down’ skyscraper with no  precedent, certain regulations  (such as the seismic and structural codes and fire regulations) to be reinterpreted and justified from the first principles.

What incentives are in place to encourage foreign participation in the construction sector in China?

The major incentive has been the Government’s creation of so-called “Wholly Owned Foreign Investment” companies that enable foreign individuals to establish enterprises in China. This is the basis for operation of my studio in Shanghai.

The Chinese Government  has recognised the value of learning from the experience of what they call “ Foreign Experts” and foreign participation is welcomed by clients, who seek experienced foreign designers to help produce more innovative and ‘international landmark’ buildings. It is a matter of ‘Face’ to have a foreign architect on board and having a ‘Name’ designer often helps to push the project through the Government approvals much quicker.

What mechanisms do you use when identifying risk and opportunities in the early development process of projects? 

Important tool for identifying the risks and opportunities is a thorough analysis of all aspects of the design project. This is in fact a standard part of the design process, but is often skipped or simplified.

The most important factors in order to be able to come up with the ‘right’ solution are:

-Understanding the site and its physical (orientation, topography, access, existing landscape, environmental character, water etc.) and non-physical character. (cultural, historical, emotional context).

-Equally important is understanding the client’s requirements and thus, being able to translate them into physical volumes and plans that can then be arranged on the site.

-Finally, an important factor is understanding the local  requirements, mainly the building densities, maximum heights , percentage of the green areas and other factors determining the size and location of the buildings.

All of these factors require detailed analysis, utilizing latest modeling and graphic software and internet research methods.

How has technology changed the architecture sector in recent years?

The design process in architecture has benefited from the ‘digital revolution’ by enabling complex organic shapes of building structures and façades to be designed and constructed, well beyond the capability of architects from only 20-30 years ago – from rectilinear simple shapes to complex curved buildings, that rely for both design and construction on automated computer controlled digital technology. Building and façade shapes produced by architects such as Hadid or UN Studio would have been unthinkable at the time when we designed buildings by drawing in ink on tracing paper on drawing boards with T squares.

In the heady days of the fast building boom here in China, there was a quest for the most unusual ‘Landmark’ shapes. Clients were competing for the most innovative building forms, enabled by the new technology  and the examples of the resulting architecture, both good and bad, can be seen all over China. The CCTV building in Beijing, The Bird’s Nest Stadium, Beijing Airport terminal, Shenzhen Airport terminal, our Wuhan Pebble Towers and even the Shimao Wonderland Intercontinental Hotel in a Quarry are the examples of such architectural style.

Other developments are in the sustainability and ability for humans to interact with our buildings. Sustainability is a very important element of building design and, here in China, is now taken very seriously, with the US LEED system of evaluation and local Chinese 4-star system, being frequently used to produce buildings which will contribute to the environment, by saving energy, water and promoting biodiversity.

Interactivity in architecture is also enabled by the ‘digital  revolution’ through incorporating smart controls which help to automate the building services, ranging from heating, ventilation, to lighting, security and communication and controlling more mechanical aspects of the external envelope of the building such as sun shading, external lighting and cleaning the façade.

Can you detail any current projects that you are working on? What are some of the key issues that you are facing in the process of assisting with them?

Shimao Wonderland Intercontinental

As mentioned, our most important project is The Shimao Wonderland Intercontinental, known as the Quarry Hotel. This project, which I designed in 2006, and has been ongoing for over 11 years now is a unique resort hotel situated in a disused ‘brownfield site’, 90m deep  partially water filled quarry. The hotel, developed by Chinese developer Shimao, shall be operated as a 5-star resort by Intercontinental Hotel Group and when completed, will be their flagship project in China. The hotel  which cascades down 90m rocky cliff face features 338 luxury guest rooms with number of them as duplex suites with the lower levels located under water, facing a large tropical aquarium. The central feature of the building is a vertical glass ‘waterfall’ atrium containing the observation lifts to take the guests to the lower levels. The hotel, with its unique location, is a first truly ‘underground’ structure and features a number of innovative and sustainable features. Obviously, such unusual location brings many technical challenges that needed to be overcome during the design and construction process.

