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Issue 9


Institutional Debt Trading with Dr. Timo Strattner, CEO of Eliseo Partners

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EM E A | Ocea nia | As i a | Americ as

Time Flies, But Memories Remain

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I am pleased to present to you Issue 9 of Global Banking & Finance Review. For those of you that are reading us for the first time, welcome.

In this edition you will find engaging interviews with leaders from the financial community and insightful commentary from industry experts. Ms. Pham Thi Hien, Deputy General Director of An Binh Commercial Joint Stock Bank (ABBANK) discusses the banking sector in Vietnam and the bank's continued success as they celebrate 24 years in operation. Fred DiCocco, Global Head of Cash Management Business Development, Treasury Services, BNY Mellon explains how new technology can be channeled for a revolutionised payments space and we get a look at the impact of Brexit on global trade from Stuart Ramsden, Head of Commercial for Atradius UK and Ireland. Featured on the front cover is Dr. Timo Strattner, CEO of Eliseo Partners. Eliseo Partners is a proprietary trading and investment firm and regarded as a premiere firm providing lending & liquidity solutions to illiquid assets acting as principal in transactions. In our feature interview Dr. Timo Strattner discusses institutional debt trading and the current credit market. We strive to capture the breaking news about the world's economy, financial events, and banking game changers from prominent leaders in the industry and public viewpoints with an intention to serve a holistic outlook. We have gone that extra mile to ensure we give you the best from the world of finance. Send us your thoughts on how we can continue to improve and what you’d like to see in the future. Happy reading!

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Issue 9 | 5




The balancing act: The role of the human in customer experience



The Banking Industry in a Changing Climate – Digital Banking in Chile Financing the Low-Carbon Transiton

inside... BANKING


The balancing act: The role of the human in customer experience



The future of blockchain in banking


The missed small business banking opportunity – why banks must optimise digital capabilities, or risk losing customers

Bill Safran, CEO, Vizolution


PSD2 – the challenges facing the banks when it comes to third party application data access Andrew Whaley, VP Engineering, Arxan Technologies


The end of banks is just the beginning


Capitalising on Digital Transformation Client data the key to offering a new breed of contextual banking services

Darren Hunt, Head of Strategic Industries, SAP

Herber de Ruijter, Head of Digital for Transaction Banking iGTB

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Philippe Meyer, managing director of Avaloq Innovation

Derek Corcoran, Chief Experience Officer, Avoka


Managing Big Data and Big Risks in Banking

Eric Crabtree, Global Head Financial Services, Unisys



The Banking Industry in a Changing Climate – Financing the LowCarbon Transiton Lauren Compere,Director of Shareowner Engagement, Boston Common Asset Management


“Alexa, show me the money” – the challenges and obstacles banks face when implementing Alexa AI Pete Gatenby, head of sales and marketing at B60


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Interoperability in Financial Services is the Future of International Remittances

Software investment is crucial as VAT collection enters new era





GDPR is not just about structured data – firms need to unpick their web and social data too




Chris Burke, CEO of Brickendon


Progress and Challenges in Streamlining State Financial Services Licensing

Andrew E. Bigart, Counsel,Venable LLP Evan R. Minsberg, Associate, Venable's Regulatory group

Breakthrough innovation: How agile can improve performance

Prashanth Prasad, Manager, San Francisco, Arthur D. Little, and a member of the Technology & Innovation Management Practice and the Healthcare Practice. Mitch Beaumont, Partner,San Francisco office of Arthur D. Little and a member of the Technology & Innovation Management Practice. Ben Thuriaux-Alemán,Principal, London,Arthur D. Little and a member of the Technology & Innovation Management Practice and the Energy Practice. Chandler Hatton,Manager,Amsterdam, Arthur D. Little and a member of the Technology & Innovation Management Practice and the Strategy & Organization Practice.

New Developments in Third Party Service Provider Guidance


How to grow your business using crowdfunding




Interoperability in Financial Services is the Future of International Remittances Ambar Sur, Founder and CEO , TerraPay

Jennifer Monty Rieker, Ulmer & Berne LLP

James Donnelly, Senior Director, Alvarez & Marsal­

Handing power back to women How financial services can support female returners


GDPR is not just about structured data – firms Digital Banking in Chile need to unpick their web and social data too


Five Points to Consider Regarding the Regulation of Cryptocurrency

Elliott Phillips, Partner, Signature Litigation Steven De Lara, Senior Associate, Signature Litigation


When money meets manufacturing: designing the payments of the future Christian Von Hammel-Bonten, CPO, PPRO Group

Joel Hughes, UK and Europe Director at Indiegogo

Issue 9 | 7




The importance of a data health check


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MIFID II; Keep Calm, Compliant and In The Cloud Ralph Awad, Director of Cloud Operations, Calabrio

Bank-led collaboration is driving payments transformation Fred DiCocco, Global Head of Cash Management Business Development, Treasury Services, BNY Mellon

Killing two birds with one stone: the NY CSRs and the GDPR

Rafi Azim-Khan, Head Data Privacy, Europe, Pillsbury Law Scott Morton, Associate, Pillsbury Law

Shining A Low-Code Light On Shadow IT Business




Combat Insider Data Breaches with Privileged Access Management



Csaba Krasznay, Security Evangelist, Balabit


The importance of a data health check

Jon Cano-Lopez, Chief Executive, REaD Group


Blockchain – Why there is a growing need for the technology entrepreneur


Shining A Low-Code Light On Shadow IT Business


By not addressing unstructured data, FS firms are missing out on true customer insight

Simon Raymer, Chief Information Officer, Fraedom

Martin Fincham, CEO - LANSA

Dorian Selz, CEO , Squirro

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Bank-led collaboration is driving payments transformation

Risks and Rewards: The impact of Brexit on global trade Stuart Ramsden Head of Commercial for Atradius UK and Ireland


The ABC Of Digitisation

David Hennah, Head of Trade and Supply Chain Finance, Finastra




Institutional Debt Trading with Eliseo Partners


The Investment Landscape in Hong Kong

Banking in Vietnam

interviews... INSTITUTIONAL DEBT TRADING WITH ELISEO PARTNERS 75 Dr. Timo Strattner, CEO of Eliseo Partners discusses institutional debt trading and the current credit market.

BANKING IN VIETNAM 85 Ms. Pham Thi Hien, Deputy General Director of An Binh Commercial Joint Stock Bank (ABBANK) In June of this year Global Banking & Finance Review journalist Phil Fothergill met with Ms. Pham Thi Hien, Deputy General Director of An Binh Commercial Joint Stock Bank (ABBANK) in London to discusses the banking sector in Vietnam and the banks continued success as it celebrates its 24th year in operations.

THE INVESTMENT LANDSCAPE IN HONG KONG 97 Hing S. Tang, Ph.D., CFA, Managing Director, Head of Quantitative Strategy Business Unit at BOCI-Prudential Asset Management Global Banking & Finance Review journalist Phil Fothergill interviewed Hing S. Tang, Ph.D., CFA, Managing Director, Head of Quantitative Strategy Business Unit at BOCI-Prudential Asset Management to discuss the investment landscape in Hong Kong and their success.

Issue 9 | 9

EMEA 10 Issue 9


The Balancing Act:

The role of the human in customer experience

The banking industry has made tremendous strides in transforming the customer experience. With ATMs starting the self-serve movement over 40 years ago, the proliferation of channels and devices has gained pace over the last 10 years, opening up a plethora of options for reaching and serving customers. As digital channels have expanded the potential for self-serve, digital transformation has become the holy grail for banks looking to serve customers at a lower cost. However, is this really the panaceas for all ills?

The road to self-serve Consumers today are no longer restricted to in-store, over the phone or even online banking. Instead, consumers are only a smartphone away from checking statements, making payments or setting up standing orders. And it’s not just banks that are driving this change - the appetite for self-serve is high among consumers who have

been enthusiastic about adopting these channels. For example, Britons already check bank balances 10.5 million times a day on apps, with over 8 million consumers downloading banking apps in the last year alone 1 - and we are still seeing exponential growth across digital channels. Looking at the adoption statistics and the benefits that banks can achieve in terms of reduced costs, it seems like the case for driving self-serve across all journeys is watertight. However, the reality is a lot more complex. Indeed, for simple linear journeys such as checking a balance, there is no question that self-serve is the best option. However, self-serve channels are by nature low engagement and this can be a problem when journeys are nonlinear, complex or when customers stray off the ‘happy path’.

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It is in these more complex journeys we start to see a shift in customer attitudes and behaviour as consumer demand for human interaction increases. This was evidenced by Accenture in its recent ‘Digital Disconnect in Customer Engagement’ study*2, where it found that ‘in their rush to take advantage of allthings-digital, many companies have lost sight of the value of human connections’, with 73% of consumers actively seeking out humans to get advice. What we are seeing through this, and through an increasing number of other studies, is that customers reach a stage where they want, and indeed expect, to engage with other humans.

When is the human touch needed? There are many different scenarios where a self-serve journey will not be sufficient for a customer. The three most important are journeys that are highly emotional or involve impact decisions; complex journeys with multiple decision paths; or where information, data, or documents need to be exchanged and as a result, where the customer can stray off the intended journey. Highly emotional, or journeys with impact decisions, are those that will hold significance (or perceived impact) to the customer. For example, a mortgage decision is one of the largest financial

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decisions that a customer is going to make in their life. As such, a customer wants to be able to discuss the details of the product and gain reassurance from the bank agent. Likewise, a pension decision is even more fraught - a customer is making a decision that will impact the funds they will live on from retirement until they die. This is not a decision that most customers are willing to determine themselves, or abdicate to a robo adviser. Complex journeys, where there are multiple decision paths, are best suited to an assisted journey to guide the customer to a solution that best meets their needs. A mortgage application is an example of a journey best delivered with some form of human interaction. With many stages in the process and twoway information exchange, a mortgage journey is not linear and there are many stalling or break points in the journey. Self-serve journeys are typically designed to handle a ‘happy path’ scenario that will be able to process the pareto 80% of cases. But what happens with those customers that cannot follow that happy path? Self-serve needs to create seamless journeys to handle those customers. For example, a failed credit check can derail an application and without any human interaction, it is highly likely to end as a failed journey.


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For all of these journeys, forcing customers down the humanless route has the potential to cause customer frustration and broken journeys whether that’s providing human support for customers who get stuck at a point in a digital journey, or starting a customer journey with a human who can explain a complex product and then leaving them to complete their journey through a digital channel. The challenge for banks is therefore not how they digitise every journey, rather, how they find the balance between human and humanless interactions to ensure these journeys are successful.

Striking the balance For many in the banking industry, recent discussion has been centred around whether technology should replace humans. And in some situations, the answer is a resounding yes. However, for many other journeys, the evidence supporting human interaction is strong. In these cases, technology still has an important role to play in improving the human interaction. For example, contact centre agents are increasingly using technologies that help them deliver a seamless and efficient journey, whether that’s enabling the signing documents online and removing the delay of hardcopy and post, or using screensharing technology to demonstrate complex product comparisons.

Customer experience starts to get really interesting when we look at how humans and technology can work seamlessly together, moving customers along a journey that utilises low cost self-serve channels when the journey permits, and providing human interaction at the point of need.

The future of banking While technologies such as robo and AI offer infinite possibilities as the level of sophistication increases, we cannot ignore the fact that our customers are humans and it is ultimately their acceptance of the technology that will determine its success. The reality is that technology may surpass what the consumer is comfortable with, and forcing customers too far down a self-serve route could have damaging consequences. The debate for banks shouldn’t be whether to go human or humanless – it should be making sure the right choice is made for the right customer journey and in many cases, combining both within a single customer journey. When we stop thinking in terms of technology or humans as an either/or scenario, we can move onto a new era in customer experience that optimises both to deliver a cost efficient and effective journey.

Bill Safran CEO Vizolution

1 Dakers, M. (2015, June 14). Mobile banking has eclipsed branches and even the rest of the internet. Retrieved October 17, 2017, from newsbysector/banksandfinance/11672021/Mobile-bankinghas-eclipsed-branches-and-even-the-rest-of-the-internet.html

2 Digital disconnect in customer engagement. (n.d.). Retrieved October 17, 2017, from insight-digital-disconnect-customer-engagement

Issue 9 | 15


PSD2 – the challenges facing the banks when it comes to third party application data access The next big challenge on the horizon for both the banking and cybersecurity industries comes from impending updates to the EU’s Payment Service Directive (PSD) coming into effect in 2018. The revised directive, known as PSD2, will enable bank customers – including both individual customers and businesses – to conduct their finances through third-party providers. The updated mandate is aimed at providing more flexibility and freedom to users, with customers essentially being able to mix and match individual solutions as they see fit, without having to transfer money from their original accounts to create new ones. This will extend to non-banking solutions as well, for example, paying bills or transferring money via social media. Nevertheless, this increased flexibility does not come without some major security concerns. Despite Mobile OS’s actively discouraging the linking of applications to ensure data protection, banks are going to be obligated to provide application programme interfaces (APIs) to allow thirdparty providers access to their customers’ accounts. The only way the new directive will function effectively and securely, will be

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through the mobile banking application itself. However, the PSD2 does not specify how secure this access will be, nor, what risks will arise, and for who. Integration and communication As the PSD2 will only function securely through the mobile banking application, there has to be perfect integration and authentication between the banking and thirdparty applications sharing its data.


Mobile phone systems themselves actively discourage secure communication between applications because they prefer to keep each individual applications separate, in order to protect the privacy of the end user. No application is able to see what other applications are installed on the mobile phone because barriers have been put in place to avoid the mobile phone working as an interim solution. However, the PSD2 is looking to break these barriers. The issue comes with the connection between the banking app and the third party app, a point at which attackers can intercept data going from one to the other, or plant malware. Guaranteeing secure integration, authentication, and communication between the two applications on the mobile device is no simple task. The desired end is to ensure that completely secure communication occurs so that at no point can either of the applications be manipulated, nor data leaked. However there is great complexity associated with guaranteeing secure integration between the two applications on the endpoint – predominantly on a mobile phone or tablet. If an attacker is to intercept the communication, it is possible for them to create a malicious version of the application and discreetly access bank account data. Who holds responsibility? Unfortunately the onus mostly falls on the banks, with further effect on their customers. It is the customer that will have to authenticate on the third party application, be it Facebook, Twitter or any other mobile app, providing it with permission to access their bank account information. The third party application will then call over to the banking app for permission to access the user’s bank details, leading the banking application to request permission for the third party application to have ongoing access. The customer will then have to confirm and authenticate this request.

Grey areas

What can be done?

The PSD2 contains a number of grey areas, some of which will worry the banks, and others more their customers. Unfortunately, while the directive seems to lay down the law for what it wants the banks to do it, does not specify how any of its mandates are to be achieved. With regard to the APIs, the PSD2 has not proposed a standard as such. This means one bank could publish one set of APIs, while another could publish another completely different set of, leading to a need for different authentication and communication between the mobile applications. This would then create problems when it comes to consuming these APIs as, depending on which bank the customer has their account with, the thirdparty application through which the account is being accessed will potentially have to build a different adapter and a different API to access the required data. This is mostly an issue for the customer as it may prevent them from being able to access their data through the application they want to use. Additionally, customers may feel their banking data is no longer secure, effecting the reputation of the banks.

As mentioned, a big problem with the PSD2 mandate is there is no technical detail over how the banks will securely publish their APIs. The best solution for this would be to instigate a call to action for all the banks to club together and establish mutual standards over how to secure the API, how to secure the authentication, as well as what their code of connection will be, for anyone that wants to use it. This will give a general framework for everyone else to work towards, encouraging harmony across the banking industry. Unfortunately standards like these will not come into effect immediately, meaning they will not have been established when the directive is implemented in January of next year. Although introducing such a framework will be the most effective solution, in the meantime there are solutions available to provide protection for both the banking applications and the third party applications looking to integrate and access bank customer account data.

PSD2 is quite clear that the banks are still responsible for the ownership, safety and confidentiality of their customers’ account data. The only way the banks can counter this is to implement the technology and counter measures that they already have in place in their mobile applications. They will basically have to force an authorisation through the app which should then mean they will be able to directly communicate with the end user at the point before the third party application has been given any access to the data.

Andrew Whaley VP Engineering Arxan Technologies

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The End of Banks is just the Beginning Most of us have pretty clear expectations from our bank. We expect a safe place to store and invest our savings and we want access to good-value loans and mortgages. But what if your bank could help you move house? Suggest the best neighbourhoods to buy in and get you the best deals on home and contents insurance? What if your bank was also your financial consultant?

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Driven by competition from agile financial start-ups and powered by intelligent technology, established banks are leveraging their security expertise and data intelligence to diversify their offerings and future-proof their business. This was the picture painted by hundreds of senior bankers, insurers, fintech, insurtech executives and technology providers at the recent SAP FSI Forum in London. The event examined how technologies like AI, machine learning, analytics, blockchain, open APIs and the cloud are being used to deliver truly digitised financial services.

During the event, three key trends emerged as having a profound impact on the banking industry. They include the diversification of banking services, the transformative power of advanced technology and the influence of connected consumers.

Diversification - Going Beyond Banking The shift of banks into cross-selling consultants is already underway. In Germany, for example, one bank is helping customers save money by providing detailed analysis of their cash flows. Using machine learning and big


data analytics, the bank runs a platform that pools together all customer outgoings on their various payment methods, including their current account and credit cards. It presents the data in real-time to the customer via an app, which is easy to read and simple to use. Not only can customers view their spending information, the app suggests ways that they can save – picking up on spending habits to make intelligent suggestions for alternative providers and products.

This new wave of hyper-connectivity depends on powerful technology. Today’s large-scale in-memory computing enables massive simplification – turning raw data into actionable insight in minutes, versus hours or days – a prerequisite for seizing new business opportunities.

anticipate customer needs and assess risks in real time. Cloud computing will speed up time to value for new banking business models and drive faster adoption of new technologies. It’s the key enabler for the digital future and allows banks to save money, which can instead be invested into innovation.

Transformation - Banking in the Cloud

Through cloud computing, today’s banks are now turning to machine learning, the Internet of Things, analytics and blockchain technology to help customers identify and solve tough business challenges and improve customer service.

Powered by growing hyper-connectivity, cloud computing is truly taking the financial industry to the next level. The digital bank of the future will be able to

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EMEA BANKING One example of this is SAP Leonardo, which turns data into customer insights– improving both product and service offerings, and ultimately bettering the customer experience. For example, a customer who spends £100 a month on a specialised insurance product could save £50 a month by switching to another provider. By suggesting a different product and facilitating the switch, the bank will save money and time for the customer, galvanising their loyalty.

Influence – Connecting and Engaging Customers The proliferation of smarter, alwaysconnected devices is enabling banks to offer smarter banking products that are reshaping value chains and redefining banking. Proximity-enabled technology creates new forms of customer engagement in customer servicing, machine-to-machine payments and loyalty programmes.

Banks and their platforms will become a channel for other providers to sell products on, becoming integrated e-commerce solutions. In fact, the ability to predict customer needs and deliver more tailored experiences will make the difference between those that succeed and flourish in the digital world and those that lag behind. The coming years are going to be game changers in the financial services industry. Banks need to open up their ecosystem and collaborate with FSI and non FSI companies, to offer tangible, intelligent services and products to customers, when and where they need them. The bank of the future goes beyond banking – it will be a holistic financial solution, helping customers to manage their money, and their lives, in real-time.

Darren Hunt Head of Strategic Industries SAP

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Combat Insider

Data Breaches with

Privileged Access Management When it comes to cyber security, financial institutions are generally quick to adopt new technologies, though many organisations are still hamstrung by legacy infrastructure and applications. A recent study from IBM found that financial services organisations are breached on average 65% more than organisations in any other industry. So, with the everincreasing attacks to banking infrastructure from sophisticated cyber-criminals, one of the biggest challenges facing banking IT is investigating incidents and recovering as quickly as possible. The increased risk to banks is due to the massive amounts of sensitive data they keep stored, which can provide immense financial gains for cyber-criminals. Financial organisations must also comply with industry and government regulations which require them to monitor and record all access to their sensitive information. For this reason, it’s now more important than ever for banks to protect their clients’ identities and their own privileged users’ accounts, which are top priority targets for criminals. However, this can present a challenge due to the large, distributed IT networks typically operated by international financial organisations, often managed by hundreds of system administrators.

