International Finance May 2019

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Why Islamic finance is growing faster than conventional banking MAY 2019

VOLUME VI ISSUE 10

IN OMAN?

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Editor’s n o t e

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he Sultanate of Oman was one of the last of the Gulf Cooperation Council (GCC) countries to implement Islamic banking. Although Oman dithered about the introduction of Islamic banking, Islamic finance seems to be simply taking off in Oman. Starting late came to be Oman’s advantage as Oman was able to learn from the implementation experiences of other states. But that alone is not just enough to explain the fact that financing through Islamic banks is growing faster than that through conventional banks. In this issue, we go deeper into the Islamic finance scenario in Oman to reveal why the late blooming Islamic finance sector in Oman is becoming a success.

Apple is foraying into credit cards. But what is Apple’s intention? Does the American technology giant seek to compete with banks or is there something more than meets the eye in Apple’s card play? We enquire and find what is in it for Apple and what the market expectation is. Meanwhile, Kaspersky has suffered reputational damage with the hostile US action against it. But the company has survived the worst impact of it. It now advocates cyber security clients to move from cyber security to ‘cyber immunity’ as a new paradigm. What does this entail?

Also, this issue explores two key issues that are highly relevant for banks in Europe and the emerging markets – conversational and open banking. Our authors tell how banks can reap the benefit of the technologies and frameworks involved.

Brexit has been extended – that means businesses have more time to spend on tenterhooks worrying about a hard Brexit. However, the state of affairs in the property market, especially in London, might not be all doomsday – the sector has reason for hope as we will see in this issue.

Samuel Abraham Editor

sabraham@ifinancemag.com www.internationalfinance.com

INSIDE MAY 2019

06 Why Islamic finance is growing faster than conventional banking in Oman?

Oman was late to introduce Islamic banking.

But Islamic banking is now growing faster than conventional banking in Oman.

COVER STORY

62 A strategic approach based on value is key to implementation of AI in banking As AI evolves, banks must think in terms of which solution will deliver the most value immediately

10 Apple Card: Does the company really want to compete with banks?

What play is Apple making with its new product Apple Card? Is it a ‘conscious decision’ to compete with banks or is it an effort to add users on Apple Pay?

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84 Why are banks the most vulnerable to cyber threats?

Cyber criminals who target banks are sophisticated and organised. So what approach do banks take to counter them?

www.internationalfinance.com

Director & Publisher Sunil Bhat

Understanding the full scope of conversational banking is key

12

Bahamas’ digital fiat currency – what next?

20

Open banking is a gold mine for financial firms

IFIL is changing Bangladesh’s Islamic finance sector

How does Brexit affect prime central London property prices?

Technology is finally democratising securities lending

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Editor Samuel Abraham Editorial Adriana Coopens, Jessica Smith, Lacy De Schmidt, Sangeetha Deepak, Karan Negi Production Merlin Cruz Design & Layout Prasad Shankarappa Business Analysts Steve Lloyd, Sid Nathan, Christy John, Jane Paul, Mark Smith, Gwen Morgan, Sarah Jones, Ayesha Misba Business Development Manager Steve Martin Business Development Sunny Shah, Sid Jain, Ryan Cooper Accounts Angela Mathews, Jessina Varghese Registered Office INTERNATIONAL FINANCE is the trading name of INTERNATIONAL FINANCE Publications Ltd 843 Finchley Road, London, NW11 8NA Phone +44 (0) 208 123 9436 Fax +44 (0) 208 181 6550 Email info@ifinancemag.com Press Contact press@ifinancemag.com Associate Office Zredhi Solutions Pvt. Ltd. 5th Floor, Sai Complex, #114/1, M G Road, Bengaluru 560001 Ph: +91-80-409901144 International Finance

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Cover Story

Why Islamic finance is growing faster than conventional banking in Oman?

While the Sultanate’s late adoption of Islamic banking helped it to learn from others, it also had three key advantages Sangeetha Deepak

International Finance

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man issued a Royal Decree in 2011 to introduce an Islamic financial system: a relatively new concept for the Sultanate then. This led to the establishment of two dedicated Islamic banks and six Islamic windows of conventional banks in the Arab country. The main purpose of the Royal Decree was to add six additional articles, 120 to 126, to the banking law of Oman to cultivate an Islamic banking culture. But despite the enactment of the law, a cautious approach from the government slowed the mainstreaming of Islamic finance. However, Islamic banking is growing at a faster pace than conventional banking in the Sultanate of Oman today. What are the reasons for the surprising growth of Islamic finance in a country that was late to adopt it?