Moganshan Jo Lalli Resort Hotel

Another one of our interesting project, currently under construction, is the Jo Lalli Resort Hotel in a beautiful mountainous region of Moganshan, near Hangzhou. Here the challenge has been to create a landmark building - that is the ‘visiting card’ for the operator, but at the same time, fits seamlessly into the outstanding natural environment without going against it. The inspiration for the form and materials has been directly the natural environment, utilizing local materials and building scale and massing that is compatible with the unspoiled beauty of the site itself. The hotel will feature large banqueting facility, restaurants and bars, in addition to 50 guestrooms.

Website: http://www.quarry-associates.com/

The rationale behind the regulation

The General Data Protection Regulation (GDPR), referred to by some as ‘the’ biggest change to European privacy laws in the last two decades, is causing commotion across the globe as businesses rush to become compliant by May 2018 or risk facing heavy sanctions.

Finalised in April 2016 the new regulation, which will replace the Data Protection Directive 95/46/EC, has the goal to better protect an individual’s personal data. For clarification purposes that could be any form of information leading to a person’s identification including but not limited to their name, email address, ID number, location data, income and bank details, health information and IP address.

So why a greater focus on the data subject?

Not so dissimilar to the rules of the road, a poignant comparison made by David Lewis, GRC Manager at cyber security specialists Imperva, a person visiting a website should be protected. When browsing online it is expected that our personal information is secure and makes it to its end destination safely too.

Unfortunately, as recounted in the press all too often of late, the risk of a visitor’s data being breached has increased exponentially.

In November of this year, details surrounding a breach suffered by Uber in 2016 surfaced. According to the company, 57 million people have been affected as a result of the cyber-attack. A month prior, detailed card payment information of approximately 60 000 Pizza Hut customers among other user data was thought to have been exposed to hackers. A month prior Deloitte was involved in a cyber-attack for which the real fall out has yet to be defined but is said to have compromised Deloitte's global email server. In July 2017, it became clear that Bupa’s data breach had impacted half a million customers.  In 2016, Android malware compromised over a million Google accounts. In 2013, Yahoo also disclosed a breach affecting up to 3 billion of its email users.

In response to the drop in user trust and confidence which inevitably negatively impacts businesses and the economy, governments are increasing regulatory safeguards.  Unlike the Directive, the GDPR will provide a single set of rules for all companies handling, storing, sharing and processing EU related personal data. Organisations will have to implement new measures to meet the requirements of the regulation and be extremely careful how they acquire, collect, use and store the data of their clients, customers and employees.

The implementation of a single regulation is thought to facilitate business processes in the long run and incentivise organisations to consolidate and streamline data in one place from the offset, where it can quickly be anonymised. The significant reduction in organisational costs, the potential for innovation and the building of greater rapport with customers as well as the decrease in brand and reputational damage associated with avoidable breaches are also argued to be among the benefits of the new regulation.

Cloud services and the GDPR

 The rules of the GDPR apply irrespective of whether data is stored in the cloud or on paper. The former in particular presents several challenges with regards to compliance.

On the one hand, according to Elastica’s Shadow Data Threat Report, as little as one percent of cloud providers’ internal processes are compliant with the new legislation. Less than three percent enforce secure password policies to meet the requirements of the GDPR. This has in part got to do with the Directive’s emphasis on the controller rather than the processor, leaving many a provider unaccountable for the role they play in data privacy and security. Aside from the scenario where direct contractual obligations are enforced on behalf of the controller, processors are not held liable for loss or exposure of information. Where regulation isn’t an issue cloud service providers can limit their focus to ease of use and navigation of their platforms and services.