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In such large distributed environments, having enough employees focused on security can be almost impossible. Whilst password based authentication can help restrict access, hackers can easily infiltrate financial IT system accounts using social engineering tactics. There is also the problem of the malicious insider, or employees who have decided to go rogue. Banking security managers must look for advanced security solutions, which allow them to focus on insider threats and monitor user activities in real-time, and make sure to continuously audit who is doing what in their IT systems. Effective incident response Following an incident, the simple question of ‘who did what’ is one of the most critical, but it’s also the most difficult to answer. Organisations want to determine the root cause as quickly as possible, to meet government and compliance regulations. This can often involve security teams analysing thousands of logs during an investigation, which is time and resource intensive. When an incident includes privileged account access, this can present even more of a challenge. Privileged insiders and external attackers in control of hijacked credentials can easily cover their tracks by modifying or deleting log files, making it that much harder to

determine the roots of the attack. It’s because of this that hijacking privileged accounts has become a popular method of attack for criminals. What can banks do to manage privileged access incidents? Firstly, financial organisations must have a proper access policy implemented, which should be based on the least privilege rule. They should also be able to detect potential insider threats at the earliest stages. The best way to speed up the incident response process is to deploy a privileged access management (PAM) solution. These kinds of solutions can act as centralised authentication and accesscontrol points in the IT environment, which in turn provides access control, session recording and auditing to prevent security breaches and speed up forensics investigations. Additional security that doesn’t burden users with more constraints can be achieved by deploying an agentless, transparent proxy technology. The data collected from the monitoring solution can be used to build detailed profiles of each privileged user to demonstrate baseline ‘normal’ behaviour and then privileged account analytics can be used to spot anomalies as they happen, which are then flagged to the security teams who can then tackle potential breaches as they occur.


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What are the advantages of agentless, proxy technology? Proxy technology works in the same way as a web proxy. When an HTTP(s) connection is initiated to a web server, the web proxy terminates it, checks the access rules if this connection is enabled for the user, and initiates a new connection to the web server. So, the client communicates with the proxy and the proxy communicates with the server, but both endpoints think that they are communicating with each other. Privileged session management tools do the same thing with the supported administrative protocols. The technology acts as a proxy between the privileged user’s workstation and the protected server. The transferred connections and traffic are then inspected on the application level, rejecting all traffic which violates the protocols. This proves a very effective deterrent against attacks.

Easing the limitations of SIEMs with PAM tools Security Information and Event Management (SIEM) systems have become central to enterprise security management, in order to process and correlate alerts coming from various security systems. However, SIEM tools can be limiting, as they rely on being fed only by system log messages and they lack contextual information on privileged user activity. As privileged accounts are the main target for cyber criminals, financial organisations need to move towards collecting comprehensive data on privileged activities as a priority in order to finesse the incident response process. Another issue presented by these tools is that they only look for threats that have already been identified and fall under their pre-configured rules. So, if an attacker were to use a new method of attack, the SIEM will be unable to detect it, as it is unaware that it even exists.

This can lead to analysts being so overwhelmed with security alerts generated by SIEMs that they can struggle to evaluate which alert should be analysed first. Even if they have a shortlist of alerts, they have limited time to investigate and decide if a red-flag alert is a false positive or indicates an actual incident. Following a breach, Privileged Access Management (PAM) tools can help to increase incident management efficiency adding information sources which can detect and analyse privileged user threats. Rapid investigations and making quick, well-informed decisions present a challenge for organisations and require data in real-time to shed light on the context of a suspicious event. In these situations, an access management tool can provide risk-based scoring of alerts, fast search and easily digestible evidence. As cyber-attacks become the new reality for banks and financial organisations, coupled with the introduction of more stringent compliance requirements, banks must be better prepared to deal with incidents and recover quickly. Without relevant and reliable data recordings of individual user sessions, incident investigations can be expensive and in some cases, inconclusive.

By deploying advanced Privileged Access Management (PAM) solutions, organisations can collate and analyse information about privileged access. The ability to easily reconstruct and analyse user sessions reduces the time and costs of investigations. They also provide riskbased alerting, and searchable, easy-tointerpret records about user activities, so analysts can quickly find the root cause of a problem. All in all, a PAM tool provides a fast return to value in a specific challenge – investigation of incidents related to privileged accounts. They can be seamlessly integrated into SOC environments, making security operations more effective.

How does account high-jacking work? Criminals steal the credentials of a privileged account employee, such as the system administrator and, acting as a legitimate user, gain potentially unlimited access to sensitive customer data and underlying infrastructure such as servers and databases. This makes it possible to steal data on an unparalleled scale, disrupt critical infrastructure and even install malware. As attacks usually unfold over a period of months, this allows intruders the time to perform reconnaissance, escalate privileges as well as covering their tracks and stealing data.

Csaba Krasznay Security Evangelist Balabit

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GDPR is not just about structured data – firms need to unpick their web and social data too All created data is not of equal value. The value of data is derived from its quality and in today’s corporates, systems have rarely been designed to allow the quality data to be tagged in any form. Thus, it cannot be prioritised, or retained, when there is a co-mingled data. By 2025, the amount of data predicted to be under management is 163 zettabytes 1 (1 ZB is equivalent to 152 million years of ultrahigh definition video 2 ), a tenfold increase from today. However, the figure has no real meaning unless you add a cost against having to store and manage it. Now, the information game has changed with the General Data Protection Regulation (“GDPR”), with personal data and therefore the subject’s privacy, now has a far greater level of protection. The issue now is that most corporates will not be able to meet this new law without mandating new systems that will not have been budgeted for. The reason behind the information sprawl is the growth in technology; we live in a fastpaced world where data is an asset and: •

it’s been less expensive to increase data storage than the effort required to delete old data;

we freely give it away, without any charge to applications and/ or services on mobile devices;

we actively proliferate and share it without concern over the implications;

the continuous harnessing by our browsers and apps, without our knowledge, about our activities; and

systems are having their security compromised at astonishing rates, whether accidental or nefarious.

With so much data available and with its growth becoming pandemic, the range of corporate data that can be separated in various “silos” is vast. When you consider each data set requires its own unique storage and retention methods to make the data manageable, the problem shows itself to be mammoth. These data sets that need identifying and logging include: •

unstructured data – i.e. data created without an index ( such as PowerPoint, excel word, pdf’s, emails, etc);

structured data (applications (internal and SaaS) and databases that have indexes and defined data fields and types); paper (from the traditional management of data such as via signed documents or contracts,

or archived material before the age of mainstream computers); •

archived data (the backups and archives stored on tape and other WORM low cost media devices);

video and voice data (everything from YouTube cat videos, recorded conference calls, CCTV, video conferencing, or any recorded calls for “training and security purposes”); and

web and social data (the data that GDPR was created to help control, as it now becomes one of the most commonly used methods of communications, tweets, (instant) messaging, and websites).

The rise in importance of web and social data to drive productivity is undeniable. It simultaneously increases the level and speed of collaboration of geographically dispersed teams, whilst enabling them to operate as a single work unit via email and instant messaging such as Skype, Slack, etc. For global finance firms operating across continents and time zones, this ease of access is invaluable. But it presents significant risks.

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For example, collaborative systems and portals in SharePoint, Google Drive, Alfresco etc., allow teams to consolidate and amalgamate work products that haven’t been possible before. Whilst these solutions may be relatively easily to implement technically, the challenge is making use of all this information to help drive the needs of the business, whilst staying compliant. For example, Hanzo, a web preservation and analysis software company has stated that its customers are increasingly asking for help with finding and collecting relevant data, in a legally defensible format, from digital web technology as it’s too vast to manage in-house 3 . This collection and logging of data is further complicated by the fact that we, as humans, leak personal information in almost every social interaction. From sharing personal information about who we are, what we do, where we’ve been on holidays etc, to setting context for online security questions based on our own experience for services we purchase, we constantly share IP special to us. We are conditioned and expect to share information in these scenarios, even on phone calls to banks or insurance providers when the calls are recorded for security and training. Now, it’s become a corporate responsibility to manage and secure this personal information, and make sure that it doesn’t end up on the digital “silk road” if there ever is a data breach. But what can firms do to stem the tide of persona data coming their way? Well, they need to think where it’s coming from (structured, unstructured formats etc) and become more rigorous in tagging the data accordingly – across all areas of the business.

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For example, social data that so many companies rely upon for sales, marketing and business analytics is usually collected and managed from a variety of sources. The conditions for consent, strengthened under GDPR, means each source of personal data will need to be tracked and managed. Corporate marketing data, in some industries, has previously been traded as a commodity, sold on when it no longer provides value. The onus is now back on companies to act as “custodians” of the data whilst they have the legal right to use it, to be returned or destroyed at the end of the legal or regulatory obligation. An example of this is consumer spending habits. The value of this data is exponential, and the ability to track how someone spends can disclose a lot about their lifestyle and future preferences – as companies may know what someone will buy before they do. However, the mind-set around this must change. Treat this data like gold-dust as with consumers getting greater rights around their personal data, banks, insurers, credit companies may see their data stocks dwindle, affecting their insights. Additionally, as businesses rely on social platforms to carry their marketing messages to the masses, the question arises as to the responsibility of the business for the data it is interacting with, and if they have the right to incorporate the potential user data as part of their marketing activities. Social platforms are key to how users interact with businesses, be it via Facebook, Twitter, Whatsapp or LinkedIn. The reach from these platforms is significant, especially considering that external user data may become personal internal data in marketing campaigns, without consent. Which begs the question – is this data being tracked?

Internal social data may be equally difficult to track and contain. Thus not only pertains to the geographical locations of where users are located and what data protection rules apply to them, but also conversations that may continue across multiple platforms in individual and group discussions. The ability to transfer documents, possibly full of personal information (such as payroll) across the globe and therefore bypassing regulated systems is not unusual, as employees absentmindedly circumvent compliance for the sake of speed and efficiency, rather than malice. This information is then lost in “dark” data silos, which may never be uncovered and rectified until an event such as a data breach occurs. Taking this a step further, it becomes more difficult to comply with Subject Access Requests, considering the ability users have in being able to create and modify their collaborative platforms such as SharePoint. With the ability for users to create social, project and team sites through self-service portals, some corporates face the issue of not knowing what has been created and why; as well as the issue around the ownership of the data. This problem of ownership can be, in most cases, incredibly complex. Add to the mix the movement and aging of data, as well as employees who have the knowledge of the data ownership leaving the business, it means that the significant amounts of data being created present significant challenges for IT and compliance. Employee personal data can also not be ignored, as employees have digital fingerprints in every system and data repository. An example is easily recognised with candidates emailing CVs for roles in a company. The CVs, whilst in HR, may be secured in the appropriate


system but, as the candidate begins the interview process, their CV is shared with interviewers and managers, shared, backed-up, printed and even collaborated on during a short timeframe. However, most companies usually don’t have stringent policies or processes of how to get the data back out of the system, and all the locations it is been stored in. This presents a challenge considering the GDPR articles for the “rights of the data subject” and “data protection by design and default”. So, what’s the real danger companies are facing? Personal information is captured in every form of technology we use. From emails containing our signatures, email addresses and originating IP; marketing campaigns capturing our preferences; commerce websites capturing cookies; to social platforms capturing our relationships with colleagues, friends and family. Information, in disparate pieces, may present a minimal threat to us as consumers, but when compounded with other data it becomes a

real problem. Failing to take the necessary steps to comply with the GDPR “data protection by design and default” may result in the maximum fine of €20 million or 4% of the undertakings annual turnover, whichever is greater. The biggest firms are being brought to their knees by cyber hacks – no company should be so flippant as to think they’re not at risk.

Whilst some corporates see GDPR as the cost of doing business with Europe, for most it is an opportunity to redefine processes, with the longterm goal of giving them a chance to perform a clean sweep of all their old disparate data. The true savings of removing unnecessary data and its associated risk can be measured by the data growth rate, especially if the data is categorised for retention or deletion Relevant data will be found faster for business use, and with well-defined workflows to handle personally identifiable information, if data is lost or stolen then the risk is lessened with the appropriate security and encryption. The popularity of “Big Data Analytics” has helped revolutionise the marketing of products and services to consumers. But these “data lakes” easily become “data swamps”, full of obsolete and incorrect data. GDPR can be seen as a way to manage and control the flow of data to these repositories, so that only the correct information is held and accounted for.


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For now, the most immediate challenge is to work out what personal data is held, where is it stored and how it is used. The question therefore becomes: can the IT landscape evolve to provide security and privacy by design, allowing for the recognition and deletion of personal data whilst being economical and agile enough

for operational needs? IT will need to consider the systems and services they will spend money on in the future, and if they can prove to be GDPR compliant. Businesses need to tread a carefully defined path to meet their commitment to customers, shareholders, and compliance, as

whilst taking a risk may make a quick buck, the long-term consequences are severe. The data-sphere is a vast and tangled web that needs unpicking thread by thread. My advice to finance businesses? Unpick it carefully, stringently and start now, before it’s too late. 1 IDC, 2017

2 3 Dr Donald Macfarlane, EMEA VP of Hanzo Archives 4 World’s Biggest Data Breaches (greater than 30,000 records lost)–

James Donnelly Senior Director Alvarez & Marsal

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Capitalising on Digital Transformation

Client data the key to offering a new breed of contextual banking services

In the age of digitalisation, Herber de Ruijter, Head of Digital for Transaction Banking at iGTB, argues that banks can stay ahead of the curve – using client transaction data to bring about new, automated, “contextual” services. With a focus on client convenience, these could enrich client relationships, open new revenue streams, and future proof bank business models

Open banking on the horizon With regulations such as PSD2 in Europe requiring banks to offer third-party providers access to their clients’ account information and payment services through APIs by early 2018, the banking landscape is set for a seismic shift. For banks, determining how they will retain and grow market share in the new API economy is paramount.

With tech-savvy clients, ever-increasing regulatory pressures and innovative market entrants – it isn’t news that digital transformation is an imperative for transaction banks. Yet, despite the need for action, fixed mindsets and tight budgets mean that many banks are adopting defensive stances, wary of taking undue risks. By doing so they could be missing out on a huge opportunity, and may even get left behind as a new era of banking dawns.

Aside from compliance, there is a huge opportunity for banks to embrace the possibilities of open banking and pursue strategies aimed at carving out a leading role in the future. APIs can provide banks with enriched client data on know your customer information, payment profiles, transaction history, and so on – all of which can be used to enhance product offerings, improve efficiency and develop new services.

To take full advantage and maintain – or increase – market share, banks must leverage client data to adopt truly client-centric business models, develop “contextual” products and services that understand the full business situation behind transactions, and deliver convenient, intuitive user experiences.

A proactive approach to open API business models can enable banks to move beyond being “white-label” service providers, and evolve into trusted advisors to clients, within new clientcentric banking models.

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The shift to real time There are further opportunities at hand, particularly as the move to real-time, “instant” banking matures in tandem with the growth of APIs. For example, open APIs transmitting real-time data among financial institutions could enable corporate banks to connect trade finance, cash management and supplier acquisition with a much wider range of services from partners such as e-invoicing companies, inspection companies and tax authorities, in a far more integrated and seamless way than is currently possible. Transaction banks also have an opportunity to leverage innovative payment solutions to drive value for their corporate customers. With liquidity events happening in real-time, rather than on a daily basis, corporates will need to react immediately to intra-day developments, and this is an area where banks can offer new tools. In-the-moment invoice factoring, instant overdrafts, automatic FX hedging, and dynamic account limits are just some possibilities. Ultimately, real time will change banks’ relationship with their corporate clients, potentially placing them at the heart of their clients’ supply chains.


Design the best products, with the best client experience New products and services, however, must strive to keep the end user in mind – ensuring simplicity and intuitive design wherever possible. Self-service products are currently a leading use case, but unwieldy interfaces have often limited adoption and imposed costs on banks. Banks who will succeed in this space will base their strategies around customer value, and their tactics around customer adoption. Optimisations in the “last mile” between corporates and banks, ensuring straight-through processing and enhancing user experience, are all leading to higher adoption of digital channels for self-service and lowering the costs of servicing clients. These factors will surely play a similar role in driving adoption across the range of APIenabled services. A number of leading banks have already picked up on this design trend. In July last year, France’s second largest bank, Groupe BPCE, acquired the innovative German fintech, Fidor, which provides a unique online user experience. Spanish bank BBVA has also made a string of acquisitions in recent years, including online user-

experience start-up Simple, Finnish onlineonly SME bank Holvi, and Mexican B2B payments platform Openpay, in a move to position themselves as leaders in digital, customer-centric banking. Indeed, Shamir Karkal, CFO and co-founder of Simple, is now leading BBVA’s open API platform – another indicator of how banks are beginning to embrace new technologies. As digitalisation becomes the norm, banks must also ensure that their clients aren’t alienated from the relationship-based aspect of banking, and maintain a regular, constructive dialogue with clients. New, API-enabled, real-time services must incorporate clients’ operating models, business contexts and priorities to ensure that recommendations, advisory services and cross-selling opportunities are relevant and in line with wider corporate objectives. Harnessing enriched client data, using this to offer clients new and improved products and services in line with their needs, and ensuring seamless user experiences will place banks in the driving seat as the digitalisation of corporate banking continues.

However, many corporate customers deliver little revenue and profit to the sales desk, so the trend has been to replace that relationship with a screen. In the future, we predict that human salespeople will only serve the biggest clients, and/or their high margin structured product needs. Banks will send lower profit customers to callcentre or SDP exile.

Herber de Ruijter Head of Digital for Transaction Banking iGTB

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BC Moldova Agroindbank SA puts up for sale newly-issued first-class ordinary nominative shares

Pursuant to: • Decision No. 157 of the Executive Board of the National Bank of Moldova dated 23.12.2015 and Decision No. 43 dated 02.03.2016; • Art. 156 paragraph (3) of the Law on Financial Institutions No. 550-XIII dated 21.07.1995; • Decision No. 15/2 of the National Commission for Financial Market dated 07.04.2016 “On stages, terms, ways and procedures of cancelling shares and issuing new shares of BC Moldova Agroindbank SA”, as amended by Decision No. 25/3 dated 20.06.2017 „On amendments and supplements to Decision No. 15/2 of the National Commission for Financial Market dated 07.04.2016”, particularly regarding the period of selling the newly issued shares by the issuer, which was set for a period of 15 months from the moment the newly issued shares are put up for sale; • Decision No. 341 of the Management Board of the bank dated 16.08.2017: BC Moldova Agroindbank SA announces the decision to further display for sale through the regulated market of the Moldovan Stock Exchange: 1. A single block of 36,605 (thirty six thousand six hundred and five) newly-issued first-class ordinary nominative shares, at the initial price of MDL 1064.02 per share. The tender period is from 12 December 2017 to 26 December 2017. 2. A single block of 389,760 (three hundred eighty nine thousand seven hundred sixty) newly-issued first-class ordinary nominative shares, at the initial price of MDL 1054.71. The tender period is from 12 December 2017 to 26 December 2017. Pursuant to point 15 of the Law on Financial Institutions No. 550-XIII dated 21.07.1995 and point 5.2 of Decision No. 15/2 of the National Commission for Financial Market dated 07.04.2016 on stages, terms, ways and procedures of cancelling shares and issuing new shares of BC Moldova Agroindbank SA, the newly-issued shares can be purchased only by persons having the prior written permission of the National Bank of Moldova.


and Rewards: Risks The impact of Brexit on global trade The result of last year’s UK EU referendum sent shockwaves throughout Europe. The value of the pound plummeted overnight and predictions of economic decline were rife. However, in the months that followed, economic performance remained relatively stable, but, as the clock continues to tick, and ‘divorce’ proceedings get underway it seems that neither side of the negotiating parties is closer to understanding what the split will truly entail or what its impact will be. Of course, in the meantime we cannot – and should not – stand still and we have seen a marked resilience amongst British firms who have had little option but to adopt a ‘business as usual’ mentality. Now, as the countdown to Brexit continues, cracks are beginning to materialise and in the commercial world preparation is becoming increasingly important in weathering the storm from any potential fallout. Positively, the question mark raised over future trade deals with the EU is helping the UK to realise new opportunities. Thanks to its close proximity and trade links, Europe has traditionally been an attractive trade destination for UK businesses and certainly often chosen as a first step into the export market. However, international trade should not be limited by geography and horizons of UK firms have been widened;

now seeking new trade partners and opportunities across the globe. With export long hailed as the foundation of growth, this is a major boost to UK businesses. In addition, the devaluation of the pound brought further reward to UK exporters who quickly became perceived as more affordable for overseas customers. With the ‘Made in Britain’ label holding a strong international appeal, this is a combination which has paid dividends to businesses who have capitalised on the changing climate to increase orders, attract more customers and branch out into new markets with a financially competitive edge.   On the other side of the coin is the impact the pound’s devaluation on importers. The pound’s sudden decline immediately pushed up the cost of imported goods which, coupled with the recovery in oil prices in the last year, has served to drive up prices. This is especially bad news for some manufacturers, such as the automobile sector which uses significant levels of imported components and also for the construction sector which relies on imported materials. However, with price rises a widespread industry issue, there has been a degree of acceptance within the market and once the major companies increased their prices, others quickly followed suit. Promisingly, this acceptance is

accompanied by a degree of resilience and also innovation, limiting the impact and even presenting an opportunity to push for growth. New strategies have been implemented to protect business such as a stringent monitoring of supplies so that stock does not build up, risking being hit by future currency fluctuations. And once the stock is available, firms know there is potentially a short window to make monetary gains and are acting faster and smarter. Savvy firms are making a concerted effort to leverage opportunities, to win new clients and to make more sales and increase profits. While we’ve seen hard work pay off, it’s important to note that success has gone hand in hand with caution. Businesses are increasingly being proactive in taking steps to protect themselves and limit their risk exposure wherever possible. New opportunities may well be being seized but only once the potential outcomes are given full and timely consideration. This changing mentality to global trade is both applaudable and entirely necessary; it is in fact an advantage that businesses are becoming progressively risk averse, putting in place greater protection from the inherent risks of global trade alongside any potential Brexit fallout.  