According to the Central Bank of Oman, by December 2017, the credit disbursement for Islamic banking was rising faster than that of conventional banking – at 25 percent year-onyear. Pointing to a wider acceptance of Shariahcompliant products, the total financing by Islamic banks and windows jumped 29 percent in 2018 over 2017. During the corresponding period, conventional banks recorded just a 4 percent year-on-year growth in total credit disbursed. At the same time, a Moody’s report also stated that in the next five years, the assets of Islamic banks might reach the R3 billion mark, signifying 10 percent of the country’s overall banking assets.

“This rapid growth is partly because we have had the advantage of learning from the experiences of Islamic banks in other jurisdictions,” Dr. Muhammad Iman Sastra

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Mihajat, head of Shariah, Oman Arab Bank, said.

“The Central Bank of Oman does not allow the Islamic banking entities to use the contract of bay’ al-‘inah and tawarruq in their products because these contracts are still being debated among some of the global Shariah scholars.”

Last March, the total market share of all Islamic banks in the Sultanate was at 12.4 percent, which represented R3.99 billion in total assets, R3.16 billion in total deposits, and R3.18 billion in total financing, according to The Supreme Council for Planning.

“This remarkable achievement is likely to continue for the next five years,” Mihajat added.

Even though Oman was the last country in the six-nation Gulf Cooperation Council (GCC) to introduce Islamic banking, the Islamic finance sector of the Sultanate is gaining a swift competitive advantage over the rest of the region for three reasons.

Robust regulatory framework First of all, a possible factor firming up the growth of Islamic banks over conventional banks is a robust regulatory framework. Expert and experienced Islamic banking and finance executives drawn from the global Islamic finance market designed the Islamic Banking Regulatory Framework of the Central Bank of Oman, according to Khalid Al Kayed, CEO of Bank Nizwa. The framework applies to the country’s two full-fledged Islamic banks: Bank Nizwa and Alizz Islamic Bank, and the six Islamic windows: Al Yusr Islamic Banking, Meethaq Islamic Banking, Muzn Islamic Banking, Sohar Islamic Bank, Maisarah Islamic Bank, and Al Hilal Islamic Bank, that acted

Cover Story

as ‘auxiliaries’ to the independent Islamic banks in their early stage.

and chief Islamic finance officer at Astana International Financial Centre.

Second, the well-documented frequency of financial crises that has come to grip conventional banks has profound implications for Islamic banking in Oman and everywhere else in the world. That said, the founding and evolution of Islamic banking has been driven by the recognition of the sanctity of Islamic banking. A robust governance system mandated by a Shariah Board enforces strict prohibitions on controversial products such as Tawarruq and all banks adhere to the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards. Islamic windows operate as separate branches in the country. Currently, there are 76 banking branches with shariah-compliant financing across various parts of the country. In all cases, there is no manipulation or interest involved in transactions, and that, is highly appealing to Muslims and nonMuslims residing in Oman.

Distinct model

Third, Islamic banking not only supports high-profile clients, but small and medium enterprises. There are many entrepreneurs in Oman who have received help from the industry to expand their business.

The expansion of the industry can also help increase the country’s GDP because Islamic banking entities are involved in real economic activities. “If they can gradually take a bigger share of the conventional financing in the country, especially in relation to major projects and trade investments, and also if there are concrete steps towards improving Oman’s indigenous human capital, the industry will positively lead to good economic growth,” said Sheikh Bilal Khan, partner and head of Islamic Finance at McCarthy Denning

To make that happen, Islamic banking will have to create new paths for progression. For example: Oman’s adoption model for Islamic banking is distinct compared to other GCC countries. And this distinctiveness is attributed to factors such as, the bank within a bank model, assigned capital, separate branches for Islamic banking, exclusive books of accounts, dedicated staff, and windows; and Islamic banks’ access to funds from conventional banks under the terms of Islamic compliance.