On the other hand and according to the most recent Netskope Cloud Report, EU firms are unaware of how many cloud applications their organisations are actually using, which on average is believed to be over 600 software programs.

Under the new regulation, the rules will be far more stringent, the threat of fines as high as 20 million EUR or four percent of a companies’ annual revenue (whichever is highest) real, and the sharing of liability binding between both processor and controller. Cloud providers as well as users must enforce a series of technical and organisational procedures to guarantee the level of security required. According to Dr. Rois Ni Thuama, Head of Cyber Governance at OnDMARC the fines are not necessarily the biggest threat to a business’s bank account. The data subject’s right to sue following a breach, whatever the implications, is far more concerning.

“What we are seeing now is a clear division between a growing number of companies that say ‘wait, this GDPR thing is real’, and those who still don’t understand you cannot simply move data around the cloud without addressing data privacy. Privacy regulation is becoming mainstream in IT, in the same way that drug licensing became so for the pharmaceutical industry. It’s either make it clear that you comply, or forget about selling to serious customers,” says Bostjan Makarovic Founder of Aphaia, a GDPR-focused consultancy.

The attitudes of controllers and processors will need to change drastically especially when it comes to negotiating agreements. Strict provisions on the scope of duties of the controller and processor will need to be defined and implemented. Annabel Jones, UK Director at ADP commented: “contractual due diligence will be even more important as businesses seek to partner up with companies that can show data is processed lawfully”. An increase in third party due diligence and a greater focus on insurance policies will most likely also be discernable.

Steps to compliance

When selecting a provider, cloud using organisations need to ensure they choose vendors that are, in the first instance, able to tell their clients where the data they process and store is located. According to the GDRP data transfer to a third party outside the EU that does not have adequate data protection standards is only allowed under certain circumstances. Currently only 11 countries meet such standards.

It is equally important that companies are made aware of any third parties involved in the processing of the data. According to Trustwave’s Global Security Report, approximately 63% of data breaches involve third parties who are often considered a company’s biggest area of risk exposure. As a result they will be the first to be investigated by regulators. If the latter are involved at some stage of the process, measures need to be taken to ensure that they too are compliant.

Security should be a top priority for providers who ought to be able to explain the various measures adopted to protect data from modification, unsanctioned processing or loss. All data centers must be compliant with the latest ISO certifications, the storage and transmission of documents should be carried out exclusively via SSL connection with AES 256-bit encryption. Regular penetration tests should be carried out to assess data security. Two-factor authentication, data deletion, trash retrieval and access controls are just some of the ways data owners can have autonomy on how and whether their data is kept.  

About Drooms:

Drooms, Europe’s leading virtual data room provider, works with 25,000 companies around the world including leading consultancy firms, law firms, global real estate companies and corporations such as Morgan Stanley, JLL, JP Morgan, CBRE, and UBS. Over 10,000 complex transactions amounting to a total of over EUR 300 billion have been handled by the software specialist.

Website: https://drooms.com

Joseph Camilleri, Executive Head Business Development & Corporate Services at BOV Fund Services, talks to Finance Monthly about Malta’s fund industry, Brexit and the hurdles that the fund services sector is faced with in a scenario of on-going regulatory developments.

Within the context of a highly regulated fund industry, how is Malta coping in ensuring that it keeps pace with bigger fund domiciles?

I trust we’d all agree that the fund industry is increasingly becoming overcrowded with regulation, well intended as that may be. We’d also agree that such poses challenges to all stakeholders, be they investors, investment managers, service providers and fund domiciles too of course. Malta is in no way an exception to this.

The challenges may seem somewhat bigger and more difficult to address if the domicile is a relatively new and upcoming one; particularly if the domicile has built its fund and fund management industry on the small and medium sized funds and fund managers, as is the case for Malta, which by the very nature of their size, are impacted to a larger extent by the over-regulation in the industry.