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The biggest risk from the uncertainty that Brexit brings is one which is all too familiar to businesses; the risk of non-payment, whether through broken trade deals, currency fluctuations, political ramifications, economic decline or customer insolvency. In the UK, insolvencies have been increasing since Q3 2016 with Atradius economists predicting a 6% rise in insolvencies this year and 8% next year. A decline in confidence and the subsequent increasing uncertainty in the economy has a knockon impact on the trading landscape. However, keeping trade links open is key to stimulating the economy and vital for future success. Whether the sales territory is new or familiar, there are always risks; Brexit, with all that it entails, is simply another risk to manage. Businesses need to remain alert to the range of risks that might affect successful trade and ensure that they are adequately protected in order to futureproof themselves against any prospective loss. With the right strategies, risk savvy businesses can adapt and continue to thrive and not let the changing trade environment inhibit their ambitions for growth.   Alongside all of this, an in-depth knowledge of your customer and the wider market is crucial. When it comes to accessing

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information, trade credit insurers are a valuable resource; with expertise in markets around the world and business intelligence on millions of companies, your credit insurance partner can connect you to the information you need. Trade credit insurance not only protects businesses from non-payment but also helps exporters gain that all important competitive edge, while also reducing red tape and the risks associated with trading overseas. In particular, with the security to trade on open account, an insured business has the agility and flexibility to better compete in the market. We’re already more than 14 months into Brexit with another long-term stretch of negotiations ahead. However, as the landscape changes, the need to manage risk becomes increasingly critical and the role of trade credit insurers is key. ‘Business as usual’ may seem to underplay the concerns of those facing trading challenges, but supporting customers to manage risk and enable trade is what we already do every day, so whatever the post Brexit world looks like, trade credit insurers will be continuing to deliver solutions. And in the meantime, business is certainly not going to stand still and wait for Brexit to bite and so business as usual is very much the focus.   

Looking forward, nobody can predict with complete accuracy exactly what the trading landscape will look like in the post Brexit era. But whatever changes the future brings, if you’re armed with information and well prepared, you can mitigate against the risks and reap the rewards of new and successful trade relationships.

Stuart Ramsden Head of Commercial Atradius UK and Ireland


The Future of Blockchain in Banking Blockchain has useful applications in various industries, with banks proving increasingly interested in this technology. So far, the only generalised example of this has been bitcoin and although the famous crypto-currency has been an undeniable success, blockchain is not a magic wand that will solve every bank’s problems. They shouldn’t expect it to revolutionise the whole industry overnight. While some stakeholders seem to have unrealistically high expectations, future developments will take time.

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Bitcoin: Significant Interest Bitcoin is one of the first examples of blockchain technology banks have shown interest in. Admittedly, this virtual currency remains somewhat mistrusted due to perceptions of this as a tax evasion tool. Despite this, more and more clients are asking their private bankers about the crypto-currency. Some clients have large bitcoin assets and wish to consolidate these with their regular portfolios. This pressure will push banks to adopt platforms enabling clients to visualise those assets directly while allowing customers with bitcoin assets to rely on

their trusted banks instead of specialised bitcoin players who may not be firmly established. Know Your Customer: A Major Issue Know Your Customer (KYC), the regulatory process used to verify clients’ profiles, is also set to have a huge impact on the industry. This regulation makes attracting new customers increasingly demanding and complex for the bank, but also for customers, who have to complete seemingly endless forms.


In the future, it’s possible some KYC information will be factored and pooled between banks. "Regtech" start-ups are already offering products of this kind and customers have already shown interest in such solutions. Blockchain shares and distributes information and encryption in ways that make it a particularly powerful solution for KYC obligations. Blockchain can be deployed on private networks, so cryptography can be implemented to shield sensitive information. It’s impossible to set up a distributed KYC service without sharing some sensitive information. However, there is a potentially viable business model for scenarios when a customer completes a KYC process with Bank A before deciding to do business with Bank B. In this case, the customer could use a certificate from Bank A to prove to Bank B he has already completed a KYC process. Bank B would probably pay a fee to Bank A, but this would be small

compared to the cost reduction.. In this model, the first bank would be informed its client has started a relationship with another provider. At a time where multi-banking is common, at least in the private banking world, this would not be an issue.

authorised market makers. Payment is completed in minutes and doesn’t depend on message exchange. As the internal currency is not a true digital currency, each bank still needs money to guarantee the transactions. Despite this small drawback, this solution is really promising.

Payments Revolution

Payments in Europe will be disrupted by the PSD/2 directive. Among other things this will enable clients to manage all the accounts they hold with different banks using a single interface. This revolution on the front-office side will massively impact the banking landscape. It could be accompanied by a similar revolution in the back-office. Blockchain technology would introduce payment systems that work using transactions instead of messages, making a clearing mechanism unnecessary.

Blockchain is also a tool that can ease cross-border payments. For example, Ripple has set up a blockchain network connecting banks. The typical use case is a cross-border transaction between two SMEs. The standard correspondent banking scheme is quite inefficient; it takes five days to transfer the money, while transaction fees soon add up. With the standard scheme there is also a risk the intermediary bank will default, leaving transactions unmatched. Blockchain offers a more efficient solution. In the case of Ripple, an internal currency has been created that is quoted by

Beyond Payments Blockchain technology will also be used to set up "smart contracts" which execute automatically according to predetermined criteria.

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In this instance, the advantages of blockchain can monitor the life cycle of financial products more complex than simple payments, including options and other derivative instruments. Due to their derivative nature, these products, whether they are OTC or listed, require both counterparties to monitor market conditions and track when barriers are hit. Cash flows are generated when certain market conditions are reached. Tracking several hundred or thousands of products consumes significant resources and requires substantial reconciliation work. It would be more effective to automate the process using smart contracts to schedule these cash flows. Also, this solution combines the flexibility of the OTC world with the transparency demanded by regulators. Speed of Adoption The speed at which blockchain technology is adopted will be determined by differences in the structure of the banking market from country to country. Progress will be faster in smaller or non-existent ecosystems. If we look at geography, a country like Australia,

could adopt blockchain technologies faster than others as there are only four banks. The same could be said of Switzerland, where integration is already quite strong thanks to the SIXi centralised payment system. However, the presence of such an effective centralised tool will make it more difficult to migrate to an alternative.

Despite the lack of standardisation of blockchain solutions, this technology is here to stay; it allows all assets to be truly digitised.

However, while the securities chain will benefit from this technology, adoption could take between 10 to 15 years due to the lack of ambition to transform the industry. The more attractive the use case in terms of potential cost reduction, the higher adoption reluctance is likely to be. This is because there will be more intermediaries, all with something to lose. In the coming months, we can expect to see the first blockchain initiatives reach production stage. These potentially competing initiatives will pose integration problems to the industry. That said, these challenges will not necessarily be more difficult than those we face already in securities, for example.

Philippe Meyer Managing Director Avaloq Innovation

1 A company owned by 130 Swiss banks that offers central services: securities transactions, financial information processing and cashless payment transactions.

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in Financial Services is the Future of International

Remittances Mobile payments have revolutionized emerging markets; allowing mobile phone users easy access to bank accounts and facilities associated with banking. They also have a direct impact on the economy of a country and can lead to an increase in GDP when transactions became painless, efficient and cashless. Ultimately, this encourages entrepreneurship and helps businesses grow quickly. However, when it comes to interoperability, mobile payments still have a long way to go. Take for instance, mobile money networks. Currently, they cannot ‘talk’ to one another and customers on one network cannot pay people using another network.

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Interoperability in mobile networks already exists. This allows a user to send text messages and make calls to friends on other service provider/network without worrying about the network they belong to. The originating network even pays the terminating network a service fee to “accept” the call. This is exactly how mobile payments should work. In this regard, from the customer’s perspective, mobile payments become as seamless as SMS or call. To achieve this, interoperability in financial services comes in; the ability to send money across disparate networks (for a small fee of course) and ensuring the least number of interchanges / handshakes in between.

Now, interoperability in itself is a challenging task and collaboration is the key to its achievement. Not only do we need multiple stakeholders to coordinate with each other but we require legal frameworks, business models, enterprising solutions and policies at par with international standards for it to ever function as a whole. Interoperability brings tremendous benefits to the table. It creates a network effect which helps in the growth of the user base which in turn helps boost the economy. Once digital money becomes easy to remit, users automatically flock towards that network. And if all banks and all mobile networks are interconnected, account


to account transactions (A2A) will no doubt become affordable and effortless. Interoperability in mobile money ecosystem can bring about cost efficiencies and allow for a better risk management. Now let’s think on an even larger scale.

“ avenue of digital cash has no limit. ” If everyone chose mobile money over cash to transact within the country, the government itself would benefit as they will not have to manage cash so much. Interoperability would have lowered the cash management cost.

Interoperable payment solutions benefit individuals as well. Here is an example. John prefers to shop online for stuff because it means saving the hassle of going to a mall, but some vendors prefer PayPal only and so the options suddenly become limited, as John prefers to use his card. Looking at this from the lens of mobile payments, he happens to be an account holder in only one of the three mobile payment networks in his country. If he shops at a local store online that supports only one mobile payment network that isn’t his, he’s stuck! It makes no sense that a single vendor should support and maintain accounts

with three different mobile payment networks (in this digital age no less) only to accommodate everyone on different networks to pay online. That is as bad as thinking that a person should hold Gmail, Hotmail and Yahoo email accounts to send an email to each email client. When interoperability in mobile payments comes into effect, it guarantees an increase in sales because this avenue of digital cash has no limit. Also, let’s not forget how much the network would earn on the interchange fee and save on sending. In fact, that is a two-fold benefit while the added third benefit is a given when the receiving network gets funded with money.

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EMEA FINANCE Now of course, taking a step back again, we need the governments to understand how their approach is affecting the market and the regulatory bodies are struggling to tackle the right balance between the key market players and the customer’s interest. As mentioned before, interoperability is a challenging feat and collaboration is the only key. We know that customers use network operators to transact, so why not create a robust, interoperable system that can accelerate financial inclusion and benefit all the participants in the mobile money network? Let’s take a moment and identify these participants – Providers would be the financial institutions such as the banks, processors and network service provides. Beneficiaries would be the customers, dealers, governments and anyone else who deems it easy to accept and make digital payments. These market players will not be able to gain the kind of benefit interoperable ecosystem offers if we continue with the closed-loop system we have running currently. Interoperability in International Mobile Money Remittances International remittances through mobile payment systems face bigger challenges when it comes to interoperability. Here, there is a need for Anti Money Laundering (AML) compliance and the need to establish a Remittance Service Provider (RSP) to handle cross border payments and complying with relevant regulatory requirements.

East Africa is currently the leader in international remittances through mobile payments. While the service is limited to only eight out of twenty countries, it allows international remittances straight to mobile money accounts when using money transfer services. Other regions where international remittances through mobile money are making headway are South Asia and Asia Pacific.

Here is a parting thought… Imagine the size & scope of the untapped potential on offer if there was interoperability between mobile money networks within each country.

What is more interesting is that among the countries where there is high penetration of Mobile money, there are very few countries where money can be transferred between different mobile money services within a country.

Ambar Sur Founder and CEO TerraPay About the Author: Ambar Sur is the Founder and CEO of TerraPay. TerraPay is a B2B company incubated by Mahindra Comviva, a global leader in delivering mobile financial solutions and is part of the USD 19 billion Mahindra Group. Ambar combines his deep knowledge of technology with an appreciation of market and business drivers – skills that have enabled him to lead teams that develop winning propositions, delivered in a customerfocused manner. With a strong strategic vision and a keen focus on processes, people, and fault-free product delivery, Ambar has been able to win customer loyalty with leading operators, globally. He has handled various roles within Mahindra Comviva, including Chief Marketing Officer, DirectorEMEA and Vice President – Airtel market unit. Ambar began his 19 year career in Washington DC as a project manager with LCC, a pioneer in wireless voice and data services for the telecom industry, where he set up various networks around the world. Having gained experience of the wireless world, Ambar moved to India to work with BPL Mobile, where he oversaw Network Performance & RF Planning for the company. He later moved to BPL Innovision to establish OyeIndia, the group’s web technology company. In 2001, Ambar co-founded CellCloud Technologies, where he was a key driver of business growth, building sales of the company’s innovative prepaid solution in India, and helping ensure the company became profitable within a short period. CellCloud merged with Mahindra Comviva in 2002. Ambar has a BS in Electrical Engineering from Virginia Tech in the USA and an MS in Telecom from Brooklyn Polytechnic, USA.

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Five Points to Consider Regarding the Regulation of Cryptocurrency Despite the rapid ascent of the world’s leading cryptocurrency—such that $4,000 will buy 1 Bitcoin, and there are $66billion worth of Bitcoins in circulation—there remains no regulatory legislation in place in Britain. Herein, we investigate the complexities of constructing an adequate regulatory framework for cryptocurrency, in five stages. One: The UK’s Lack of Cryptocurrency Regulation The first, is simply to acknowledge the increasing void left by the UK’s lack of cryptocurrency regulation. Last year, HMRC issued guidance in the form of a letter concerning VAT, stating that Bitcoin—the revolutionary cryptocurrency set to re-sculpt the global financial landscape—was to be treated as a singlepurpose face-value voucher. This meant that anyone selling Bitcoin, or operating an exchange, would have to charge VAT on the value of the Bitcoin being sold.

HMRC quickly and quietly withdrew this guidance, and is currently re-examining how and when VAT should be applied. Further, the Financial Conduct Authority (FCA) has confirmed not only that it does not regulate digital currencies, but that it has no intention of doing so in the future. This means that Bitcoin businesses do not have to register with or be authorised by the FCA. When it comes to Anti-Money Laundering (AML) legislation, there is currently no formal obligation to prevent money laundering through Bitcoin dealings despite the imminent EU legislation. Two: The Nature of Bitcoin The second point, regards the strange and speculative nature of crypotocurrency, present from its founding, which makes regulation so problematic. Bitcoin’s emergence, involves an anonymous inventor, calling themselves Satoshi Nakamoto, complex mathematics, and billions of pounds of ‘electric cash’ circulating in a subterranean international financial system.

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Nakamoto summarised the original vision for cryptocurrency in a 2009 abstract “Bitcoin: A Peer-to-Peer Electronic Cash System”, which states ‘a purely peer-topeer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.’ Inherently removed from the regulatory jurisdiction of financial institutions, cryptocurrency is distributed via blockchains, which use distributed ledger technology (DLT) to scatter information across multiple participants that is unamendable without universal consent. The method requires sophisticated technology and engineers a potentially transparent and virtually unhackable environment. Three: The Problem of Compliance The third point, issuing from the concept of ‘electric cash’ and DLT underlying cryptocurrency, regards the problem of enforcing compliance. The immense digital security of cryptocurrency—provided through hashes: an algorithm-created sequence of letters and numbers, which are stored along with the block and date-stamped at the end of the blockchain—is counteracted from a regulators perspective by the immensely problematic cloak of anonymity. Although all Bitcoin transactions are recorded on a universally-visible shared ledger, they are difficult to track because of when Bitcoins are placed in customers’ digital wallets. With no way of identifying an individual Bitcoin unit (or sub unit), trailing bitcoins and successfully pursuing the owner of a particular wallet can be near impossible.

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Consequently, cryptocurrency is the money of choice for international crime rings; ranging from money laundering and drug trafficking, to tax evasion and terrorism. Most recently, the Russian national Alexander Vinnik, 38, was arrested in Greece and charged (27 July 2017) by a US grand jury over the alleged money laundering of $4billion over several years. Such high-profile criminal activity has in turn spurred several countries to declare Bitcoin exchanges to be subject to AML laws. Four: International Regulatory Responses The fourth point regards the necessity for regulatory frameworks to include Bitcoin and other cryptocurrencies becoming increasingly apparent in foreign countries. For example, China and Japan have announced their intention to regulate local bitcoin exchanges, followed more recently by Australia. In the US, various government agencies have been tasked to ensure that Bitcoin transactions are undertaken within the law. However, last year, a Florida court ruled that Bitcoin should not be classified as money. Similarly, the EU has promised to tighten digital currency law, including Bitcoin, by the end of this year, but specifics are yet to emerge. Meanwhile, Gibraltar is quickly establishing itself as one of the first jurisdictions to propose the introduction of a regulatory framework (currently expected in January 2018) that would encompass firms operating with distributed ledger technology (DLT). Its main aims are to:

Provide regulatory confidence for DLT firms based in Gibraltar; Provide sufficient flexibility to enable the effective regulation of novel business activities, products, processes, and business models; Enhance consumer confidence in dealing with properly regulated firms using novel technology; and Encourage DLT firms to be established in Gibraltar because there is an appropriate regime for regulating their activities As a jurisdiction open to new technology, but with a solid reputation as a progressive and safe financial center, Gibraltar is uniquely placed to secure the benefits of DLT firms operating Bitcoin and other cryptocurrencies while providing essential protections to those seeking to invest in this fast-developing sector of financial technology. Five: A Call for New Legislation Following this international response, the UK’s distinct absence of regulation or judgments defining the status of DLT is brought into sharper focus. As cryptocurrencies like Bitcoin continue to increase in value and legitimacy, Britain’s head-in-the-sand approach surely cannot be maintained. Perhaps it will take a string of high-profile litigation cases, like that following the $450m collapse of Mt. Gox in 2014, a leading bitcoin exchange. It is, however, unwise to wait for catastrophe. Preparations should be being made, regardless of the still rapidly changing face of cryptocurrency.


Elliott Phillips Partner Signature Litigation Elliott Phillips is a Partner at Signature Litigation, specialising in global commercial litigation and international contentious trusts disputes, and leads the firm’s Gibraltar office.

Steven De Lara Senior Associate Signature Litigation Steven De Lara is a Senior Associate specialising in International Litigation, with a particular focus on private international law and cross border insolvency. Steven is regularly instructed on civil fraud and regulatory matters and is based in Signature’s Gibraltar office.

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When Money Meets Manufacturing: Designing the Payments of the Future

The Internet of Things (IoT) is not new. In fact, connected devices with a wide range of functionalities are already widely used in the home, a trend that shows no sign of abating. In fact, Gartner has predicted that there will be 20.8 billion connected ‘things’ by 2020, an increase from 6.4 billion in 2016.1 However, with increasing demand for such technologies comes a shift in consumer expectation. Today as consumer awareness of IoT builds, there is the growing expectation that it should play a role at every touch point of the customer journey. In turn, such demand has encouraged payments to become the perfect ‘finishing touch’ and provide a pivotal role in the evolution of IoT.

However, to ensure the IoT and IoP industries continue to flourish with the development of new innovations, it’s vital the industry maintains consumer trust and interest to ensure longevity. To do so, the IoT industry must address consumer demand with a focus on the overall customer experience. To maximise consumer buyin, global technology companies should consider how they can continue to integrate payment capabilities into the development of new IoT products in order to create the most seamless experience for the end user.

Consumers with connected fridges can expect to see food automatically restocked, and owners of electronic assistants, such as Alexa and Siri, will be able to purchase the latest items on their wish lists with a simple voice command. IoT and payment technology are also making significant strides in wearable items. For example, rings are being developed into ‘tokens’, meaning that they can replace sensitive payment account information, such as a 16-digit account number or payment card, to enable consumers to pay for goods with just a tap of the ring. As more IoT technology incorporates payment capability, it signals an exponential rise in the Internet of Payments (IoP) ecosystem.