But loopholes also exist. Islamic banking entities lack sufficient knowledge in the industry’s financial transactions and activities because of a limited supply of expert human capital, insufficient liquid instruments in the Islamic money market, and restricted sukuk issuance in the secondary market.

For this reason, the Industry’s stakeholders are collectively tasked with fighting those challenges in a short time span.

“The major Islamic banking entities need to incorporate Shariah governance in their good corporate governance framework,” Mihajat explained. Regulatory authorities are devoted to introducing new Islamic money market instruments and initiating establishment of Islamic Deposit Insurance Scheme, so that Islamic banking entities will be able to fully comply with Shariah principles while developing faster than commercial banks. editor@ifinancemag.com

International Finance

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Apple Card: Does the

company really want to compete with banks?

While some experts see Apple’s new product as a ‘conscious decision’ to compete with banks, others think it is an effort to add users on Apple Pay

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Sangeetha Deepak or a long while, Apple has enjoyed a lot of attention for its great design sense and a

remarkable tech journey.

Building on that success, the company has now teamed

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up with Goldman Sachs to launch a new addition to its product line: Apple Card.

Apple Card will be rolled out this summer on the Mastercard network. With that, Apple and Goldman will

foray into credit cards for the first time.

“The latest news from Apple isn’t unexpected,” Michal Kissos Hertzog, CEO of Pepper, a native mobile banking service, said. A

BANKING

report released earlier this year said that “two-thirds of decision-makers at UK retail banks believe that most of the major technology companies will offer retail banking services in the next five years.” And with Apple, “well, now they have.”

Apple foraying into the payments market has stoked a lot of criticism. Because the company relying on the whole banking ecosystem to get Apple Pay to where it is today, and then making a conscious decision to compete directly with those partners, has hurt the industry sentiment. Jordan McKee, research director at 451 Research, said: “They’re not just competing in Apple Pay, but they are (also) opening up features only for the Apple Card that other banks can’t leverage.”

That said, Apple Card is not a novelty. Like every other Apple product, the card is designed to look premium: it is made from titanium, and displays the logo of Apple, Mastercard, and Goldman Sachs. There are no other usual features such as magnetic stripe, CVV number, or expiration date on it, however.

Those specifications will appear in the Apple wallet, meaning that the card can only be used with EMV chip and PIN during point of purchase.

The reason for doing so is that having select data on the card can drastically reduce fraud and with a real-time fraud protection, cardholders will be notified during any

suspicious transactions.

Coming from Apple, the fraud protection feature was expected to be unique — but it is not, because other financial institutions such as Monzo and Contovista already have it.

So, the one thing that sets the card apart is that it perfectly complements Apple’s product line — which can obviously not be achieved by any other company.

Exclusivity comes with a price Exclusivity of that sort comes with a price. Cardholders cannot depend on Apple Card alone. It appears that limiting the physical card to an EMV chip restricts its use in markets where transactions are possible only through embossed card data and magnetic stripe technology.

Second, Apple Card does not support contactless payments: One might assume that the option was removed because of the card’s sophisticated titanium make — but the actual reason is to prevent extracting the card number through NFC, if it is stolen or lost. Moreover, it could also be “a deliberate decision to trigger the cardholder to use Apple Pay whenever contactless payment is available. Also, the fact that for payments with the physical card there is only 1 percent cashback (instead of 2 to 3 percent with the virtual Apple Card) points to this direction,” according to a blog on medium.

Even though some experts argue that Apple launching its own credit card is a potential threat to banks, there are reasons to believe otherwise.

Kevin Morrison of Aite Group told the Financial Times: “It’s a matter of what’s already in your wallet — what is going to compel me to apply for that Apple card? I have chosen my other cards for a reason.” It’s understood that consumers already have several other cards in their wallets — which means, Apple Card will have to compete with credit card issuers such as: Citibank, Chase, and the rest.

In addition to that, the company hasn’t attempted to display interest in acquisitions.

In particular, the need to establish a ‘co-branding’ agreement with Goldman Sachs might not have been necessary, if competing with incumbent banks was on Apple’s agenda.