Notwithstanding the above statements hold true, Malta has in my view, weathered the storm in a convincing manner. The key word here is “adopting” rather than adapting to new regulation, and ensuring that its pre-emptive stance pays dividends. The island’s positioning as a fund domicile has seen it consolidating its strengths in particular niche areas which it has continued to develop over the past few years. All of this further underpinned by the pro-active mindset of stakeholders (service providers in particular) in ensuring compliance to new regulations through the timely provision of additional services to the industry, in a cost competitive backdrop.

Malta’s fund industry has established itself as a domicile of choice to many start-up hedge fund managers. Its highly competitive package, the pro-business approach and accessibility of Malta’s single regulator, the robust yet flexible regulatory framework for deminimis (out-of-scope) funds in terms of the AIFMD, the efficient process for licensing, as well as the presence of several service providers on the island, within the context of a cosmopolitan lifestyle have and are attracting several investment managers to our shores.

Within the AIFMD realm, Malta too has identified its own niche segments: the past couple of years have been characterised by full scope AIFMs, whether based in Malta or other EU member states, structuring fully compliant AIFs having diverse strategies. Most notable, we have seen a growing number of AIFs being set up investing in real estate and other real assets, we have seen Private Equity funds being set-up, as well as the emergence of loan funds. Thus funds that require depo-lite services, as opposed to fully fledged depositary services, have been very conspicuous in Malta’s development of its fund industry.

The recently introduced Notified Alternative Investment Fund (NAIF) has thereagain been an innovative and positive contributor to the growth of the industry in the AIFMD space. Full scope AIFMs across the EU now can have their fund structures, SICAVs, Contractual Funds, Limited Partnerships, or Unit Trust Funds up and running within 10 working days of notifying the regulator. A far cry from passing…

How do you see the Brexit realities impacting Malta’s fund and fund management industry?

Difficult to tell given that the Brexit realities are still an unknown. The shape of things to come post conclusion of negotiations between the parties is still to be seen. Having said that, we’re already seeing major cities within the EU taking rather aggressive approaches in an attempt to position themselves in time (particularly should all go the hard Brexit way) to attract London-based businesses their way.

To a degree, I tend to think that attempts at unseating London as Europe’s main financial services centre is rather delusional. There’s likely to be a repositioning of course, yet London is London and will remain a major player, not necessarily very different to what it is today.

The way Malta is looking at Brexit is quite different; rather than adopting a vulture approach, as seems to be the case for the other EU contenders for the top spot in financial services, Malta’s approach is a softer one - one that augurs for a strengthening of the legacy relationship between the UK and its former colony Malta.

Malta is in fact in an ideal position to act as a bridgehead for UK-based businesses (and not limitedly to financial services businesses at that) to access the wider EU market.

There are various reasons why Malta sees it differently; apart from the legacy relationship mentioned earlier, there are other realities that are worth mentioning that render the relationship one based on mutual respect and understanding:

- English being an official language of Malta.
-The island’s membership and active participation in the Commonwealth.
-The British business ethics deeply rooted in Malta’s own conduct of business.
-The similarities in the socio-political make-up of the two countries.

It is thus of no surprise that we are seeing London-based operators teaming up with ManCo and Super ManCo platforms in Malta to explore alternative solutions for different Brexit scenarios that would allow them access to the EU market. Others are setting up their own “lean” fund management operations in Malta, as UCITS managers or AIFMs, to carry out the risk management function for their fund vehicles, whereas the day-to-day portfolio management activities are outsourced back to base, in London.

Malta’s way of looking at the opportunities coming out of Brexit are of the win-win sort; and it is precisely this that is elevating Malta’s stature in the eyes of UK-based operators.

What are the major challenges for a company like BOV Fund Services in a scenario of on-going regulatory developments?

There are various facets to regulation: some see regulation as a safeguard to investors, others to the system itself, some see it as an overkill and an unnecessary money drain.