Considering the current state of play in the market, Visa is leading the way with its Visa Ready Programme for IoT initiative,2 which integrates the Visa Token Service into wearable items and mobile wallets. As part of this, it is partnering with companies such as Accenture, FitPay and Samsung. Visa are also working with Honda to develop technology that can detect when a car’s petrol is low and enables users to pay for a refill using an app that is connected to the in-car display. This is yet another example of how Visa are continuing to immerse payments into every touch point. It is this level of integration that holds the key to marrying the world of IoT and payments, and will encourage widespread consumer adoption.

An expanding ecosystem

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Accessibility is king

Future gazing

Ultimately, it’s an exciting time for tech developers, retailers and manufacturers looking to maximise the surge in consumer adoption, but it’s important that the user experience is kept front of mind from the very beginning to ensure payment capability is not a bolted-on feature. Only then will these solutions be as seamless and fit-for-purpose as possible.

To make sure the future of the IoT and more specifically IoP, is a success, those manufacturing the technology need to work closely with third-party providers such as acquirers, issuers, merchants and processors to ensure that manufacturers can securely accept the deluge of new payment methods into their latest connected products. As long as functionality, user experience, security and alternative payment methods are considered from the very beginning of the design process, all parties involved will reap the rewards.

Accessibility is key and whilst connected appliances such as fridges, that automatically pay for depleted items, seem practical and useful in theory, in practice, developers and payment providers need to work together to also ensure that the payments’ ecosystem validates identity and addresses security risks. Trusting your fridge with your credit card seems a strange concept, but it is the role of those in financial services and payment providers to ensure that consumer data is protected, and a safe portal between merchant and consumer is created as a core part of the technology design.

Whilst it’s a market that is set for exponential growth over the coming years, it’s imperative that all stakeholders keep the end user front of mind. To do this it’s also vital that alternative payment methods are a key consideration throughout the development process to ensure that the technology is accessible on an international scale.

Considering 38 million transactions were carried out on a mobile device in 2016, (a 247 per cent increase on 2015),3 it’s clear that consumers are receptive to using payment methods that promise the fastest, most convenient ways to pay. But, such growth can only be harnessed if user experience is prioritised. It’s important to consider that not all consumers will want their fridge aligned with their personal account, especially if there isn’t a certain level of security to ensure that they are the only ones who can initiate the payment. To address this, and ensure that the technology has mass-appeal, manufacturers must consider alternate payment preferences around the world. For example, Germany is predicted to become the second highest spender on IoT technology by 2020, but its population’s preferred payment method is currently bank transfer. With that in mind, there needs to be some thought into how this technology can be altered to appeal to an international market. It is fundamental that payment preferences are considered at the very beginning of a product life cycle. However, to cater to international markets with differing payment preferences, payment service providers must be involved early in the design phases to ensure that the IoP ecosystem can continue to flourish worldwide.

Christian Von Hammel-Bonten CPO PPRO Group

1 Gartner Your Source for Technology Research and Insight. (n.d.). Retrieved September 29, 2017, from http://www.

2 “Visa Token Service.” Visa Developer Center, com/capabilities/vts. Accessed 29 Sept. 2017.

3 “IoT market size by country in Europe 2014 and 2020 |

Statistic.” Statista, internet-of-things-iot-market-size-in-europe-by-country/. Accessed 29 Sept. 2017.

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MIFID II; KEEP CALM, COMPLIANT AND IN THE CLOUD After seven years in the making, the Markets in Financial Instruments Directive II is here. By January of 2018, financial institutions must prove that they have acted honestly and in accordance with client wishes, which means recording and storing every interaction that leads to a trade. Put simply, regardless of the original intent of the call, if any conversation evolves into a trade, the entire interaction must be recorded and stored. All recorded conversations must be stored for five years with the captured files searchable to the extent any record can be sourced and analysed immediately upon request.

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Ensuring compliance with these regulations for every conversation, and across every channel, is no small feat. According to an estimate from EY Advisory, a typical medium-sized UK wealth manager is spending between ÂŁ3m to ÂŁ5m to get ready for MiFID II.1 As the January deadline looms and pressures and costs continue to rise, companies are scrambling to prepare for what will be a massive change. Out of the fog of requirements and regulations comes the cloud with an easier path to compliance.

EMEA FINANCE Feasibility MiFID II was created to ensure legal and ethical trading practices, but with that legislation comes the reality that more than 300,000 employees in the UK alone will fall under MiFID regulation. Companies will have to dedicate a substantial amount of time to govern communication on company-issued devices, as well as applications loaded to personal devices, which may ultimately lead to policies that prohibit the use of personal devices when conducting official business. The sheer breadth of channels and devices makes it extremely difficult for companies to capture every conversation, and the difficulty lies in the fact that the conversations to worry about are most likely not taking place over recorded channels. For MiFID to work, companies must perform due diligence to identify those employees who fall off the radar, and this is where analytics become critical. New analytics technologies have the power to track not only what and how something is said in recorded conversations, but the technology can also identify conversation gaps and what’s not recorded. For instance, if there are no recorded calls from an employee in two or three days, alerts can be sent to management so they can dig deeper. Perhaps the employee was on holiday, or maybe the employee had some not-so-upstanding reasons for switching to non-recorded lines. The Legacy Approach The outlook may sound bleak, but the finance sector does have available options to ensure compliance, even when calls might happen outside of recorded channels. The first option is to upgrade legacy solutions. However, this will require additional hardware installation, expert personnel, software licenses and the hardware itself, which can be a costly and ongoing proposition. The average lifespan of hardware is three to five years, and then the cycle starts again. In addition, given the sensitive nature of the industry, privacy and confidentiality

when recording calls is imperative, and legacy, on-premises solutions are no more secure than their cloud counterparts. Equally, legacy solutions are not equipped with smart searching, making it nearly impossible to locate specific call information. Putting Hope in the Cloud Legacy solutions can be cumbersome and, given the nature of compliance needs and fast-approaching deadlines, cloud providers have an enticing proposition for the industry. The cloud not only provides a scalable amount of storage and reduced cost of IT labour, it also provides a secure method for recording and storing confidential calls. Typical cloud deployments are faster than on-premises legacy solutions, and updates and upgrades are performed much faster, which gives institutions access to the newest technology to ensure utmost compliance. From a cost standpoint, the cloud is rooted in utility-based billing, which is often more economic than constantly upgrading both internal hardware and software. Not only that, when speech and text analytics are deployed via cloud solutions, search capabilities are available at anytime and anywhere, all over an intuitive user interface. In addition to searching abilities being much faster and more robust, users also no longer have to wait until they are onsite to search for and examine calls, which allows companies to take action faster if something suspicious arises. Up, Up and Away The cloud offers a flexible, scalable, and cost-effective solution for financial institutions looking to hedge against potential compliance issues when the new MiFID regulations take effect. Between phone, email, SMS, and in-person communication, the finance sector has enough to worry about before January. But, with the help of the cloud, they can focus on implementing the right internal processes to ensure that their customers are getting the best, most ethical service from every single employee.

Ralph Awad Director of Cloud Operations Calabrio About author to put under image Ralph Awad is the Director of Cloud Operations for Calabrio. He is responsible for taking Calabrio’s award-winning workforce optimization (WFO) suite into the cloud by standing up and delivering a global SaaS solution with worldclass compliance and security practices. Most recently, Ralph was the National Technology Director at RSM McGladrey. Prior, he held leadership positions at Digi International, Loffler, VISI and TDS, and was a business owner and contributor to STEM disciplines in the state of Minnesota. Ralph holds an Executive MBA from the University of Minnesota, Carlson School of Management and three Bachelors of Science Degrees in Mathematics, Chemistry and Religious Education.

Financial Times, Accessed 29 Sept. 2017.

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Handing power back to women How financial services can support female returners The financial services sector is in danger of losing key talent and is missing out on a huge resource. Perceived as male dominated and sporting a “dusk- ‘til-dawn” culture, banking and finance has historically been painted in an unfavourable light as far as women are concerned. Across the sector, females earn on average 18% less than their male counterparts, and this gap widens after childbirth.1 Research has shown that women encounter numerous problems during their transition from maternity leave back into the world of work, including issues with confidence, anxiety and post-natal depression2. In fact, the challenges women face when returning to any form of work, not just in financial services, cost the UK economy approximately £1.7billion a year3. While the value that women offer to financial services, particularly at management level, is widely acknowledged as being significant in terms of experience, efficiency and knowledge,4 the number of women advancing up the career ladder decreases rapidly at middle-management level5. Arguably there’s a correlation between the number of women leaving the sector to have children and the decrease in the number of women in middle-management

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positions and to help decrease this disparity, businesses should be supporting these mothers to return to the financial services sector and continue their careers from where they left off. Rise of “Returnships” One of the most significant schemes aimed at rectifying this disparity is “returnships”. A returnship is a designated programme and support system aimed at helping those returning to a higher-level, higher-paid position following a minimum of two years out of work.6 A well-developed “returnship” is key to developing an inclusive culture and can offer a lifeline to help women to return to work in the financial services sector. These programmes, support individuals to develop their skills, as well as boost their confidence and adapt to the evolved corporate landscape. Introducing “returnships” into a business sends a clear message to mothers that they are valued talent, as well as promoting the possibility of pursuing a financial services career while raising a family to the current female workforce.


Girl Power It’s important to remember that gender diversity not only benefits the individual, but also a company’s future growth. Businesses with ethnic and gender diversity have reported above average financial results, with a recent study indicating that businesses with at least one woman on the Board between 2006 and 2012 achieved an average equity return of 16% – four percent higher than those with no female board representation.7 In addition, equality provides access to a larger talent pool, better decision making by bringing together different perspectives, a better service to customers, and a stronger economy. In fact, research has found that increasing the number of women in work by just five per cent could generate an extra £750m in tax revenue.8 The financial services sector does recognise the need for diversity and gender equality, and improvements have been made. For example, the introduction of “returnships” can encourage financial service businesses to harness

talent and provide a more supportive environment. However, like with anything, these companies should not just rely on one programme to support women reentering the sector, but look at other means of creating an inclusive and supportive environment that suits the needs of both women and the business. At Brickendon, one way we’re supporting women is through pioneering a diverse working culture that’s embedded in our core values. We have seen that facilitating the achievement of personal goals within a flexible working culture, means that our staff not only deliver to the best of their capabilities, but are also engaged and committed members of the workforce. As a result, we are seeking to increase the number of women in all roles and at all levels of the organisation to help other financial services firms support women returning to work and make the most of all the available talent, we’ve provided our top tips.

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Mentoring schemes. Create a tailored mentoring programme or ‘buddy system’ system, pairing women in the workplace and allowing them to mentor each other. This way, female workers can provide guidance and advice to each other on a variety of issues, including how best to thrive in the financial services sector. Such a scheme not only provides support for returning mothers, but also helps raise awareness across the company, ultimately resulting in a more inclusive and accepting working environment. Leadership Academy. Develop a fasttrack programme for returning mothers, providing them with the skills needed to advance in their career and take on executive positions. Programmes could examine the current economic and corporate landscape, as well as provide booster sessions on industry advancements, such as technology. This can help to impart confidence in the worker, by demonstrating they are still as well qualified and suited to the job – even with their time away.

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Success for life workshops. Stimulate personal development through a series of workshops on a variety of topics affecting women in the workplace. For example, these sessions could examine building confidence, planning for the future, and managing workloads. By providing development sessions and coaching that isn’t purely focussed on the technical aspects of financial services, firms could strengthen their talent pool, as employees will feel supported and cared for. Open and flexible working culture. Promote and encourage a flexible working environment where employees feel looked after and valued. Flexible working has grown tremendously in the last couple of years as firms recognise the need to be more lenient in allowing their employees to either work from home or have more flexibility with their standard working hours. Companies offering flexibility can attract and retain the highest calibre of talent.

A career in financial services can be challenging, but it is also one of the most rewarding jobs out there, not only financially, but also in satisfaction of personal achievements. Women are a pivotal part in the development of our industry and we must constantly address the challenges that are stopping the financial services sector from achieving gender equality. A key focus for us at Brickendon is to help mothers transition back into work seamlessly and most importantly encourage them to want to return. 1 Institute for Fiscal Studies, August 2016 2 Association of Accounting Technicians, May 2013 3 BBC News Online, May 2017 4 The Daily Telegraph, January 2017 5 City AM, May 2016 6 BBC News Online, May 2017 7 4 Study conducted by Credit Suisse, as featured in:

Empowering productivity: Harnessing the Talents of Women in Financial Services, July 2016

8 The Daily Telegraph, January 2017


Chris Burke CEO Brickendon

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The Importance of a Data Health Check It seems we can’t go a week without hearing of another high-profile data breach, news that understandably incites panic among businesses big and small. From the NHS to WPP, the list of organisations to fall victim of a security breach is both long and diverse. But these organisations have one thing in common; they have all faced devastating repercussions as a result of a breach. With much discussion around cyber security, the UK government’s recent Cyber Governance Health Check Report1

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is truly shocking. It focuses on FTSE 350 companies and highlights an urgent need for action. As businesses increasingly turn to digital formats to store their information, hackers are simultaneously devising more sophisticated means of gaining access. As a consequence, the likelihood of a data breach is growing. However, the report found that only 54 per cent of board members view cyber security as a top risk facing their company, implying that many are putting themselves in a vulnerable position.

Why prepare? There are many reasons why it’s important to protect your business from the growing threat of a cyber attack. For the financial sector, recovering from a data breach can be particularly expensive. In addition to compensating customers, fines can be crippling. These figures are set to rise next year, when the EU General Data Protection Regulation (GDPR) comes into force.


The GDPR is widely accepted to be the biggest shake-up in data regulation of recent decades and replaces the Data Protection Act, which was introduced in 1998, before cyber security was such an issue. The regulation applies to any business in possession of European data, meaning it’s therefore likely to affect financial organisations operating around the world. With fines of up to €20 million or four per cent of annual turnover, businesses need to take this seriously.

A key focus of GDPR is data security. The rules clearly state that organisations should store information in a format that protects it against “unauthorised or unlawful processing and against accidental loss, destruction or damage”. If companies suspect their data has been illegally accessed, they will have 72 hours to report it and inform their customers. While the new laws should assure consumers, these preparations should also reduce the likelihood of a breach, making it more difficult for third parties to hack into personal records.

Aside from financial repercussions, the reputational damage associated with a data breach can be equally as difficult to recover from. Customers trust banks to store sensitive information in a responsible manner. If this trust is broken, financial organisations risk losing both new and existing customers. REaD Group recently commissioned research into consumer trust2, which asked people which sector they most trust with their personal data. The financial sector came out on top, with 44% of people saying they still trust banks with their information.

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How to protect your data A good start to ensuring your data is secure is by becoming GDPR compliant. Meeting its conditions will have an ancillary effect of showing up insecure systems. But, according to the government report, only six per cent of board members would describe themselves as prepared for GDPR, despite the regulation coming into force in less than ten months’ time, showing that urgent action is needed. Carrying out a ‘data health check’, will allow financial companies to understand what their information estate looks like. It is essential that they are clear on the information they have, how it was obtained, how it’s processed and where it’s stored. All data should be able to show a full audit trail. Even honest mistakes could be extremely costly once GDPR is implemented. The regulation clearly states that data controllers must have a lawful basis for processing personal data including consent and legitimate interest. Due to the nature of their work, financial organisations often need a vast amount of personal data to operate. Banks

need to communicate clearly with their customers to ensure they understand exactly what information is being shared. Hiding consent in the small print and confusing wording was a popular tactic in the past, but GDPR clearly indicates that this is no longer acceptable. Ultimately, the financial industry needs to prove to consumers that it can be trusted with large quantities of personal information. In doing so, it will also make it more difficult for this information to be illegally accessed. Unfortunately, there is no quick fix for cyber security issues but this should not discourage businesses from making the effort. The financial sector is an obvious target for hackers, with more personal data than many other sectors. The risk of financial and reputational damage is simply too significant not to take the issue seriously. The latest report from the government should act as a wakeup call; the financial sector needs to act swiftly before May 2017, when GDPR comes into force.

1 attachment_data/file/635605/tracker-report-2017_v6.pdf


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Jon Cano-Lopez Chief Executive REaD Group

Issue 9 | 63

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The Missed Small Business Banking Opportunity –

why banks must optimise digital capabilities, or risk losing customers There are an estimated 4.5 million SMEs in the UK – accounting for 99.9%1 of private sector business. By anyone’s standards, that’s a significant potential market. But, providing excellent service to SME customers is an opportunity too often overlooked by the major banks, who are seemingly unwilling to tailor their services to meet the specific needs of this group of hard-working, time-strapped individuals. By failing to make life easier for small business owners, banks are missing out on building relationships with the lucrative business banking market. Even for existing customers, adding a cross sell capability — to apply for additional credit, for example — would bring with it a significant upside for banks. Despite the diversity of the SME market, it’s simple enough to pull out some common trends - the most fundamental of which, is a simple lack of time. Therefore, the guiding principle for banks must be to make their services easily accessible, easy to understand and easy to navigate. Compare this with the current situation: cumbersome form filling, waiting in lines at physical branch locations with limited business hours, and long friction-filled processes for small business owners to get what they need from their bank.

Take opening hours. The average small business owner in the UK works a hefty 50 hours a week, significantly more than the national average of 37 hours.2 In comparison, UK banks are only open for an average of 46 hours a week, meaning that their hours typically do not correlate with those of many of their SME customers. It’s not unusual for banks to close up shop in the early afternoon, well before the end of a traditional working day, making things difficult for many SME owners. Access for SME customers is restricted further still by the fact that bank branches are continuing to disappear from UK highstreets, with 1000 branch closures between 2014 and 2016.3 The time could not be more right for banks to make their processes and applications more digitally accessible for the small business banking audience. Avoka’s 2017 State of Digital Sales in Banking Report found that small business products still show the most potential for improvement. In particular, small business accounts continue to lag behind in mobile banking developments. Only a quarter of business banking products can be opened digitally and small business account opening from mobiles lags behind those of personal banking accounts. Furthermore,

progress is slow. Currently, 9% of these loans and accounts can be opened from a mobile device, up from a similarly modest 7% in 2016. It’s not just the UK that lags behind on servicing SME customers. Avoka’s report found that the lack of attention to the small business banking opportunity was consistent worldwide. This seems madness when SMEs account for nearly half of UK and US revenue (48 per cent). One in five SMEs are exporters, and internationally active SMEs are three times more likely to introduce innovative products or services. It is clear that focus is needed to help SMEs access capital, scale up and boost productivity, especially considering the huge impact that SME growth has on the global economy. By failing to adapt digitally, banks are taking a huge gamble with their business banking customers. Lack of convenience for SME owners could see banks start to lose their most loyal or “sticky” customers to alternative providers who are recognising this opportunity. So how can banks ensure that their SME customers don’t jump ship? The answer, broadly, is a simple one: they need to start helping to make their lives easier. It is vital

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therefore that banks take an omni-channel digital approach to make sure that their business-owning customers have access to bank products on-the-go and at a time that suits them. There are some clear steps which banks can take in order to make their digital business banking work for the small business owner: •

Keep it simple – This is vital for busy business customers. Keep the number of questions on applications to a minimum and always start with the easiest questions in order to prevent application abandonment. Every time a busy client finds themselves forced to fill in banal and generic information, they edge ever closer to dropping out of the onboarding process. Make sure to minimise those moments. Support multiple devices and enable a save and resume functionality – SME owners often wear many hats from CEO, to accountant, to delivery driver. With so many plates spinning at once, it’s essential that banking processes fit in around other tasks. Offering the option of different devices affords small business owners the luxury

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of being able to complete tasks on the go at a time most convenient to them. Meanwhile, a save and resume functionality means that they don’t have to sit and do everything in one go, further decreasing abandonment rates. •

Use data to analyse customer onboarding processes – The digital world is constantly evolving. Analysing data gives banks an invaluable opportunity to continue to improve processes for customers.

Add a cross sell capability – Allowing SME customers to apply for additional credit, for example, would provide a significant upside and help to make customers feel valued.

Improving digital capabilities has the potential to be one of the quickest and easiest ways to boost acquisition rates, increase revenues and, most importantly, foster strong relationships with SME customers. Business banking customers represent a major opportunity for banks, one which they are continuing to jeopardize with low levels of digital capability.

Banks have an invaluable opportunity to be a trusted ally for their SME customers. But to do that, they need to assure them that they have the capabilities to make life easier for them so that small business owners can get on with what’s important to them – and that’s growing their business.