At a time when every bank is almost rehashing the same type of financial offering over and over again, any change is significant. But in the case of the Apple Card, the only redeeming aspect about Apple’s new product is that it might serve as a ‘wake-up call to incumbent banks’ to think bigger, because just another banking app or even the ‘profit and loss business model’ won’t help any longer. A whole new banking experience is what they will need to thrive on in the long run.

editor@ifinancemag.com

International Finance

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Why understanding the full scope of conversational banking is so important Banks need a paradigm shift in their communication strategies to converse with digital customers

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Stephen Cunningham

o longer is there a linear relationship between financial institutions and customers, where one supplies a service and the other procures it. Increasingly, there is an ongoing dialogue and this is leading to the conversational banking trend.

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According to a recent Accenture report, banks need a paradigm shift in their communication strategies to converse with their digital customers. By using Conversational User Interfaces (CUI) that integrate messaging, text, and voice, banks can introduce innovative services

Global

to develop a seamless relationship with the customer.

an embarrassment, as the app spouted hate speech.

AI powered chatbots in a global banking world

Whether it is retail or corporate banking, the expectation is the same: customers need to continually interact with financial institutions.

They need services that are more sophisticated as more data and knowledge are captured.

In international banking, this presents an even greater challenge, as nuanced information about customer expectations need to be carefully and intelligently integrated into the service offered.

Largely, however, chatbots fail because they haven’t been fully thought out in terms of the artificial intelligence they create, internalise, and learn from. This could be due to a developer problem of a lack of platform and standards or UX problems such as the inability to translate text-based conversations or understanding the meaning behind the words.

For international finance organisations, AI powered chatbots provide a unique opportunity. Even the most astute customer service agent may find it difficult to know the complete history of each and every single customer it serves. Whether it’s the language a customer speaks, the product they are using or past issues, having all this information top of mind and being able to use it to determine recommendations is a tall order.

Finance organisations across the world will be looking to technology to manage this change in customer expectation.

But doing so should be with care; getting it wrong could irreparably damage relationships with customers.

The chequered past of the chatbot Criticism around chatbots has been plentiful. The Poncho app found it difficult to cope with questions it couldn’t understand, and the lack of human control in Microsoft’s Tay turned into

As chatbots evolve, however, consumers are beginning to recognise the value intelligent chatbots can bring and there is growing demand for them in the conversational banking mix. In recent research, commissioned by Avaya, 51 percent of UK consumers said that they prefer their questions to be answered by chatbot with AI while they are shopping online or using an app, and 32 percent prefer a working chatbot powered by AI than a human customer service agent, demonstrating the increasing trend towards technology-powered customer service.

Not for the chatbot.

Data-driven insight is a huge advantage of chatbots over and above their human counterparts.

It doesn’t mean that humans are no longer needed — quite to the contrary — humans and chatbots should play to each other’s strengths.

The best example in practice is when chatbots are used as a consistent reference point from initial conversation through to specialist problem solving. The information you initially delivered to a chatbot can be captured and used to build a profile of you as a customer.

International Finance

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Global

When your query then gets routed to the relevant specialist, they can not only be equipped with the most relevant and up-to-date information on the specific request, but the chatbot can cross reference this with the various resources and resolutions within a customer service agent’s toolkit.

Although as humans we can use our power of building a relationship, understanding the context of a situation, and experience in dealing with similar customers, we can also benefit from being guided to the most relevant solution by a chatbot.

Critically, the chatbot is able to move from front line customer support to back office support for the customer service agent, yet retain all that important information specifically relevant to you as a customer.

This allows the service to move beyond language and cultural nuances with recommendations built in and flagged to the customer service agent where necessary. Such a situation

Financial organisations across the “world will be looking to technology to manage this change in customer expectation, but doing so should be handled with care�

can happen with regulatory considerations such as MiFID II and GDPR that may require data or online conversations to be handled in a specific way.

According to an EY report, typical banks have digitised their legacy systems to improve customer experience, decrease costs, and manage risks. The digital transformation that conversational banking requires moves beyond this, however, and both customer service and infrastructure need to evolve to improve banking as an experience, as a marketplace, and a service partner. Conversational banking, chatbots, and AI are critical to this bank of the future, particularly for international finance

editor@ifinancemag.com

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institutions that want to differentiate, evolve, and ultimately compete in a changing and increasingly fierce global marketplace.