Whichever line one might take, it is indisputable that regulation presents both challenges and opportunities for service providers, particularly fund administration companies. BOV Fund Services is in this space, and it too is not immune to such.

Regulation has predominantly meant additional and extensive reporting. In view that most fund data is held by fund administrators, it follows that the latter are in such scenarios are best placed to provide additional services to funds and their fund managers, thereby enabling these to comply with the newly introduced obligations.

This has been true for AIFM Annex IV reporting, FATCA, CRS and others. So has regulation impacted all fund administrators in the same manner? The short answer to this question is no. There have been winners and losers in the game; the winners where those service providers that ensured a level of preparedness in good time. The ones losing out on the other hand have been the laggards, those that considered the aforementioned regulations as the Managers’ and the funds’ problems. In effect, such regulations place obligations, sometimes onerous ones, of the funds and their managers.

Yet, fund administrators that evaluated the regulations as their draft versions were published, that understood the implications, and that geared themselves up to provide timely solutions in a cost competitive environment, not only ensured that their clients were compliant as from d-day, but they also consolidated the loyalty from their client base as well as created new revenue streams for themselves.

BOV Fund Services is in this second category. It has invariably sought to be ahead of the curve in terms of assessing the likely requirements of its client base emanating from new regulation. It invested heavily in its IT infrastructure and entered into agreements with system providers to automate reporting.

This has ensured that the company consolidate further its market leadership in Malta as the island’s number 1 fund administration firm (in terms of Assets Under Administration as well as number of Malta-based funds administered by the company), within a context of crowded market of 27 fund administration firms operating from Malta.

What has the AIFMD meant to your clients in the alternative space?

Essentially there are three categories of clients that we service, and for whom the AIFMD and its implications came to the fore.

When the initial draft of the AIFMD was published, it was quite evident as of those early days, that the directive had two core outstanding features:

- Albeit purporting to be intended to address systemic risk, it was largely perceived as being an EU protectionist measure, and
- It was bound to negatively impact small-sized alternative fund managers and fund domiciles that catered for this segment of the market.

Malta’s financial regulator, the MFSA, thanks too to the listening ear, lends to the local operators in Malta, wisely decided to defend its territory. As mentioned earlier, Malta had by then attracted a relatively large community of international small and medium sized fund managers to structure their fund vehicles in Malta. It was thus imperative that the goose that laid the golden eggs be safeguarded from the overarching burden that the new regulation was set to bring to the table.

In effect, rather than replacing the old with the new, MFSA introduced a new fund regime, the Alternative Investment Fund rule book, as distinct from the already existing Professional Investor Fund rule book. This latter regulatory platform for alternative funds, with its inbuilt flexibility within a robust framework, had enabled hundreds of fund managers (several of whom small-sized) structure their alternative strategies, ranging from hedge funds, to private equity, real estate, fund of funds, distressed debt, high frequency trading funds to a myriad of others.

It was inconceivable that this segment should be burdened by the heavy regulatory baggage that the AIFMD promised to introduce. In view that the directive’s provisions become mandatory for alternative managers having in excess of Euro 100 million in AUM (leveraged funds), it followed that those below the threshold should be given the opportunity to retain the status quo in terms of the regulation they were subjected to.

Now that the directive has been up and running for a number of years, it is clearly evident that retaining the PIF regime was a wise decision: alternative funds subject to this rule book continue to grow year-on-year.

Back to the three categories:
- The deminimis fund managers and the below threshold self-managed funds were given an option to sign up for the regulation, be subject to all its provisions, and on the upside, benefit from the EU passport. In most cases, they opted to stay put!
- A second category was made up of those that actually “went for it”, driven by one or two factors: the growth potential arising from the passport, and/or the fact that their AUM was just short of the threshold, so it was a question of time for them to adhere to the regulation.
- The third category consisted of those that were captured by the directive due to their respective AUMs (which were already in excess of the threshold). This segment had no other option but to comply, and make the most of it through the passporting rights.