Derek Corcoran Chief Experience Officer Avoka 1 amazon-doug-gurr-sme-business-productivity-problemcommerce-a7829716.html

2 article-3727129/Long-hours-toll-small-business-ownershealth.html

3 Mapped-1-000-high-street-bank-branches-closed-just-twoyears-HSBC-cut-quarter-network.html

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Mr. Vish Govindasamy, Group Managing Director, Sunshine Holdings Plc

Maryam Al Shorafa, VP - Head Of Corporate Communication & Marketing, Ajman Bank

Mr. Muhammad Hanif, CEO, PT Mandiri Manajemen Investasi

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Mr. Joseph Chan, CEO, AsiaPay

Ms. Kristine Umali, Commercial Attache and Director, Embassy of the Philippines Ambassador Evan P. Garcia of the Republic of the Philippines in the United Kingdom Gilda E. Pico, President and CEO, Landbank of Philippines Ms. Catherine Rowena B. Villanueva, First Vice President, Corporate Affairs Dept, Landbank of Philippines Jocelyn Cabreza, Executive Vice President, Landbank of Philippines Phil Fothergill, Journalist and Video Producer (left to right)


Mr. Mel Carvil, Member of the Board of Directors, Home Credit B.V.

Mr. Matjaz Zadravec, CEO and Managing Partner Royal Vision Capital Limited

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Dr. Edem Bart Williams, CEO, Nordea Capital Limited

Yadi Supriyadi, Marketing, Salma Markets Companies Corp., Mai Ngoc Nguyen, Marketing CTO, Salma Markets Companies Corp., Marketing, Salma Markets Companies Corp.

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Oceania 74 Issue 9


Institutional Debt Trading with Eliseo Partners

Eliseo Partners is a proprietary trading and investment firm and regarded as a premiere firm providing lending & liquidity solutions to illiquid assets acting as principal in transactions. They arrange capital solutions for businesses facing special situations where traditional sources of debt and equity financing models are unavailable or too rigid. Their broad research expertise allows them to swiftly assess credit risk, identify hidden value and structure suitable financing across a wide spectrum of industries, geographies and company sizes. Global Banking & Finance Review spoke with Dr. Timo Strattner, CEO of Eliseo Partners to find about more about Eliseo Partners and the current trends effecting the credit market. How does Eliseo Partners assist businesses where traditional debt and equity financing are unavailable? Our team is looking at a fairly different opportunity set where deals tend to be smaller, more bespoke and opportunistic, and are often sourced directly. Before the financial crisis, the market was dominated by international investment banks. As they have de-levered post-crisis, they have reallocated capital to

their home markets, leaving a gap in the Asian market. At the same time, the local banks tend to favor large-scale relationships and “check the box” lending, so they are not well positioned to provide flexible capital solutions to mid-market companies. As a result, there are some compelling opportunities for institutional investors to step in. What types of debt investments are included in your portfolio? We invest and trade in various forms of debt investments, including secured and unsecured debt, loan investments, and/or equity in private middle-market companies. We may also invest in the securities of public companies and in structured products and other investments such as collateralized loan obligations ("CLOs") and credit-linked notes ("CLNs"). Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt of private middle-market companies that, in the case of senior secured loans, generally are not broadly syndicated and whose aggregate tranche size is typically less than $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options.

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How are global trends effecting the credit market and opportunities are you seeing? The decrease in bank lending and the rise in private equity capital waiting to be deployed has been a natural trend coming out of the 2008 crisis. However, it took a long time for institutional traders to figure out how to lend in such a distressed climate. Often a distressed loan becomes growth capital, at least in our portfolio. The U.S has the most activity, which you would expect since capital markets have traditionally played a bigger more sophisticated role in corporate finance. Europe is catching up fast, though, and Asia is starting to open up as well but are far away from  what I would call a creating liquidity for an illiquid market.  While it may seem counterintuitive, there’s a reason why direct loans to smaller companies in the SME market may exhibit fewer defaults and stronger recovery rates and better returns than loans to larger companies. Since lenders are investing in illiquid assets that are meant to be held throughout a growth phase, they are able to dictate stronger covenants which tend to put lenders in a better position should companies hit hard times. This is not the case in broadly syndicated transactions, which potentially involve dozens of lenders with sometimes competing agendas.

What’s driving the rise of private credit, and how does it relate to the broader credit market? The rise of private credit, which has been growing even more dramatically in recent years, is another reflection of the new realities of the current private credit landscape. However, with private credit there is an additional driver: bank deleveraging in response to new regulations such as Basel III, Dodd-Frank and the Volcker rule. We have seen banks selling distressed assets to institutional funds for opportunistic terms. With banks providing limited capital to middle market companies, infrastructure and real estate projects it became possible for institutional investors to participate in these sectors in a more meaningful way and take advantage of the associated illiquidity premium.

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The challenge, however, is that you need specialist capabilities to access this higher return potential. First, you need to be able to source the right deals – which is not a given – and then you need to structure and manage those deals effectively. We have gained a good reputation and have been approached by well known brands as well as small cap Companies run by celebrity CEOs on a new mission. Where are we in the credit cycle, and what should investors expect from private credit as the cycle turns? We’ve been in a bull market for credit for some time now and we believe that the cycle probably has further room to run. In fact, from my professional view point the SME market is going to develop a lot more opportunistic retaining larger stakes in high growth companies with less cash investments. Investors are naturally concerned about when the cycle is going to turn to make a profit.  It’s important to understand not just where we are in the cycle, but also what the cycle looks like. What makes us stand out in the cycle is that we operate with our own money and don't carry any investors with us. Whilst this limits our funding ability somewhat it is expansively rewarding. The cycle from a high street bank looks different to Eliseo Partners. There are very different dynamics at play. The main difference is the separation what influences macro and micro lending drivers.  In the U.S., we think that we are at a fairly late stage of the credit cycle, but we are also seeing a positive supply-demand picture in middle market debt. If you are favouring a macro view, I.e analyse the cycle based on the large financial players these two factors lead us to believe that now is the time to focus on the senior secured part of the capital structure, where banks historically did a great deal of lending, but are now in retreat. They also point to the need to build a broadly diversified portfolio of loans to companies in sectors with positive tailwinds. This may include liquid small and mid-cap public companies.

What does it take to be successful in private credit? Experience and intellectual capital are key ingredients for success. We believe that having a team that can undertake in-depth analysis across the full spectrum of credit – from investment grade all the way down through distressed – can add valuable insights to the sourcing, structuring and ongoing monitoring processes. Finally, it comes down to having the right people to source and execute on the most compelling opportunities. As banks have retreated from private markets, we’ve also seen a great deal of talented individuals migrate from the banks, and we believe that attracting and retaining some of that talent is key to building an effective private credit team. What trends are you seeing in Middle Market debt? More private credit firms managed with narrow strategy on credit linked returns. Tailwinds from banks with adjusted ratio requirements to provide small loans whilst hedging against default through market liquidity. Definitely more funding for registered hedge funds in this space. My biggest trend I see is having access to premium assets for opportunistic lending terms.   How do you expect this asset class to perform this year and what do investors need to know? Depending on their capacity to fund less liquid assets and the makeup of their liabilities, investors may be able to allocate a portion of their portfolio to private credit, to try to capture some of the illiquidity and complexity premiums that are available there. We’ve seen an increasing number of institutions moving into private credit, and we think that this shift is still in its early stages. We believe that the asset class will experience continued strong growth in the years to come, perhaps stronger even than what we saw in high yield over the past decade.


Dr. Timo Strattner CEO Eliseo Partners

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– Why there is a growing need for the technology entrepreneur While blockchain remains an emerging technology, it has huge potential to radically change the financial services sector, and transform the way transactions are carried out. Currently, blockchain is heralded as enabling new technology entrants to challenge established financial institutions and the services they offer.   It often thrives in a decentralised marketplace without the restrictions and barriers of usage or entry that would have been present if it was centrally-owned and managed by an established financial institution.  So, from one perspective, established financial services businesses face a large line up of new start-ups taking aim at their customer base.   On the other hand, established businesses who embrace blockchain and/or cybercurrencies also have opportunities to drive innovation themselves in these areas and keep one step ahead of the ‘new kids on the block.’   Yet, taking advantage of the opportunities that present themselves here is not easy. Blockchain is highly complex. It is challenging for financial services organisations to source the skills they

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need just to understand it, let alone go beyond that and effectively harness it for their own advantage.     It requires an understanding of cybersecurity and cryptography for example. Core traditional development skills are constantly in demand – particularly in areas like object oriented programming. Sourcing these staff and then training them up in the new programming languages required to take advantage of blockchain can be a challenge in itself, but programmers with the basic foundation level of knowledge required are available and can be further trained up.   What businesses looking to take advantage of emerging technologies often do lack badly is what we call ‘the technology entrepreneur’. It is one thing understanding the technology itself, quite another appreciating how to make active use of it to drive business benefit.   This raises some interesting questions. In the case of blockchain what, for example are the technical solutions that this can enable? Moreover, how can blockchain be actively used to solve a real world commercial or business problem?  

To do that, established financial services companies need technical expertise, of course. They need to be able to draw on the skills of expert programmers. But, critically, they also need the technology entrepreneur: the person who can dream up and engineer a commercial solution. And that’s where financial services organisations often struggle today. It’s all well and good being able to code and programme, but these businesses also need to be able to focus on a commercial outcome, a real-world problem that they need to solve. There are very few people around who possess all this capability: that both understand blockchain and appreciate what it is for - and yet who also understand the commercial environment enough to use the tool to successfully solve a real-world problem.    This kind of technology entrepreneur is in short supply. The type of person who can educate the business about blockchain and lead a technical team to deploy a realworld pilot based on blockchain to solve a specific commercial problem is in short supply indeed.  


Blockchain is a smart technical enabler but if you don’t have a smart solution that you are trying to achieve, you are not going to get a positive commercial outcome. In fact, for all the commercial promise that blockchain offers, if it used in the wrong scenario, it can also be an expensive mistake. So, businesses need those people who can come in that understand that technology; can talk intelligently about it, and identify the correct problems it can solve. That’s key but that’s also where we see a role for third party technology providers with knowledge and understanding of how new technologies like blockchain can be best taken advantage of to challenge and disrupt the market in the right way.   Traditional financial services providers need to tap into the experience and expertise of their peer group, the key providers in the marketplace, and the industry who can help

them to navigate these new technologies successfully and a lot quicker with less cost, than if they try to do it alone. It’s important the financial services organisations keep up-to-date with the latest technological trends. They need to have the courage to experiment and embrace the entrepreneurial spirit but they also need to be open to tapping into the experience and expertise of others. That’s especially true when it comes to blockchain. This is an area that established players simply cannot afford to ignore but the technology entrepreneur remains in short supply and technology providers can be key in helping plug the gap.

Simon Raymer Chief Information Officer Fraedom

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Shining a Low-Code Light on Shadow IT A common misapprehension in the financial services sector is that its tight regulatory infrastructure prohibits Shadow IT activity. Shadow IT is any unofficial application development project that is commissioned, introduced or executed outside the IT department’s formal control or plan. However, in reality, there are numerous areas in this market where the practice frequently occurs and threatens the governance, compliance and risk management provided by the organisation’s official IT function. Why does Shadow IT creep in? Shadow IT happens for a reason. Many IT departments simply cannot cope with the demands from line of business managers for the applications they need. Typically, this is because IT departments are already under pressure delivering major mobile or web applications, integration projects, getting cloud-ready or driving other pressing digital transformation initiatives. In parallel, a significant percentage of their time is spent on the maintenance and support of enterprise apps. When it comes to developing new apps, Corporate IT usually has a 2-3yr roadmap which is constraining a sector that is starting to feel the heat from new entrants such as Lemonade in the financial planning services space, which is making many more established players sit up and

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consider their own ability to respond. Line of business managers need to be as agile as new entrants, which is challenging when they have legacy systems to maintain. Inevitably, demand for new and innovative applications accumulates and Shadow IT is often the response of line of business managers as a means of ‘getting the job done’. Line mangers, puzzled at the month or year long wait presented by IT to their demands, do what they believe is right for their own area of the business. In effect, they fill in the gaps for themselves. Typically, the skill level in Excel and other business tools is high, so business users are used to building solutions of their own. However, whilst this may meet their short-term requirements, the Shadow ‘rebels’ don’t always appreciate the considerable risks or complexity involved, or the Pandora’s box they may be opening. Proliferation of Data Silos Getting a single view of the truth is a major thrust in Financial IT. Just as IT pulls in the direction of integration in order to enable that single view, so Shadow IT can pull in the opposite direction, setting up new silos for their individual projects, using data which cannot be leveraged by the rest of the business.


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Martin Fincham CEO LANSA

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The Dangers

Who’s working in the shadows?

The dangers of such proliferation are very real. Unchecked, Shadow IT can pose myriad risks. Application usage can spread to greater numbers of users than intended, and performance can be crippled. In addition, data usage by Shadow IT apps can violate privacy laws and sensitive data can be leaked through embarrassing security breaches. Of particular relevance to the banking and financial services sector is the imminent arrival of GDPR compliance rules. Shadow IT systems pose a risk to such compliance as the projects have no governance or guidance over them.

The sources of such unofficial systems vary. Shadow developers, also known as ‘Citizen’ or ‘Stealth’ Developers, can range from creative and technically aware internal marketing staff exploring exciting cloud apps, through to external ‘offshore’ development teams keen to get a foot hold in or reference check from a respected financial services organisation through a friendly contact.


Discovery From humble financial and management analysis systems through to highly sophisticated marketing and sales apps, the ‘outing’ of Shadow IT applications is often unexpected. An executive might want to manipulate or represent their data in different ways. To achieve this, they download data from core systems, for example an asset management application, add macros and then run their own reports. These shared tools may include errors, and the misinformation proliferates. At some point, the error is discovered and IT is drawn in to fix it. The IT Department was most likely unaware that the application existed but are charged with fixing it regardless. In an attempt to control this activity, IT may allow circulation of files as PDFs only, but this in itself can be restrictive for business management. In the insurance market, actuaries often create and use extremely complex spreadsheets to create precision pricing dependent on risk variables. Effectively, they are building their own complex pricing tools. They may involve hugely complex algorithms to generate pricing and which may be uploaded into corporate price books. The risk to the business in the event of errors being made is significant. It is unlikely that any extensive testing on these applications takes place. Another common example occurs in the Marketing department, where shadow IT can proliferate as organisations seek to ‘know their customers’ better. From customer and sales analyses through to unofficial promotional web pages, marketing managers are responsible for organisational creativity and demand ‘competitor beating’ solutions. However, as they struggle to get to the top IT’s priority list, they resort to crafting their own solutions.

Evidence of The Rapid Spread and Growth of Shadow IT Shadow IT is growing, but not without risk. Gartner estimates that by 2020, one third of successful attacks on enterprises will be through Shadow IT doors. The 2017 Application Architecture, Development and Integration Summit in London highlighted a 2015 Cisco study indicating that companies are using up to 15 times more cloud services to store critical company data than CIOs were aware of or had authorized. Supporting that claim, an NTT report in April 2016 indicated that 77% of business decision makers admitted to using a third-party cloud application without the approval or knowledge of their own IT department. Identity governance firm SailPoint claims that already over 70% of company employees have access to data that they shouldn’t have. Outsourcers are acutely aware of this, as many discover unaccounted for servers after contract wins. Financial Services customers provide a detailed list of servers to the outsourcer and bids are submitted and accepted on this basis with only high-level due diligence available. The real discoveries are made post contract award where additional servers and applications are found. One outsourced service provider quoted an instance where e.g. 850 servers & 42 line of business internal applications are listed in the outsource RFP, yet 982 servers are discovered & 65 line of business applications exist, all additional servers and applications were shadow IT projects. Shadow IT in a Low-Code Light Shadow apps are not, in themselves, a bad thing. Many of these systems fulfill a valid need and play a role in the success and or survival of the organisation. Some IT departments are now openly recognising this and seeking to bring the alleged ‘rebels’ back into the IT fold.

What IT really needs to achieve this, is a technology approach that helps them deliver on these requirements at speed; technology that means that they no longer have to say ‘no’ or ‘yes, but later’ in response to requests from the business. Enabling IT to be agile by using ‘low-code’ rapid application development tools to build apps at high speed, can overcome the bottlenecks. So instead of outlawing Shadow IT ideas, this new approach recognizes and utilizes their creativity. Low-code platforms, such as those offered by LANSA, provide the kind of prototyping capabilities needed to validate business needs, direct with the users, iterate as they formalize their requirements, then speed up the final development way beyond the timescales they have been used to. The resulting apps are robust, well architected, high performance, and, importantly, managed and easily maintained by IT. Low-Code can be a significant tool in the armoury of IT to keep IT relevant to the business. Single View of the Truth Once integrated within the confines of IT, management has a ‘single clear view’ of the entire IT estate, allowing them to utilize the and maintain newly developed systems to optimal effect. Through this approach, the very same IT managers and CIOs that are currently by-passed by ‘Line of Business’ managers are transformed into agile system leaders, able to respond quickly to business demands. They can take back control and re-establish a proper and secure governance infrastructure, through which they can monitor IT with a single integrated view of the truth. Most importantly, through the use of Low-Code development, organisations can now finally banish the spectre of Shadow IT & deliver a much brighter future for internal IT application development. ‘With thanks for contributions from Graham Blaney, Co-Founder and Director, RightIndem.’

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Asia 84 Issue 9


B a n k i n g in Vietnam In June of this year Global Banking & Finance Review journalist Phil Fothergill met with Ms. Pham Thi Hien, Deputy General Director of An Binh Commercial Joint Stock Bank (ABBANK) in London to discuss the banking sector in Vietnam and the bank's continued success as they celebrate 24 years in operation. This year ABBANK is celebrating its 24th year in operation. How has the market evolved over the years? The Vietnamese banking sector has witnessed many significant changes over the years. The Vietnamese government has focused on reforming the banking industry to improve its efficiency and competitiveness, which includes privatizing the state-owned banks, allowing the entry of foreign banks through the form of equity purchase of local banks or branches/subsidiaries establish in the local market. Currently, the key players in

the Vietnam banking market are commercial joint stock banks and they have seen the remarkable growth not only in total assets but also in the market position. Together with the development of the market, ABBANK has had great achievements over the years. Starting as a rural bank in 1993, ABBANK made great strides to convert itself into an urban bank in 2004 with the charter capital of VND 70.04 Billion. Currently, ABBANK’s charter capital has increased remarkably at 5,319 billion VND. In addition, ABBANK has expanded the network during the time. In 2016, ABBANK had 159 transaction points in 33 provinces/ cities in Vietnam, increased by 13 points compared to 2015. The ABBANK’s development is highlighted with the rating of Moody’s in 2017. Accordingly, ABBANK’s credit rating outlook of the local currency deposits and issuer ratings was upgraded to “Positive” from its previous level of “Stable” with the risk rating of B2.

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What are the current trends you see taking place in the Vietnam banking sector? Overcoming one of the toughest periods of the economy during 2010 to 2015, the Vietnam banking sector is recognized to grow positively at present. The current trends in the Vietnam banking sector are: •

Most of income sources of Vietnamese banks still come from interest income, which represent 70 to 80% of their total income. The main activity driving the banking industry in Vietnam is commercial banking, many banks now focus on SMEs and retail banking. Vietnam allows foreign banks and foreign investors to enter into its banking and financial fields; therefore, in order to serve these customers, foreign banks have set up joint ventures with Vietnamese banks and opened branches to tap into the developing banking sector. Besides, many foreign banks are taking a stake in domestic banks in the form of strategic shareholders.

In order to mitigate non-performing loans and weak banks, the State bank of Vietnam is promoting restructure in the banking system via M&A.

Card transactions take an important part in banking operation. Most banks in Vietnam take advantages of technology development to grow card payment channel. Because of many convenient utilities, banking cards are quickly rising popular in Vietnam.

ABBANK continues experiencing significant growth with an increase in profit before tax of VND 288.4 Billion, achieving a growth rate of 168%. What do you attribute to your continued success?

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The continued success came from strictly following the directions of ABBANK’s BODs and BOMs in 2016. There were 4 primary elements contributing to this achievement: Firstly, ABBANK expanded the branch network so that it can serve more customers in key areas in Vietnam. At the end of 2016, ABBANK had 159 transaction points across 33 provinces/ cities in Vietnam, increasing 13 points compared to 2015. Secondly, non-performing loans were well controlled in accordance with SBV’s regulation to be below 3%. Thirdly, the SME division was newly established to launch the specialized products for this segment to attract customers and increase deposits together with loans portfolio. Last but not least, ABBANK was concentrated on the enhancement of retail capacity as well as the development of large corporate customers. Moreover, ABBANK was oriented to have a stable funding source, good liquidity, and safe capital during its operation at all time.