In conclusion, I’d say that Malta’s regulations for the alternative strategies is such that enables acorns to grow into oak trees, without imposing upon them at the early stages of their lives, the rigours of over regulation that the AIFMD seems to be riddled with.

Website: https://www.bovfundservices.com

By Mihir Kapadia – CEO and Founder of Sun Global Investments

10^th anniversary since the financial crash and the things that have changed as a result of the crash

The ten years since the financial crisis of 2007-08 has passed quickly and perhaps in a better way than anyone could have expected at that time. As a matter of fact, I remember exactly where I stood trying to be brave in the face of market turbulence, and began to set up a wealth management firm at a time when all the markets and investor confidence was heading down.

I decided to focus on the emerging markets where the underlying economic growth was resilient and where investment opportunities offered a good prospect of promising results.  This was my motivation as I set up Sun Global Investments, a wealth and investment management firm, within six months of the onset of the subprime mortgage crisis. Now, as we have clocked 10 years since the crash, a lot has changed in the world – from an increase in regulations, a long period of low interest rates and easy monetary policy and new competitive threats.

The period of reformation

From the collapse of Lehman brothers in 2008 to the arrests of Irish bankers in 2016, the 2008 Great crisis led to a wider understanding of the fragile western economy ecosystems. The crash was a serious wakeup call for governments across the world, thus paving way for new regulatory responses for banking practices and financial services in general. This period also saw the expansion of the relevant regulatory bodies.  New Capital Adequacy liquidity and leverage norms came into place.  We also saw increased scrutiny of lending   practices and tougher stress tests.  The regulators were strongly motivated to avoid a future banking crisis in which taxpayers would be called on to bail-out failed banking institutions.

Today, we can be reasonably assured the global banking system is much safer due to the increased regulatory effort in the interim period.  The major problem that we faced going into 2007-08 can be summarized under four headings - excessive borrowing, flawed compensation structures, weak regulation, and moral hazard.   The regulators have sought to address all these areas.   Time will tell whether these measures are enough to avoid another crisis and another taxpayer funded bailout.     The long period of low interest rates and easy monetary policy have encouraged huge asset bubbles and higher levels of borrowing – these trends indicate that the limits of the resilience of the global economy is being tested greatly.

Testing the limits

In Europe, the banking crisis led to a severe sovereign debt crisis which affected Ireland, Spain, Portugal, Italy and Greece.  After a long period of adjustment, the first three countries have recovered to varying degrees but the latter two still remain greatly constrained by their high debt levels and negative or very low rates of economic growth.  Greece was the worst affected and continues to suffer greatly from the very negative consequences of the economic crisis ten years ago. The problem of high debt levels was compounded by any other problems such as the mismanagement of public funds by the government.   The country plunged into a massive recession as GDP contracted by 25% and the country was forced into seeking an IMF bailout.  The Greek debt crisis continues to weigh on the priorities of the European Union and IMF.   Much of the political and electoral uncertainty of the last two or three years have been a direct result of the prolonged economic slowdown which has followed the global financial crisis.

Looking into next decade

When Barack Obama assumed office, it was on a wave of optimism that he could fix the American economy which was reeling under the depression of 2008.  In the eight years of the Obama Presidency, employment and asset markets grew strongly.  However, income inequality grew over this period and many former industrial areas did not benefit greatly from the increased growth and higher asset prices. Eight years later, the American public responded to the tones of protectionism, the closing of borders and the economic nationalism of the Trump campaign.  In the UK, the referendum decision to leave the EU was a global political earthquake driven by nationalism and populism. The rise in nationalism reflected a population that had grown poorer and disillusioned in the years after the Great Financial Crisis and used the opportunity provided by the Referendum to express their unhappiness.

After the Brexit result and Trump victory, the threat of the advancement of right wing populism had faded in Europe by the end of 2016, with the election results in Netherlands and France. However, the next decade ahead will remain in difficult and uncertain due to the economic and political difficulties which are the lasting legacies of the Global Financial Crisis which started ten years ago.

In the UK, the uncertainty caused by Brexit is being further compounded by rising consumer, corporate and government debt, and increasing inflation which are squeezing living standards.  As the former Chancellor of the UK, Lord Darling recently warned, we are once again seeing sharply rising risks and increasing complacency as the memories of the crisis fades.  It is perhaps particularly grave for the UK as it in the midst of a serious period of Brexit negotiations that could have a negative effect on Businesses and households, and perhaps depress economic growth.

The financial crash of 2008 provided us a learning opportunity to set things right, and our economic and financial mechanisms have been strengthened but many dangers remain particularly the high level of debt which has emerged during a decade of very low interest rates and easy monetary conditions.  If the crash has taught us anything, it is that complacency can be catastrophic.

The Brightside is east

It is not all dark in the global economy. The US economy is proving to be resilient and is some way down on the path to monetary policy normalisation. China is also defying the forecasts of a sharp slowdown in its rate of economic growth.  China and other Emerging markets remain a bright spot in the global economies as many of them are growing at 4.5% to 6.5% a year.  Their markets offer promising and stable opportunities for investment. This is a viable and exciting option for global investors seeking to make progress in the 21^st century – an alternative to near stagnant or slower growing western economies.   There are likely to be Exciting times ahead!

By André Roque

From ZipCar to Uber, from Airbnb to Couchsurfing – we’ve all seen the rise of the peer-to-peer economy, and many of us have made use of it to earn or save extra money.

 But as we move towards a skill-and-asset-swapping culture, there are challenges ahead. So can the sharing economy survive? Or will it sink?

If we look at some of the biggest names in the asset-swapping game, Uber and Airbnb, we can see that they have already been struggling with regulatory hurdles. These hurdles come from governments that are still trying to understand the implications of this new landscape, and are busy creating legislation aimed at protecting their assets as well as the public’s.

For those who have enjoyed the benefits of Airbnb and Uber etc., asset sharing may feel like second nature – but the wider landscape is still fragile and yet to be explored. As is evident by the Financial Times’ Sharing Economy Summit, where the most informed brains came together to point out the possible pitfalls and concerns for those navigating this new marketplace.

Fairness

A lot of sharing economy-reliant companies are (in theory) just connecting those with a skill (I can drive and need some extra money) with those who require that skill (I have a little money and need to get somewhere by car). But how can a company that’s just connecting people with services they require be sure their labour is in a secure and properly benefitted working environment? Zero-hours contracts aside, there are concerns that a female cleaner, for instance, can be denied employment status, and therefore maternity pay and other benefits, despite working for a single company.

There are companies already working to address this issue of fairness. hassle.com for example, has strict rules around providing the London living wage to their staff. In fact, the platform’s CEO Alex Depledge says that their ultimate aim is to destroy the black markets that have been exploiting the housekeeping labour force for so long. As self-employment via online platforms becomes more common, it’s likely that governments will need to step in to protect workers.

As always, while some people are negatively affected, others can benefit from the increased demand for supporting services. It’s fair to say that more Uber drivers will mean a rise in demand for car cleaning services in the same area. A higher number of Airbnb properties will lead to a greater need for ‘on demand’ cleaning services. Homeit, a remote access provider used mostly by short term property rental hosts, is an example of one company that has spotted this correlation. It has just started to integrate cleaning services into the app, so that as you accept a reservation, you can then arrange for your property to be cleaned in time for the guests.

Trust issues

Uber has suffered massive knocks to its reputation and subsequently promised more rigorous screening processes for hiring drivers, and in these periods of mistrust it’s the traditional services that people will go back to - in this case, black cabs.