In March of this year, ABBANK became the first Vietnamese member of the Financial Innovations of UNEP. Can you tell us more about the membership and its significance? In the context of Vietnam’s orientation on preventing climate change, ABBANK became the first bank in Vietnam to join the UN Environment Finance Initiative (UNEP) in early 2017. From this, we aim to: •

Become a pioneer in green finance products to grow green with our Vietnamese clients Expand relationship with more than 200 international financial institutions in UNEP FI network to exchange knowledge and experiences to support our green credit orientation, especially in term of environment risk

management and specialized product development •

Obtain the know-how of the program to strengthen the green credit proportion in our credit portfolio, e.g., energy saving, renewable energy, and clean technology.

ABBANK demonstrates a strong commitment to providing new and innovative products and services to improve customer experience. Can you tell us about some of the most recent releases? To improve service quality and minimize transaction time, we focused on launching specialized products to target specific needs of clients and the integration of automated features in each product. For example: For corporate customers: ABBANK has launched the specialized products for electricity sector. Accordingly, ABBANK will follow up and collect electricity bills on behalf of EVN by several ways, such as ABBANK will automatically collect electricity bill payment through customers’ account, ABBANK’s staff will collect payment at customers’ houses. Besides, ABBANK provides other services for this sector, such as collecting electricity at the counter and auto-pay electricity. For SME customers: ABBANK has successfully completed the project of the “Improvement in the competitiveness of SMEs segment”. Accordingly, ABBANK had setup specialized divisions in approval, disbursement, customer relation relating to SME operation. For consumer customers: ABBANK successfully conducted various promotion programs for its customers to use more personal service products of ABBANK, namely the interest incentive programs for borrowers such as “Flexible Loans – Fixed Interest”, “Loan for prosperity – Long-term incentives”, incentive programs for saving-


deposit customers, promotion programs for service development, customer gratitude during the national holidays. Apart from normal customers, ABBANK also develops specialized products for employees in the electricity sector, armed forces, military. With all payment transactions of credit accounts opened at ABBANK, clients shall get accumulated bonus points to exchange for valuable gifts

Completing the financial plan in which the net profit will be raised about 22% compared to 2016

Maintaining the Moody’s rating

Listing ABBANK’s shares on the stock exchange

Preparing ABBANK’s financial reports to comply with IFRS standards

What are your plans for continued growth and development?

Implementing the projects to apply Basel II

The objectives for the bank in 2017 are specified below:

Improving main financial indicators such as net profit, charter capital, ROE, ROA.

Ms. Pham Thi Hien Deputy General Director An Binh Commercial Joint Stock Bank (ABBANK)

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By Not Addressing Unstructured Data, FS Firms are Missing Out on True Customer Insight

We live in the era of the empowered consumer. Within financial services (FS), this means that customers – whether consumers or businesses – have more choice than ever before. In addition to the traditional suppliers of FS, there are many agile and customer-focused start-ups providing quicker, smoother and more effective approaches to FS, as well as other organisations such as supermarkets that have entered the FS market. In the face of this increased competition, it means that FS providers must understand their customers better than ever. They must learn what customers’ pain points are, identify when they might be unhappy and be able to take concrete and positive steps to address them.

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lots of information on a customer’s intent, preferences and any potential issues, and to extract this insight, companies have invested heavily in CRM systems.

a ‘data blackhole’ in many enterprises, whereby the most relevant and insightful data is not being picked up and analysed by the CRM system.

CRM: Yes but not only

CRM has been a growth sector within technology for many years. In Gartner’s most recent ‘Market Share Analysis: Customer Relationship Management Software, Worldwide, 2015’ it was revealed that the CRM market software totalled $26.3 billion in 2015, an increase of 12.3% from $23.4 billion in 2014.

FS firms hold large amounts of data on their customers – call notes, meeting minutes, social updates, user generated content, emails, customer service records and much more. This big data means there is

But despite this, CRM owners are constantly looking for ways in which to get more from their CRM system. The growth in customer data has outstripped the rise of CRM systems and has led to

Most CRM systems work only with structured data, yet around 86% of enterprise data is unstructured. The issue is clear – enterprises are attempting to understand their customers based on a tiny fraction of the relevant information. Salesforce itself has estimated that only 1% of a company’s data is used by its CRM system, meaning that vast amounts of customer insight are left untapped.

The ability to understand what a customer is interested in, is feeling and their likely intent is therefore highly valued in 2017. That’s why so many organisations have made such a substantial investment in Customer Relationship Management (CRM) platforms, to manage customer data. But with most CRM systems unable to process unstructured data, how can FS firms capitalise on the insight held within the unstructured data they hold?

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Leveraging Artificial Intelligence and Machine Learning

New Revenue Potential with Unstructured Data Insight

Artificial Intelligence (AI) and Machine Learning (ML) are critical technologies when it comes to empowering CRM systems, accessing and unlocking the unstructured data that is so important to successful client relationships in FS.

If an FS firm is able to enrich and unify any data type (structured or unstructured; internal or external) and index it for future CRM and client engagement use, so the value of that data grows. The insight derived from it can be used in a number of ways:

The sheer volume of big data in FS organisations can be bewildering, and it comes in files and formats that most CRM systems are unable to manage effectively. Unfortunately, this data is often the most valuable, containing rich insight into that particular customer and their specific needs and requirements. This unstructured data would include: any social content – Twitter, Facebook, LinkedIn, Instagram – by, and relating to that customer; email conversations between the customer and FS provider; service call scripts that detail any recent or historical issues. This is the data that really enables an organisation to understand its customers. By deploying AI and ML, organisations can collect data from multiple sources and in multiple formats, extracting fresh and insightful meaning from it and helping to deliver a complete view of that customer.

To drive value and grow business opportunities– knowing and understanding your customers means that new opportunities can be identified on a regular basis. Users can search for new insights on competitors, partners, markets, individuals and much more, all of which deepens their knowledge and understanding of each customer and provides upsell or cross-sell opportunities. To anticipate customer needs – customer understanding can also be used to identify trending issues and anomalies around an individual client or group of customers and address these before they become an issue. To adopt a client-centric view – having a 360-degree view of a customer, across all channels is a powerful asset for anyone in FS. Doing so means that VIP accounts are never overlooked and allows the targeting of clients at the right time with the right communication.

To free-up client management time – because all of the unstructured data is now included in the CRM platform, users are able to save substantial time when searching for information on clients. Not deploying unstructured data within a CRM is potentially a major problem for FS firms. It means that huge swathes of potential customer insight are missing, which can have an impact on client service. The implications of this are potentially dramatic. Given the increased choice and resources available to FS customers, what is their motivation to stay with an organisation that does not understand their individual and specific needs? Only through the availability of all relevant information does CRM become truly compelling and provide an organisation with the customer insight required to thrive in such a customer-centric FS environment. But achieving this is a major challenge and requires AI and ML to really enhance an organisation’s current CRM system.

Dr. Dorian Selz CEO Squirro the context intelligence firm that works with FS firms all over the world

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Managing Big Data and Big Risks in Banking 92 | Issue 9


Data is playing an increasingly important role within the banking industry. It is key to driving the development of intelligent omnichannel customer interactions, tailored to suit the needs of individuals and households. Data is also powering new technologies, such as AI and bots, which are in turn helping to improve operational efficiency and reduce risks. Data is even enabling new banking models, such as peer-topeer lending, crowdfunding and the sharing economy. The impact of data is best highlighted by looking at the advances in consumer credit. Traditionally, banks primarily rely on credit scores, which are based on a narrow range of slow-moving data points. This modeling approach brings about two major constraints. First of all, decisionmaking is slow due to banks having an incomplete view of a consumer’s financial health. And second, this creates ‘thin files,’ especially on millennial consumers who lack a financial history and have an aversion to debt. In fact, in many countries, the use of consumer credit has been solely negative, whereby banks use the model to essentially blacklist people who have made late payments. Today, banks are basing their lending and risk management decisions on integrated data. Debt repayment information is being combined with near real-time transactional and account balance data to build thorough risk assessment models. Instead of relying on the timeliness of payments or the percentage of available credit used, they can assess risk patterns from past behavior to sense future changes.

With ‘thin file’ consumers, banks and credit reporting agencies are leveraging new data sources, such as bill payment history and mobile phone usage. In some cases, particularly with nonbank lenders, the nature of a consumer’s social media network can also contribute to assessing credit worthiness. Data can be used to tailor sales and marketing interactions. In the same way that it helps banks form a detailed view of a consumer’s credit worthiness, it can also be used to customize sales messages and products for the benefit of increasingly service-savvy customers. Acting on Data Often, the volume, velocity and range of data types can technically exceed the capabilities of traditional technologies (e.g., relational databases). Unstructured data, such as video, voice and text, are particularly unsuited to former IT approaches and first generation Big Data technologies. To combat this, banks are adopting machine learning, where predictive models continually train themselves based on streams of data. Machine learning can help identify nuanced details for improved results. For instance, traditional regression or decision tree approaches may predict which customers are likely to churn based on relevant variables. Machine learning goes beyond linear relationships to recognize interactions across much broader sets of data.

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ASIA BANKING Success will rely on cultural change. In light of fast-moving data and the increased pace of change in expectations, a much more iterative approach to planning is required. In particular, the move to agile product development requires a significant shift in product management style. The Challenge to Banking Inevitably, the central role of data brings about new risks. People need to understand how to govern and organize for an analytically-driven business. For example, many banks currently only keep data on people who successfully apply for credit. By definition, including only this subset, rather than all who applied, means banks are at risk of reducing their marketing opportunities with new prospects. However, the most acute risks may be external. Cyber threats are damaging more than just reputation these days and are actually leading to the removal of CEOs, as is the case with Target and Sony. Similarly, senior government and academic leaders are also losing their jobs in response to data breaches. The nature of threats has changed as well, with hackers now seeking physical effects or attempting to discredit an organization by subtly corrupting, rather than stealing its data.

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Solving for the Future In order to remain competitive, banks need to ensure they have the best security technology at their disposal. This includes authentication, such as the use of biometric technology that can confirm a consumer’s identity. This is centered on an understanding of usage habits, for example, a person’s unique way of holding a phone, their typing speed and the angles at which they swipe their finger. Separately, machine learning can be applied to detect threats. For example, a cyber analytics model can continually ingest large streams of network activity data to define activity baselines and detect anomalies. These models can be applied within an organization’s cyber security software, as well as integrated with threat intelligence. This ability to protect customers is based on continuous innovation. And the ability to understand and anticipate the evolving nature of cyber threats worldwide is critical for banks to ensure future success. With the proper technology, banks can ensure that their tomorrow is secured.


Eric Crabtree Global Head Financial Services Unisys

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Investment Landscape in Hong Kong BOCI-Prudential Asset Management represents the powerful collaboration for dynamic wealth management. Founded and headquartered in Hong Kong, the Company offers a broad spectrum of investment products and services, which include Hong Kong mandatory provident fund scheme (“MPF”), pension funds, retail unit trusts, exchange traded funds, institutional mandates and other investment funds. In addition, the Company also manages discretionary investment portfolio and charity fund for both private individuals and institutional clients.

Dr. Tang- We’re joint venture between Bank of China International and Prudential plc in UK. We set-up the company in 1999 and started as a Pension Manager. Over the years, we developed our products and now we offer comprehensive products to both institutional and retail clients, mainly we are still pension fund managers but we also focus on different things.

In October of last year at the London Stock Exchange Studio, Global Banking & Finance Review journalist Phil Fothergill interviewed Hing S. Tang, Ph.D., CFA, Managing Director, Head of Quantitative Strategy Business Unit at BOCI-Prudential Asset Management to discuss the investment landscape in Hong Kong and their success.

Dr. Tang- I think we are unique in the sense that we have two distinct investment teams. The traditional one, covers Equity and fixed income by using traditional, fundamental approach and we do have a Quantitative Strategy Business Unit which employs quantitative methods to manage global equity.

Phil- Dr. Tang, welcome to London and thank you for joining us today. Let’s talk more about the company if we may, your main organization “BOCI-Prudential”. Tell us a little bit about the History and how that operates today”

Phil- You mention about QSBU to give the shorter version of Quantitative Strategy Business Unit, tell us a bit how that works and what is the benefit of it?

Phil- As a leader in fund management in your part of the world, what distinguishes BOCI-Prudential would you say from other organizations in the same area?

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Dr. Tang- QSBU is a kind of Business Unit within the company, so we do have our own business development colleagues and the portfolio managers, equity analysts and the researchers. We try to offer a wide range of quantitative strategies to our clients in the region. Phil- Now I Know that you provide a broad range of investments solutions, how do you monitor client’s success and give them support? Dr. Tang- Well we believe in what we call insightful quant strategies. Insightful means, we believe in a combination of deep economic insight with robust quantitative process, which will give us a better chance to achieve a superior performance. Our economic insight tells us which asset class we should go into and we try to articulate a robust investment process to tap into that asset class, so hopefully the disciplines and then the insights will help us to give a more robust performance and after we discover the clients and their concern, we will employ a reputable risk model to control the risk and hopefully to achieve the return. Phil- Is it how you go about selecting and helping clients find the right kind of funding for their investment? Dr. Tang- That’s right, I think that different clients have different needs. First, we have to understand client’s needs and their risk tolerance, these kinds of things. Then we articulate the investment methodology and risk strategy. Phil- Let’s look at Hong Kong itself, what would you say the challenges and opportunities were in investing in the Hong Kong area through your business? Dr. Tang- Hong Kong is obviously still a financial hub in the region, we are an open economy so one of the challenge in terms of investment is the correlation among different markets or even among different asset classes

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increase significantly this year, this probably reflects the many years of easy monetary policies. So, if anything happens to one market it will easily affect the performance of the other markets. Given the Hong Kong Investor in particular in the pension they are exposed to global economy, global equity and global fixed income so as a fund manager I think we have to pay extra attention to these issues. Phil- You did mention about easy money reforms and so on and like every country there are regulations and restrictions what are the issues and challenges would you say? Dr. Tang- I must say, our regulators are working real hard. Basically, on one hand we need to keep our regulatory standard up to date, compared to the global economy and environment but on the other hand I think one of our edges is actually to work closely with the mainland regulator. For example, we see a huge opportunity coming in November of 2016 with the Shenzhen-Hong Kong Connect. We already connected Hong Kong stock and Shanghai stock a year ago, which was hugely successful. Now with the Shenzhen-Hong Kong Connect coming, I think global investor should be able to access the China A-share market very easily, so this is really big thing you know. Phil- So you feel that the system will make things easier going forward then? Dr. Tang- That’s right absolutely, China is opening the economy and the equity markets, so I am sure that China and rest of the world will benefit from this. Phil- And we all know because it is always in the news that you know China being one of the world’s biggest economies always making the headlines there have been challenges recently, how would you see from your point of view the economy in China at the moment?

Dr. Tang- I would say China is quite big, in terms of size and diversity, so people always talk about downside but they are probably focused on the old China. Now we have two China or two economies within China. One is the old one, focused on resources intensive industries, exports kind of things right but the new china is more like healthcare, IT, consumption and services you know. They are quite different, the old, I agree may be slowing down but new china is really robust and I actually expect really significant progress down the years. Phil- So exciting times are ahead then you think? Dr. Tang- Yeah, for the new one. Phil- Definitely the new way of thinkingly, lets come back again to, your own in operations and the QSBU that you mentioned a moment ago. What future plans do you actually have for that? Dr. Tang- That’s a very good question. I think we come to a stage where we should think ahead of time, that’s why I am calling ourselves a Quant 2.0, kind of evolution. Basically, we try to incorporate all this artificial intelligence or other advanced techniques to generate more alpha sources. Give our fund managers and resources to focus on ideas generating. We call ourselves insightful Quant, so I would love to see my people focus more on the insight part and let the machine and the robot deal with the quant part hopefully that will be very interesting and fruitful in future. Phil- Well I hope it turns out to be ----as you say and in the meantime, once again thank you for coming to London, Congratulations on the award, it was excellent to talk to you today. Dr. Tang-Thank you.


Phil Fothergill

Hing S. Tang Ph.D., CFA, Managing Director, Head of Quantitative Strategy Business Unit BOCI-Prudential Asset Management

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Breakthrough innovation: How agile can improve performance It is increasingly important for companies to deliver breakthrough innovation to their markets. However, the approaches that have been successful at improving innovation delivery over the last 30 years are holding most organizations back. Senior executives in product- and process-technology companies are already championing agile approaches to improve breakthrough innovation performance. Creating a separate path with agile principles tuned for a product development environment has been shown to be an effective approach. Business executives have always been under pressure to generate growth, and today’s fast-moving and competitive business environment does not make that any easier. Arthur D. Little’s eighth Innovation Excellence Survey revealed that leading companies expect their share of revenue from breakthrough, as opposed to incremental, innovation to double over the next five years1. However, achieving breakthroughs is easier said than done: we also found that 88% of business leaders

were dissatisfied with their breakthrough innovation performances2. They have become increasingly frustrated with the limitations of their current innovation systems on producing significant results.

not conducive to breakthrough innovation, in which requirements are rarely set in stone and uncertainty is not only the norm but a vehicle to explore beyond the usual boundaries.

The underlying issue for these organizations is usually that they are applying a non-optimal innovation approach to realize breakthrough innovation. For the past three decades, most technology-based companies have employed a phase-gate (or waterfall) approach to all of their innovation efforts. In fact, they have made significant investment in the design and adoption of these approaches so they would become rigorous and mechanical. Their fundamental goal has been to minimize variances (i.e., risk) from a well-understood set of requirements and a detailed plan that are both established at the beginning of a development project. As a result, they have created the perfect environment for incremental innovation, reducing cycle times and improving on-time delivery. Unfortunately, this well-honed model is

In the meantime, for the past two decades the information technology and software world has been applying its own, highly dynamic innovation model – the agile approach. For some time agile has been applied almost exclusively to software development, and this has borne fruit: the software industry has consistently produced patents at three times the level of the next-most prolific sectors3. Today, agile approaches are increasingly being deployed alongside phase-gate processes in engineering and R&D functions outside software, with positive results. Arthur D. Little’s research reveals4 that companies that have successfully added agile methods to their toolboxes, and tailor their innovation approaches by the type of innovation, perform significantly better than those that stick to single, waterfall approaches.

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Key principles to apply an agile approach Iterative approach. The heart of the agile approach in product development is the use of a series of rapid, iterative loops, similar to an agile iteration for software. At the early “exploration” stages of the development lifecycle, each loop focuses on answering a key question that is determined to have a high degree of importance and uncertainty, in order to build a progressively clearer picture of the desired solution. Through these loops, the team is effectively building the user stories. A key artifact of each typically two- to fourweek loop is a prototype used to test the part of the concept in question. Prototypes need to be fast and inexpensive – simple mockups, models, videos and simulations are appropriate. Prototypes are shared with a sampling of customers, the key questions tested and the learnings assessed to determine if the team can move on to a new objective for the next loop. Teams. Clear roles and responsibilities and the right balance of authority and accountability are important for team success in an agile product development environment. Teams must be nimble and the individual members comfortable with ambiguity and experimentation. In the product development environment,

agile teams are multidisciplinary teams of specialists that expand and contract depending on their current focus. This would be different from the skills needed to do a technology-feasibility loop. To support this model, agile product development teams are often put together with parttime or limited-time resources. A very small “core” stays constant, and there is a designated team leader throughout the development cycle. Governance. While governance is not often identified as a key element of agile software development, it is critical within product development. In the agile environment, governance acts less like a go/no-go decision-maker and more like a coach to project teams. Governance also serves to mitigate “organizational antibodies” that try to impede or marginalize breakthrough innovations. Loop reviews done at the end of each loop to assess whether the key question has been addressed are discussions between project teams and their governance, using poster boards, prototypes and other visual aids to facilitate the conversation. To enable this environment, it is important that an agile governance group is comprised of individuals who can foster a culture of experimentation and learning, a sense of urgency and agility, and a passion for

helping teams jump over hurdles (versus governance being the hurdle itself). Integrating agile alongside phase-gate The phase-gate and agile approaches are distinct in their implementation, and generally suited to different innovation objectives when applied in the context of companies with engineered products. We see companies adopting two general approaches when trying to introduce agile into an existing phase-gate process: integrating agile into a single innovation process and adding a partly parallel agile path. Integrating agile into a single innovation process typically involves using iterative loops within the existing phase-gate process, but with the overall structure retained as-is. Our experience is that attempting to integrate approaches will sub-optimize at least one of them. A better solution is to run them side by side, so an organization can apply the right approach across an innovation portfolio of both incremental and breakthrough innovation. In this model the agile path is the right size to handle the anticipated flow of breakthrough innovation as per a company’s particular innovation strategy, which is usually substantially less volume than the phased path.

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Conclusion Breakthrough innovation is increasingly important for companies. However, outside of the software industry most organizations, especially those with complex engineered products and longer development lifecycles, struggle to deliver it systematically. This is principally because the agile approach needed to realize breakthroughs is a challenge to the established practices that have served them well.