The whole idea of a sharing economy relies on utopian values, and on the delicate balance of no one abusing the opportunities it provides. We need to trust the cleaner we’re letting into our house. In the past, this was based on personal recommendation; now it comes in the form of a trusted platform. In theory, if a guest in your property damages something, you rate them badly and they can even be banned from services like Airbnb. This helps hosts to rely on the platform.

There’s also the interaction with strangers. Travellers (and hosts) may not feel comfortable waiting around to speak with a stranger. This is of particular concern to minorities and LGBTQI customers. As a result, new companies are springing up to address some of these issues, for example, Homeit provides remote access for hosts and guest – so they need never meet, and no one is left hanging around outside waiting for their host or guest to appear.

Economic impacts

Very recently, hundreds of people came together at Los Angeles City Hall for a hearing on how a tourist destination like LA should regulate its short-term rental industry. Members of the local hotel worker union as well as HomeAway, VRBO and Airbnb supporters, filled the room. The discussion was about the need for rules that place a 180-day cap on the time a room can be let during a single year. Other restrictions stated that hosts must live at the property they are renting. Discussions like these are happening all over the world, arguing that Airbnb rentals affect longer-term rental properties and increase the cost of living rent.

In Barcelona, the government is cracking down on illegal hosts who aren’t paying tax on their rental income. In 2015 Airbnb generated an economic impact of €740 million in that city alone.

In conclusion

For those of us intending to utilise the sharing economy while it’s still building up to the crest of its wave, the trials of property management, government legislation and host-wrangling could turn into a massive headache. And so, it’s the supporting platforms that are the most useful for streamlining that experience. In the short-term, the sharing economy is only set to get bigger as tech entrepreneurs come up with new and innovative ways to help us share our assets and make or save money – but in order for sharing to be the new norm, legislation and technology will need to change and develop to make the process simpler, fairer for workers, and safer for both hosts and users.

ABOUT THE AUTHOR

André Roque is co-founder of Homeit, a remote access platform, that allows you to grant guests, tenants and tradespeople (cleaners, laundry, etc.) access to your property remotely. It integrates with short-term rental platforms and also recommends tested service providers in your area.  It is easy, fast, reliable and, most importantly, safe. Designed for the new sharing economy – Homeit is perfect for travellers and hosts using platforms like Airbnb.

See: https://www.homeit.io/en/ and https://www.seedrs.com/homeit

Facebook: https://www.facebook.com/homeit.international/

LinkedIn: https://www.linkedin.com/company/homeit

Twitter: https://twitter.com/homeit_pt

The Financial Conduct Authority (FCA) has announced it will regulate seven additional major UK-based financial benchmarks in the fixed income, commodity and currency markets from 1 April 2015. This extends the FCA’s initial regulation of LIBOR (the London Interbank Offered Rate), as introduced by HM Treasury in 2013.

Martin Wheatley, Chief Executive of the FCA, said: “I am determined to ensure that markets work well and preserve the UK’s reputation as a centre of excellence for financial services – this announcement is a vital step in achieving this. This builds on our work to strengthen LIBOR, and drive up standards on benchmarks across the board.”

The move extends the FCA’s approach to regulating LIBOR to the firms that administer, and where appropriate, contribute data or information to the following benchmarks:

• SONIA (Sterling Overnight Index Average) and RONIA (Repurchase Overnight Index Average), which both serve as reference rates for overnight index swaps
• WM/Reuters London 4pm Closing Spot Rate, which is the dominant global foreign exchange benchmark
• ISDAFIX, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions
• London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market
• ICE Brent Index, traded on the ICE Futures Europe (IFEU) exchange, which acts as the crude oil futures market’s principal financial benchmark.

Benchmark administrators and firms that contribute to benchmarks will be FCA-authorised. Key requirements include identifying potentially manipulative behaviour, controlling conflicts of interest and implementing robust governance and oversight arrangements.

The consultation closes on 30 January 2015, the FCA expect to publish final rules during the first quarter of 2015.