Prashanth Prasad is a Manager in the San Francisco office of Arthur D. Little and a member of the Technology & Innovation Management Practice and the Healthcare Practice.

1 Arthur D. Little study: Systematizing Breakthrough Innovation, 2015

2 Ibid 3 Clarivate Analytics’ State of Innovation report (formerly part of Thomson Reuters), Arthur D. Little analysis

4 Arthur D. Little’s R&D best practice study

Mitch Beaumont is a Partner in the San Francisco office of Arthur D. Little and a member of the Technology & Innovation Management Practice.

Ben Thuriaux-Alemán

Chandler Hatton

is a Principal in the London office of Arthur D. Little and a member of the Technology & Innovation Management Practice and the Energy Practice.

is a Manager in the Amsterdam office of Arthur D. Little and a member of the Technology & Innovation Management Practice and the Strategy & Organization Practice.

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In recent years the trade agenda has seemingly been dominated by endless debates on compliance and regulation. There can be little doubt, however, that the 2010s will ultimately go down in history as the decade of digitisation. The digital universe has finally descended upon us, bringing with it brontobytes of big data and billions of distributed devices. But what does it mean to banks and what does it mean for the business of trade finance?

documents across the supply chain, the opportunity to translate documents to data and to transform business processing from analogue to digital is huge. With digitisation comes the ability to extend connectivity across the trade ecosystem. This is of vital importance in the face of ever more complex corporate value chains and the fragmented technology landscape that persists across trade, supply chain finance and trade lending.

In light of the cosmic developments in new technology, many banks have come to recognise the competitive constraints of existing infrastructure and are ready to respond to the compelling case for business transformation. Many leading institutions have legacy applications that are both monolithic and siloed, resulting in unacceptably low levels of interoperability. Such technologies are not only expensive to enhance and maintain but are also inevitably approaching end of life.

Banks today need to deploy market leading technologies on a modern architecture so as to adapt to digital disruption and respond effectively to changing customer needs with increased agility.

Whilst it is acknowledged that trade is a particularly difficult business to digitise due to the number of participants and

Some key areas banks will need to focus on include: Paperless trade For generations the business of trade finance has been dominated by paperbased processing, from bills of lading to warehouse warrants; from bills of exchange to promissory notes. Today, there is a widespread recognition of the business

benefits and cost efficiencies associated not only with digitised document preparation but eventually the removal of paper processing altogether. Removing the paper pain points will significantly reduce the most common risks of delays and discrepancies as well as supporting the increased availability of structured data for business intelligence purposes. Empirical evidence has suggested that banks can save more than two hours per transaction by not handling paper, with further savings achieved through automated compliance checks. The transition to electronic trade documents further supports the continuing move to open account and the increasing demand for supply chain finance (SCF). By its very nature, SCF must be digitised to make the business viable at any scale and underpin the common desire among corporates to optimise working capital by accelerating the cash conversion cycle. Open architecture To firmly place themselves at the centre of the trade ecosystem supporting corporate

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Providing the underlying assets for all murabaha / tawarruq transactions via our web based trading system


clients, banks must put in place an open ‘plug and play’ architecture that supports collaboration with technology platforms, system integrators, government agencies and other third party service providers. By adopting an open architecture, banks will obtain access to a new channel through which they can engage with the digital world. API-based open banking creates huge flexibility in the ways in which customers can interact with their financial services providers. This is a transformational change enabling more efficient integration and better use of infrastructure. Business intelligence and predictive analytics In the digital world, data is the new collateral. Banks need to leverage big data in order to better understand operational, market, industry and customer risks, opening up new opportunities for growth and enabling more efficient use of regulatory capital. As banking in general becomes more and more commoditised, the mining of big data represents a huge opportunity for banks to stand out from the competition. Big data

may be seen as a pot of gold and every transaction that lies within is a golden nugget of information that can be dissected and analysed in order to enhance almost every aspect of service levels. The evolving art of predictive analytics will enable banks ultimately to better manage their relationships, revenues and risks. The bank will also be able to improve customer self-help through greater access to data whereby corporates can interface to their own ERP systems and run predictive data analytics across their working capital needs. Artificial intelligence, machine learning and natural language processing These days, the use of standard optical character recognition (OCR) to read text from trade documents has become commonplace. As we move forward with the adoption of next generation technologies such as artificial intelligence and cognitive computing, so too will opportunities to enhance both the efficiency and productivity of performing operationally

intensive tasks, such as document processing and compliance checking. The adoption of machine learning and natural language processing techniques enables the automation of a complex web of cognitive processes associated with due diligence. Its application will eventually benefit multiple aspects of international trade, including the more efficient management of supply chains, contracts and regulatory compliance, ultimately opening up new opportunities for easier access to finance. Smart contracts and smart objects No article on the subject of digitisation would be complete without some reference to the potential impact of Distributed Ledger Technology (DLT), more popularly known as ‘blockchain’. While the full business benefits of blockchain are yet to be validated, blockchain theory has attracted widespread interest, resulting in a tidal wave of laboratory-based proof of concept use cases. The ability to industrialise such solutions and bring them to market might remain constrained for some time by the continuing absence of a common set of rules and standards.

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Arguably the most compelling use cases associated with blockchain are those that promote the use of smart contracts to generate instructions for downstream processes, such as payments or the transfer of collateral, provided the reference conditions have been met. Smart contracts contain pre-written logic that can be stored or replicated on a distributed ledger platform and executed by a network of computers connected to the blockchain. Smart contracts reduce operational risk by the automation of workflow. They can be used to help with e.g. automatic uploads of purchase orders for financing and the translation of data for document preparation or paperless trade. They can also potentially be extended into artificial intelligence. Beyond smart contracts, there is much interest now in the evolution of track and trace devices that enable us to monitor the location and condition of smart objects in transit, hence reducing the operational risks commonly associated with the transportation of goods. The ability to extend this technology further still – e.g. back into the supply chain – in order to guarantee the provenance of goods at

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source in support of sustainable trade, has further captured the imagination of thought leaders.


API-based open architecture;


Big data; and

Rules and standards


Cognitive computing

It is true that, as an industry, we still lack a degree of certainty around common rules and standards. The absence of clear definitions is a barrier to interoperability and a constraint on connectivity. Collaboration is key to overcoming the obstacles.

This A+B+C approach will ultimately come to represent the true fabric of (d) – the Digital Trade Bank of the 21st century.

Most recently, the International Chamber of Commerce (ICC) Banking Commission announced the creation of a working group on digitisation. Among its aims will be the evaluation of ICC rules such as the eUCP to ensure that these are both practical and e-compliant, enabling banks to accept data in place of documents. A+B+C = D Smart trade demands smart trade finance. As we approach the next decade of digitisation, intelligent trade will not only rely on a combination of smart contracts and smart objects, artificial intelligence and business intelligence but also significantly draw upon the combined powers of:

David Hennah, Head of Trade and Supply Chain Finance Finastra

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Bank-Led Collaboration is Driving Payments Transformation Through industry cooperation – with banks at the fore – new technology can be channeled for a revolutionised payments space. Fred DiCocco, Global Head of Cash Management Business Development, Treasury Services, BNY Mellon, explains. The rapid growth of fintech influence, increasingly sophisticated technology capabilities, growing client expectations, as well as new regulatory requirements, are fuelling the need for modernised payment systems and the development of cuttingedge digital solutions. Undoubtedly, the payments space is experiencing a period of rapid evolution, with technology presenting opportunities for the industry to transform how transactions are processed. One area of development is the advancement of real-time settlement. Over recent years, 30 countries have introduced – or have made plans to introduce – realtime domestic payment schemes. The US Real-Time Payment (RTP) initiative – the first significant change to US payment platforms since the Automated Clearing House (ACH) was introduced in the 1970s – is due to launch during Q4. Meanwhile, Australia’s own New Payments Platform (NPP) is also set to be implemented by the end of this year.

With RTP settlement the restriction of business hours is becoming somewhat redundant. Domestic schemes are creating a 24/7/365 instant payment service and allow both the payment beneficiary and originator to have real-time access to payment information. In terms of cash management, transparency and reconciliation, the benefits are immense. Not only can immediate payments save time and costs with respect to tracking and reconciling payments, such transparency can also speed up value and supply chains by enabling the more efficient settlement of commercial transactions including expediting the shipment of goods. Real-time systems are increasingly becoming the norm for domestic payments – changing the culture of how and when customers and businesses perform transactions.

The next step: cross-border payments While substantial progress has been made when it comes to domestic payments systems, cross-border payments are yet to fully experience the benefits that improved technology could bring. Certainly, there is room for improvement in the cross-border infrastructure, with payments taking up to three to five days to clear. As the volume of cross-border payments grows at a rapid pace, banks will need to apply the same improved speed, efficiency and transparency to international payments.

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This is no small feat, and the payments industry is working hard to make realtime global payments a reality. It’s clear that collaboration across the industry will be crucial if change of such scale is to be successfully implemented, and if technology is to be leveraged in full.

Harnessing technology for cross-border payments SWIFT’s global payments innovation (gpi) initiative is a prime example of industry collaboration – and could potentially transform international transactions. SWIFT gpi, which seeks to streamline and increase the transparency of cross-border payments, has so far attracted support from over 110 banks, with the capability to channel payments into more than 224 countries – representing approximately 75% of cross-border traffic1. SWIFT’s established regulatory structure, technology and standards (that are recognised by over 11,000 banks) are playing a fundamental role in the

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programme’s broad acceptance. And it is this cross industry collaboration that will allow new developments – including SWIFT gpi’s cross-border payments Tracker – to be absorbed and applied to the mainstream more rapidly in the future. Moreover, SWIFT gpi’s cross-border payments Tracker will enable gpi banks and their clients to view the status of a payment, and any fee deductions, at any stage in the payment process, throughout the correspondent banking model. Another current topic in the payments industry is “blockchain” – distributed ledger technology that has the potential to enable a cross-border payment to be processed within minutes2. Blockchain’s ability to streamline the payments process could not only help to enhance transparency, speed of settlement, trust and security; the technology could potentially improve efficiency by cutting the number of stages involved in processing a payment.

Unlike SWIFT gpi, however, blockchain is starting from scratch. And substantial development is needed before it can play a larger role in global payment schemes, as well as gain the trust of regulators. Currently, SWIFT and a number of banks – including BNY Mellon – are collaborating to establish proofs of concepts (PoCs) and explore how blockchain could complement existing processes, such as nostro account reconciliation.

An industry aligned Industry collaboration is undoubtedly playing a key role in shaping the future of payments. Banks, clients and fintechs are increasingly working together to develop new solutions, which can enable them to potentially be put into practice far more quickly. Neither banks nor fintechs can address global payment market needs alone. Although fintechs have proven aptitude for technological development, they often lack the industry expertise, working capital and established client trust that banks have acquired over decades. It is through partnerships – banks and fintechs leveraging each other’s strengths – that payments can be optimised through digitalisation.


Moreover, collaborating with clients from an early stage is of great importance when developing innovative solutions. Given this, innovation centres – physical hubs where banks, fintechs and clients can work together to identify and develop transformative solutions – are pivotal to fostering client-centred collaboration. Close collaboration with clients is important for delivering digital solutions with real added value. APIs (application programming interfaces), for instance, help clients connect and integrate with banks’ products and services in a far more efficient and streamlined manner. A key enabler for digital transformation, APIs contribute to changes in infrastructure and act as seamless, interoperable interfaces. BNY Mellon’s new NEXENSM technology ecosystem, for instance, is a digital platform that integrates solutions and data from BNY Mellon, clients and select third-parties in one place. Currently, over 100 APIs are available in the API store for clients to choose from – with many more under development. Through customising APIs, clients are able to build their own services and systems – all the time enhancing their experiences and offerings. Certainly, payments innovation should centre on the client. And by leading from the front, banks are initiating an industrywide push for digitalisation, creating a chain reaction for fuller transparency and efficiency for payments. The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.

Fred DiCocco Global Head of Cash Management Business Development, Treasury Services BNY Mellon 1



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New Developments in Third Party Service Provider Guidance Cyber threats, data security, the emergence of Fintech, and increased scrutiny of service providers remain at the top of the list of concerns for banks and financial institutions. While internal processes and procedures provide risk management for companies, the use of third party service providers continues to present a risk in the face of new technology and emerging businesses. Outside Service Providers US Financial institutions are subject to strict regulations. Whether regulated by the Office of the Comptroller of the Currency (“OCC”), Consumer Financial Protection Bureau (“CFPB”), or the Federal Deposit Insurance Corporation (“FDIC”), third-party relationships are subject to scrutiny. Third-party service relationships are business arrangements between financial institutions and another entity. These relationships can be codified through contract or through course of business. The emergence of relationships with financial technology (Fintech) companies is subject to third-party servicer scrutiny. Fintech originated as companies that assisted financial institutions with the back end of operations. Now, Fintech has become a critical component to financial institutions, offering services from mobile payment applications to money transfers. As these services affect critical operations of financial institution the risk involved with using them can be high. The OCC, CFPB, and FDIC have all authored guidance on managing the risk of third-

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party service providers. Earlier this year, the OCC updated its prior third-party servicer guidance to address issues related to Fintech and cybersecurity. Risk Management Financial institutions are tasked with developing appropriate risk management processes that are commensurate with the risk level and complexity of their third-party relationships. The OCC initially developed guidance using a cyclical approach to due diligence. As part of the process, a company using a third-party service provider should engage in a five-step inquiry: Planning – Before engaging a third-party service provider, a company should have a clear plan which details how to manage the relationship. When a thirdparty provides a critical service, more detailed planning is necessary. Due Diligence and Selection— Due diligence is required before selecting a third-party service provider. As part of the due diligence process, a company’s strategies and goals should be reviewed to ensure that they are in line with the company’s strategies and goals. The service provider should also be evaluated for the strength of their legal and regulatory compliance programs. Assessing the financial condition will help evaluate the risk related to financial stability.

Information security and management of information systems are vital components that must be reviewed, as well as the use of subcontractors. Other items to consider are insurance coverage and other business relationships or commitments which may impact service. Contract Negotiation—Included in contract negotiations should be clear expectations of the service that will be provided, along with benchmarks for such performance. Delineating responsibility for maintaining records, permitting audits, and defining that the parties will comply with applicable laws and regulations are all part of the negotiation process. In light of recent natural disasters, companies should include disaster readiness and business resumption and contingency plans. The parties should also agree as to the terms of default and the ability to terminate the relationship. If a service provider is outside the United States, choice-of-law and jurisdictional provisions should be reviewed. Ongoing Monitoring—Throughout the course of the relationship, the parties should be continually evaluating performance. As part of the monitoring, there should be on-site visits, routine audits, and review of ongoing litigation. Termination—Relationships can terminate upon expiration of a contract, brining an activity in house, or breach of a contract. Relationships should be terminated pursuant to the contractual requirements and prior to termination, the planning process of the critical activity should have already begun.


While this approach provides general guidance, the intricacies of working with Fintech and addressing cyber security warranted further review, resulting in updated guidance released earlier this year. Cyber Security As the risk of cyber-attacks increases, the OCC provided additional guidance to financial institutions to address cyber threats. The OCC recommends that US financial institutions participate in information-sharing organizations to help them understand cyber threats, internally, as well as threats to third-party service providers they use. Suggested forums included Financial Services Information Sharing and Analysis Center (FS-ISAC), the U.S. Computer Emergency Readiness Team (US-CERT), and InfraGard. Further, US financial institutions were encouraged to share information related to cyber threats. Cyber-attacks on a third-party service provider create a unique issue in vendor management. Depending on the information provided to a thirdparty service provider, appropriate due diligence must take place prior to sharing customer information. Further, as part of the contract negotiation there must be terms addressing appropriate measures taken by the third party to prevent attacks/ breaches, notification of attacks/breaches, and indemnification. Fintech What a financial institution engages a Fintech company to provide affects the risk management process. Fintech companies that provide critical services warrant higher

review. Previously, the OCC defined critical services as those that involve payments, clearing, settlements and information technology. Essentially, any activity that could have a significant customer impact, requires significant investment to implement, or could have a major impact on operations if the third-party fails to meet expectations, are all critical services. As part of the due diligence process, US federal guidance recommends a review of the financial stability of a third-party servicer. Included in such a review, a financial institution should review the company’s financial information. However, as Fintech companies emerge, these companies often have limited financial histories. Instead, as part of the due diligence process, a review of access to funds, funding sources, earnings, net cash flow, and expected growth can be analyzed. As part of the cyclical process of vendor management review, there should be ongoing monitoring and auditing. As the life cycle of vendor management continues, increased information may become available, and continual auditing of a Fintech’s financial health can help to minimize risk. Conclusion While risk cannot be completely avoided, following a risk management process can help reduce the level of risk. Adhering to one of the guideline programs can assist companies, particularly as they navigate third-party relationships.

Jennifer Monty Rieker Ulmer & Berne LLP

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We already know that financing the lowcarbon transition will be expensive - from low-carbon technology to mitigation infrastructure - and we know banks will have to play a vital part.

chaired by financial heavyweights Mark Carney and Michael Bloomberg – offered as a standard framework by which all companies and financial institutions can report on.

But what does climate best-practice actually look like in the banking industry?

What does climate best practice look like?

As is often said, what gets measured gets managed. That is why Boston Common leads a coalition of over a hundred investors with assets totalling nearly $2 trillion, calling on the world’s largest banks – including the likes of HSBC, Lloyds, Bank of America, JPMorgan Chase, Morgan Stanley and Deutsche Bank - to disclose more information about their exposure to climate-related risks and opportunities, and how these are being managed by banks’ Boards and senior executives. The coalition wants banks to supply robust and relevant climate-related disclosure to investors on four key areas: climaterelevant strategy and implementation, climate-related risk assessments and management, low-carbon banking products and services, and banks’ public policy engagements and collaboration with other actors on climate change. These are also the four core areas that the G20-supported Task Force on Climaterelated Financial Disclosures (TCFD) –

Addressing the challenges of climate change requires urgent action, the mobilization of vast sums of private capital and a break from business as usual by companies. Some of the best-practice standards we have seen emerging and encourage across the board include: •

Risk management commitments such as that made by Standard Chartered, to introduce new assessment criteria relating to climate risks for energy industry clients in order to promote alignment with a 1.5°C climate scenario. We’ve also seen Natixis commit not to finance coal-fired power plants or thermal coal mines, and ING exclude financing directly linked to the mining, exploration, transportation and processing of oil sands. Strategy and governance commitments such as Barclays linking senior executive compensation to company performance on climate strategy-related goals. Commitments to low-carbon products and services. For example, we were

delighted to see JPMorgan Chase’s recent commitment to facilitate $200 billion in clean financing through 2025 – one of the largest the banking industry has seen to date. •

Policy engagement such as that initiated by the insurance sector. In August 2016, Aviva, Aegon and Amlin – which together manage US$1.2 trillion in assets – issued a joint statement urging world leaders to build on previous commitments and end fossil fuel subsidies within four years. Many banks did join industry and multi-stakeholder commitments ahead of the Paris Agreement in December 2015, but further action is needed.

We need to see the adoption of best practices such as these across the board, and that is not just in the interests of the planet but for banks and their shareholders too. Climate change poses serious material risks…. Banks are exposed to climate-related risks through their lending activities as well as other financial services, including project finance and equity and debt underwriting. These risks are real and wide-ranging, and investors want to know whether they are being managed responsibly and at the highest level of the organisation.

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W W W. L E A R N T O T R A D E . C O . U K


AMERICAS BANKING A recent study estimates that the value at risk for investors under business-asusual scenarios may be equivalent to a permanent reduction of between 5% and 20% in portfolio value in just over a decade.1 A recent report published by Carbon Tracker estimates that almost a third ($2.3 trillion USD) of the potential capex to 2025 for oil and gas companies should not be deployed under the International Energy Agency’s (IEA) World Energy Outlook 2016 450 scenario (which could be used as a proxy for a 2 degree scenario).2 This number is even higher under a 1.5 degree scenario, which is the aim set in the Paris Agreement. … But also a once-in-a-generation opportunity

Such initiatives have the power to accelerate action, and banks should use their financial and lobbying clout to advocate for public policy action on climate change. By pro-actively engaging with policymakers and industry groups, banks can help create a regulatory environment that facilitates green financing, adoption of cleaner technologies, energy efficiency measures and renewable use – across both the private and public sectors. In order to keep global temperatures from rising to dangerous levels, the way we do business will have to change – and urgently. Banks must shift their financing away from the projects of the 20th century, like pipelines and petrol, to the technologies that with fuel a new, sustainable economy and deliver prosperity in the long-term.

An estimated $90 trillion of infrastructure investment is required by 2030 to limit global warming to 2 degrees3 and the banks that take advantage of this once in a generation green opportunity can benefit across all business functions. The TCFD means climate disclosure is about to go mainstream Boston Common has been working with banks for several years to encourage greater disclosure and have been joined by an increasingly large coalition of investors. Our work was greatly aided this summer by the recommendations from the Financial Stability Board’s Task force on Climate-related Financial Disclosures (TCFD), which introduced a new universal framework and expectations around disclosure. Although the recommendations remain voluntary at this stage, they could prove game changing. This September the UK Government officially endorsed the recommendations, the French government called for them to be mandatory, and in New York the recommendations were endorsed by a number of leading global companies.

Lauren Compere Director of Shareowner Engagement Boston Common Asset Management * The information in this document should not be considered a recommendation to buy or sell any security. 1

Covington, Howard and Thamotheram, Raj (2015). The case for forceful stewardship. Available online at: https://papers., [accessed 6th July 2017].



3 Better Growth, Better Climate: The New Climate Economy Synthesis Report (2014). Available at: TheNewClimateEconomyReport.pdf

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Killing two birds with one stone: The NY CSRs and the GDPR The New York State Department of Financial Services Cybersecurity Requirements (the “NY CSRs”) and the EU General Data Protection Regulation (the “GDPR”) are seen as being distinct, with the former focusing on cybersecurity and the latter on data privacy more generally. However, there are key similarities between the two and financial institutions (and their service providers) ought to be taking a holistic approach towards compliance, thereby ensuring they don’t waste time, money and effort on duplicated compliance. This article sets out those similarities and the steps which should be taken to ensure compliance.


Falling short of the requirements imposed by the NY CSRs or the GDPR could lead to potential penalties. The NYDFS Superintendent may enforce the NY CSRs under existing authority, which includes the ability to issue a consent order, impose a civil money penalty, or enter into a written agreement with a Covered Entity. The GDPR applies a two tiered sanctions regime, with the most severe breaches potentially leading to fines of up to €20 million or 4% of global turnover, as well as the associated reputational damage caused.

Although the GDPR deals with data security, it has a much wider focus on data privacy, namely the permissible use and misuse of any information relating to identified or identifiable individuals (“Personal Data”), regardless of technology or whether a security breach is involved. Generally speaking, it will impact any organisation, whether or not they are based in Europe, which processes the Personal Data concerning individuals (“Data Subjects”) living in the European Economic Area.

The NY CSRs focus on cybersecurity, specifically the unauthorised or malicious misuse of technology and the security of confidential and/or sensitive information (“Nonpublic Information”). They will directly impact certain depository, and non-depository, financial institutions licensed in the State of New York ("Covered Entities") and by extension, their vendors and third-party service providers (“TPSPs”). The scope will include DFS-authorised New York branches, agencies and representative offices of non-US financial institutions.

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Accountability A central idea of both the NY CSRs and the GDPR is that organisations are best placed to understand their business model and the risks posed to their Nonpublic Information or the Personal Data they control. The onus is placed on organisations to ensure that they can demonstrate compliance if required. As a result, processes and discussions that inform compliance efforts must be documented, allowing organisations to be accountable and to demonstrate how they have complied with the law. As an example of this principle, under the GDPR, organisations are required to undertake a documented Data Protection Impact Assessment (“DPIA”) for certain data processing, including the use of new technologies and/or where there is a “high risk to the rights and freedoms of natural

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persons”. Similarly, the NY CSRs require periodic documented risk assessments that should, in turn, inform the design of a cybersecurity program. Another example of accountability is the requirement under the GDPR that organisations implement data protection “by design and default” when developing new data processing methods and technology. Similarly, the NY CSRs require Covered Entities to implement “secure development practices” for in-house developed applications, and processes for evaluating, assessing, or testing the security of externally developed applications. Both regimes intend to insert data security/ privacy early in the development stage and ensure it is not an afterthought. These principles will need to be communicated to design teams to ensure they are aware of what is required.

Managerial Responsibility Both the GDPR and the NY CSRs require the appointment of senior data security/ privacy professionals who oversee compliance. The GDPR requires certain organisations, including public authorities and those that engage in “regular and systematic monitoring of data subjects on a large scale,” to appoint a Data Protection Officer (“DPO”) who must be easily accessible and should have extensive powers and responsibilities. The NY CSRs require all Covered Entities who do not fall within a small business exemption, to designate a Chief Information Security Officer (“CISO”), who should be appropriately qualified and must report to the Board of Directors, or equivalent senior body, at least annually. A Covered Entity may outsource this CISO function to a third-party contractor, however.


Security Measures With regard to security measures, both regimes vary in their approach. The NY CSRs in some instances list specific security measures that must be implemented. In contrast, the GDPR, which concerns Personal Data of varied sensitivity, requires an organisation to implement appropriate technological and organisational measures, taking into account: •

The available technology;

The cost of implementation;

The nature, scope, context and purposes of the Personal Data and the way it is used; and

The risk to individuals who are the subject of the data (“Data Subjects”).

The GDPR does, however, provide example measures that may, in some instances, be appropriate. As might be expected, the prescriptive measures of the NY CSRs and the example measures of the GDPR are similar. For example, both regimes identify encryption and the ability to restore systems as important security measures. The GDPR also specifies that pseudonymisation is a security measure that can be used to help protect personal data. Pseudonymisation is a process for anonymising personal data by, for example, redacting information that identifies individuals (such as their name, email address, etc.), or replacing such information with a reference number or code. Such extracted data will still be considered Personal Data under the GDPR if it can be linked back to personal identifiers by the organisation.

Third Party Contractors The security measures set out in the NY CSRs apply directly to Covered Entities. Technically speaking, they do not directly apply to TPSPs, unless of course, the TPSPs are themselves Covered Entities. However, Covered Entities are required to develop and implement written policies and procedures designed to ensure the security of the Covered Entity's Information Systems and “Non-public Information” that are accessible to, or held by, TPSPs. These policies and procedures must set out minimum cybersecurity practices, due diligence and contractual protections which, in reality, will mean the NY CSR will, by extension, apply to TPSPs. The security requirements of the GDPR directly apply to both the entity that owns and determines the use of data (the “Data Controller”) and the TPSP (under the GDPR, a “Data Processor”). Both are subject to fines if they breach the requirements.

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Breach Notification Both the GDPR and the NY CSRs contain comparable requirements for data breach notification. However, there is a clear disparity in how they define a “breach”. The NY CSRs define a “Cybersecurity Event” as “any act or attempt, successful or unsuccessful, to gain unauthorised access to, disrupt or misuse an Information System or information stored on such Information System”, (emphasis added). The GDPR includes a wider definition of “Personal Data Breach” which includes any “breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to [Personal Data]”. This definition would include an employee leaving a laptop on the train or, arguably, a bank sending a paper statement to a customer’s previous postal address, which is then “returned to sender”. It would not necessarily require an external actor attempting to penetrate the security system of the Data Controller.

GDPR - Notification of a Personal Data Breach to Data Protection Authority/ Data Subject A Data Controller shall notify a Data Protection Authority of a Data Breach: without undue delay; and within 72 hours of becoming aware of it, unless the Data Breach is unlikely to result in a risk to the rights and freedoms of natural persons. A Data Controller shall notify a data subject of a Data Breach:   without undue delay,where there is a high risk to the rights and freedoms of a natural person unless certain exceptions apply.

NY CSRs - Notices to Superintendent

A Covered Entity must notify the NY Superintendent of Financial Services: as promptly as possible; and within 72 hours, from determination that one of the following has occurred: Cybersecurity Event which requires notice to a governmental body, self-regulatory agency or other supervisory body; or Cybersecurity Event that has a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity. A Covered Entity may be required to notify consumers affected by a Cybersecurity Event under New York’s information security breach and notification law. In addition, the NY CSRs require Covered Entities to address as part of their incident response plans external communications in the aftermath of a breach, which includes communication with affected customers.

Conclusion Not Pictured: Although the substance of the two regimes are different, there are similarities in some areas including internal accountability, managerial responsibility, security methods, the relationship with third party vendors and breach notification requirements. When designing policies and procedures in these areas, and others, financial institutions (and their service providers) should consider how their responsibilities under both statutes are duplicated and take a holistic approach to compliance.

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Scott Morton Associate Pillsbury Law


Rafi Azim-Khan Head Data Privacy, Europe, Pillsbury Law

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Focussed on our clients’ success, we have confirmed once again our outstanding client experience by being named “Best Private Wealth Management Company Canada 2017” for the second year in a row.

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Progress and Challenges in Streamlining State Financial Services Licensing Recent efforts by state regulators to streamline the process of applying for and obtaining state financial services licenses are a welcome development for non-bank financial services providers. In May 2017, the Conference of State Bank Supervisors (CSBS) announced “Vision 2020,” an initiative designed to make the multi-state licensing experience “as seamless as possible” by redesigning the Nationwide Multistate Licensing System (NMLS) and harmonizing multistate

supervision. More recently, some state finance regulators have announced plans to push for greater coordination in licensing and supervision. Bryan Schneider, the Secretary of the Illinois Department of Financial and Professional Regulation and chairman of a multistate regulatory task force, has stated that “Our goal is uniformity across the United States.” One of the primary methods of achieving uniformity being discussed is a reciprocity system, sometimes called “passporting,” under which obtaining a license in one state would allow for a streamlined application and approval process in other states. A similar system currently exists for “producer” licensing to sell, solicit, or negotiate insurance. The National Association of Registered Agents and Brokers Reform Act of 2015 (or

NARAB II) created the NARAB, a nonprofit membership-based organization charged with establishing requirements and procedures to enable applicants to simultaneously apply for nonresident licensing in multiple jurisdictions. Applying the NARAB model to financial services, one can imagine NMLS expanding in a similar way in the future. NMLS’s efforts to harmonize money transmitter reporting requirements is just one example of this evolution. Like NARAB, NMLS is an entity created by federal law (under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008), with the original mission of streamlining the licensing process for individual mortgage loan originators (MLOs). Currently, all U.S. jurisdictions use NMLS to receive MLO license applications and other residential mortgage-related licenses. The majority of jurisdictions have also transitioned other financial services licenses to NMLS, including non-mortgage lending, money transmission, and debt collection licenses.

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As NMLS continues to grow and evolve, states could develop an effective reciprocity system with the following features: • A single, uniform application standard accepted by all states for each financial services activity. •

Once approved for an activity, an NMLS “member” could conduct that activity in additional states after paying licensing fees, increasing the amount of a common surety bond, and updating any required credit report or criminal background check. Each state regulator would retain the ability to deny a license for certain enumerated reasons, such as criminal history or prior enforcement action, and would retain the authority to supervise and regulate NMLS members active in their state.

The benefits of such a system are numerous. First, non-bank financial services providers would be encouraged to accept state regulation if the process were streamlined in this manner. The expense associated with licensing would be drastically reduced, as would the time to market. Second, with the licensing review function effectively outsourced to NMLS under a uniform application, regulators could focus their resources on identifying unlicensed activity and activities that violate their financial services laws, instead of reviewing license applications. Far from threatening consumer protection, reciprocity would increase the amount of resources available to investigate bad actors. Third, efforts to streamline licensing may provide the framework and further motivation for additional harmonization in state financial services regulation.

Data Security: In recent years several states have developed their own data security laws which, in some cases, impose higher or different requirements than federal law. The New York Department of Financial Services Cybersecurity Rules have received significant attention, but other states, including Massachusetts and Nevada, have also introduced laws covering encryption, monitoring, training, and other data security controls. As state regulators make efforts to harmonize existing licensing standards, emerging data security requirements should also be included in this effort.

While CSBS and several individual state regulators appear to be considering such a system, resolving differences in state licensing requirements will be a challenge. Some of the more difficult issues may include: •

Authorized Activities: Each state has different licenses permitting a different range of activities – some authorize a narrow set of financial services, while others allow for multiple activities under a single license. For example, a North Dakota Money Broker License permits the holder to engage in any consumer or commercial unsecured, secured, or real-estate secured (mortgage) lending and broker activities, with the exception of payday lending. New York requires at least three different licenses to perform the same activities. How will these be reconciled?

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Fingerprints and Principal Investigations: Currently, many states accept fingerprints for background checks on officers, directors, and large shareholders through a single electronic submission with NMLS preferred fingerprint vendor. However, outside of NMLS, multiple hard-copy rolled fingerprint cards are required in several states. While this issue would be resolved easily if each state accepted electronic fingerprints through NMLS, a more difficult question concerns who needs to provide fingerprints and other disclosures in each state.

There is no uniform standard for which principals of a company need to be disclosed and provide information as part of a licensing application. NMLS provides a definition of “control” for purposes of determining who should be disclosed, but ultimately it is a fact-based inquiry that states often interpret differently. The result is that some states may only require disclosure of the primary officers of the company to be licensed, while others will require information about individuals at every level of the corporate structure. •

Usury Laws: Usury rates present a particularly tricky issue for state uniformity standards. The maximum rates that non-bank lenders may charge vary widely from state to state, and many states may be unwilling to alter their usury laws out of consumer protection concerns. Usury laws are also directly linked to licensing issues in states where the requirement to obtain a license is triggered only by loans above a certain interest rate. For example, a license is required in Texas to make consumer loans above 10% per year, while Rhode Island’s law suggests a license is required to make any consumer loan, regardless of interest.

* * * * * While achieving uniformity across all states remains a long-range goal, there are a number of challenges that will need to be addressed as these efforts move forward. Still, the NMLS system provides an intriguing platform for addressing these and other state licensing issues – in this regard 2018 may be a year of significant changes in the world of state financial services licensing.

Evan R. Minsberg

Andrew E. Bigart

Evan R. Minsberg is an associate in Venable's Regulatory group. For more information, visit

Andrew E. Bigart is a counsel in the Washington, DC office of Venable LLP. He specializes in helping clients in the payments and banking industries navigate the complex federal and state regulatory environment.

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How to grow

your Business using

Crowdfunding It wasn’t long ago that entrepreneurs had just a few limited options to finance their businesses. Obtaining funds for expansion, product development or marketing struck fear into the hearts of many because of the prospect of facing risk-averse bank managers and merciless VCs. Thankfully, that has all changed and crowdfunding has made raising funds for a business much easier and kinder than ever before. Entrepreneurs can now take their products straight to their customers, generating cash but also building and connecting with their audience. There has never been a better time to start and grow a business.

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By offering rewards, entrepreneurs can avoid diluting ownership or stock at an early stage, and keep their shares for greater investment against value later in the start-up process. Market a business

Obtaining funding and backers

Many young businesses think that in order to take on a marketing campaign, they first need capital, but running a crowdfunding campaign is actually great marketing opportunity in and of itself. Just thinking about and planning a crowdfunding campaign helps entrepreneurs’ focus on building a minimum viable product, creating clear positioning and establishing a solid strategy to raise visibility.

Funding is crucial for business growth, but often very difficult to obtain. Crowdfunding provides a viable alternative to traditional methods by allowing entrepreneurs to “mobilise” capital. By raising money directly from their supporters, they can bring an idea to life whilst remaining autonomous.

Part of the initial launch plan should include creating social media accounts, video introductions to the brand/product and high-quality images. These tools can be used when reaching out to potential backers and journalists throughout the campaign, and can be as low-cost or extravagant as budget allows.

In rewards-based crowdfunding on platforms such as Indiegogo, backers are offered perks in exchange for a financial contribution. These rewards are established and delivered by the individual or team behind the project, and serve as an incentive for potential supporters. For example, if a campaigner is funding a prototype product, a perk could be early access to the product or some kind of discount.

A great example of a company that used crowdfunding as a marketing tool is Mous, the creators of the indestructible Mous Limitless iPhone case. The London-based company reached 2779% of its goal with Indiegogo earlier this year. One of the most effective pieces of campaign content was a video demonstrating the resilience of the product by dropping an iPhone from a 45 foot crane, which is still being used by the media to this day!


Market Validation Simply by looking at their funding numbers entrepreneurs can get a clear indication as to whether people actually want their product. A fully funded campaign is a good indicator that there’s demand in the market for a product, while minimal to no funding indicates that an entrepreneur needs to head back to the drawing board. Product Research Market research is an important part of shifting a product from concept to manufacturing. Traditionally this activity has been carried out through quantitative surveys and focus groups, which is both costly and time consuming, and thus financially inaccessible for many entrepreneurs. Crowdfunding allows entrepreneurs to complete market research at minimal cost. Potential backers can leave product feedback on the campaign page, social media, or email correspondence. The opportunity to improve the product with help from real-life

customers is invaluable resource to an earlystage entrepreneur. Building an Early Customer Base Crowdfunding is also a great tool to bring together a strong customer base. The process of running a crowdfunding campaign, from providing updates, to delivering perks, allows entrepreneurs to connect with a supportive community of lifelong customers. People who go to crowdfunding websites are often early adopters, which can be like gold dust for entrepreneurs! Business growth is a challenge in any Joel Hughes industry, but crowdfunding has created a UK and Europe Director host of effective ways for entrepreneurs Indiegogo to scale their businesses successfully. The process of crowdfunding is the perfect opportunity for entrepreneurs to simultaneously obtain capital, conduct market research, validate products, and create a community of loyal customers. After the campaign ends, investors can use the results to vet possible new investments.

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G E T T I N G B Y.

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W W W. L E A R N T O T R A D E . C O . U K



“Alexa, Show me the Money” – the challenges and obstacles banks face when implementing Alexa AI AI voice assistants have begun slowly infiltrating the customer service structure and, thanks to Amazon’s latest announcement, we are likely to be seeing, well, hearing them even more. As of August 17th, Amazon has opened sourcing license for Alexa Voice Service Device SDK to third party users, allowing commercial devices to be powered by the AI assistant. This is a game changer. Instead of having to develop their own, companies can now implement a fully functioning version of Alexa to their devices, one that can handle speech recognition, stream media, notifications and alarms, as well as accessing the thousands of voice apps, Alexa skills, without owning an Amazon product. Alexa has the potential to transform customer service within banking. Customers will no longer have to go through a longwinded authentication process, instead they now have the opportunity to simply ask, ‘Alexa, how much have I spent this weekend?’. This development has the potential to revolutionise both the extent to which the tech is used, and the levels of pick up seen across sectors.

The technology supporting AI has been embedded within our smart devices for a while. It just hasn’t been utilised before now. Google and Microsoft say that nearly 1 in 4 mobile services are voice-based and it’s easy to see why, with speech input being 3x faster than English or Mandarin type. So, why hasn’t this technology been introduced before? Privacy is a pressing issue within banking­, and opening up another potential security threat is a risk some banks and customers are not willing to take. No software is bulletproof, therefore, it is crucial accurate testing is carried out and the system is regularly updated, to address security concerns and protect customers. Although banks have been slow to embrace AI technology, Virginiabased Capital One struck a partnership with Amazon and Alexa in March 2016. Capital One customers can use their Amazon Echo, Dot or Fire TV to access account information. For just under a year now, customers have successfully used Alexa to check their balance, review transactions and make payments without any security issues. The same goes for American Express, who joined the AI trend in May 2017, offering a similar service.

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Currently, accounts linked to Alexa can only be accessed with a secure pin code, however, some users are asking if this is enough. One user expressed concerns regarding how account information is stored within Alexa’s voice history, potentially offering thirdparties key account information if successfully breached. More sophisticated authentication features may be necessary in order to make Alexa the go-to customer service assistant, however, the technology is constantly developing. Individual voice recognition may be an important factor in AI’s success. HSBC/ First Direct and Barclays use voice recognition technology that has the ability to identify customers contacting via telephone banking solely on their voice. Another security feature set that could address this concern is biometric scanners. Biometric verification is almost impossible to replicate; therefore, it is the most secure authentication feature we have today. With fingerprint recognition beginning to feature on every smart phone and the iPhone 8 rumoured to include

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iris-scanning technology, this could be the answer to protecting customers using AI. Another key issue is whether the software is sophisticated enough to accurately recognise particular voices, especially those with an accent. To train software to understand speech, you need a lot of voice samples, allowing machines to begin to associate sounds with words. Therefore, this problem can be addressed by collecting a more varied range of voices and will continually see improvements as time goes by. Although there are only a handful of banks currently using AI technology, Amazon’s announcement will offer brands the chance to take advantage of the technology without needing to develop their own AI assistant. Customers may be initially slow to embrace all this, but as Alexa becomes more familiar, it is likely that banks will increasingly turn to her, due to the convenience and ease she can offer customers. Those who choose to ignore the technology may find users switching over to competitors.

Overall, Alexa looks set to be your new customer service advisor. Yes, there are challenges to be overcome. But the potential she offers is undoubtedly an exciting prospect.

Pete Gatenby head of sales and marketing B60


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