Stephen Cunningham Director for UK enterprise Avaya

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Constant innovation in solutions and technologies helps Kaspersky survive upheavals The Russian cybersecurity firm says organisations should shift their focus from cybersecurity to ‘cyber immunity’, to overcome evolving threats

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ata destruction is a grave concern to the world. At the brass tacks, there are flaws discovered in the ‘Internet building blocks’ that has put organisations and the personal data of millions of people in a vulnerable position.

In an interview with International Finance, Chief Business Officer Alexander Moiseev offers a deepdive into Kaspersky’s latest efforts to fight malicious activity on the web, why cybersecurity needs a different approach, and how businesses should act on cybersecurity threats.

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IFM Correspondent Can you elaborate on Kaspersky Lab’s partnership with ThreatConnect?

With our partnership, we have integrated our Threat Data Feeds with the ThreatConnect platform. It works as follows: Kaspersky Lab collects data about the ever-evolving attack techniques from its numerous trustworthy sources to offer its ThreatData Feeds.

These feeds are now available for customers of ThreatConnect Platform.

What is the individual contribution of both partners to enhance protection capabilities for customers?

Interview

what kind of information is never collected and shared.

What drives Kaspersky Lab’s growth despite the upheavals?

Despite the challenging geopolitical situation, the company is constantly developing and improving its solutions and technologies. The positive financial results in 2018 show that our customers and partners trust the company. The company continues to score exceptionally high in independent ratings and has received some of the most prestigious international awards in independent tests conducted by leading organisations around the world. For example, for the second consecutive year we have been recognised for our customer satisfaction ratings, being named a 2018 Gartner Peer Insights Customer Choice for Endpoint Protection Platforms. In addition, Kaspersky Lab has been recognised as a ‘Strong Performer’ among threat intelligence providers by Forrester. In the report, Forrester cited the company’s ability to collect and analyse information as ‘exceptional’, with research bolstered by a global sensor network of endpoint agents and an international research and analysis team. Another example is the 2018 Germanywide survey run by respected German media that showed that Kaspersky Lab is among the top five trusted software brands by the German consumers.

The more trustworthy sources of threat intelligence a company has, the stronger its cyber defence is. By using the ThreatConnect Platform, companies can aggregate and compare threat intelligence data from numerous sources to protect themselves from evolving threats and mitigate company-specific cybersecurity risks. By incorporating Kaspersky, Threat Data feeds into the threat intelligence framework that they are already using, organisations will get a clearer picture of the threats that pose the most danger to them

What were the challenges after your company faced allegations in 2017 and how did you overcome them?

These challenges were reputational rather than financial. Despite false allegations reported by media without any evidence, we believed we had the responsibility to show and prove that we can be trusted. At the same time, the trust landscape is complex and misconceptions and unfounded concerns should be addressed in a clear and helpful way. We believe, that as an industry, we should be transparent about exactly what kind of data we need, why we need it, and what we use it for — and

The performance was good in APAC and Europe. However, there was a slowdown in Latin America. Why? A slowdown in Latin America in 2018 was mainly caused by currency devaluation in the region.

However, we are confident that we will further succeed in this market and have increased headcount in the region to ensure we accomplish our business goals.

Can you detail some of the internal modifications that took place last year — in terms of IT infrastructure, audit practices, and the like?

Last year was significant for us in terms of developing the Global Transparency Initiative that we launched in 2017 as part of the company’s ongoing commitment to ensuring the integrity and trustworthiness of its products.

In November 2018, we opened our first Transparency Center in Switzerland, which serves as a facility for trusted partners and government stakeholders to review the company’s code, software updates, and threat detection rules along

International Finance

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Interview

“We at Kaspersky

with other activities. Two additional Transparency Centers in Asia and North America are planned to be open by 2020. In addition to that, we initiated relocation of our research and development infrastructure from Russia to Switzerland as well. Thus, from November 2018 malicious and suspicious files shared voluntarily by users of Kaspersky Lab products in Europe started to be processed in two data centers in Zurich.

Lab also point to the fact the current cybersecurity situation requires a transition from cybersecurity as it is to cyber immunity”

In the framework of the GTI, we contracted one of the Big Four professional services firm to audit the company’s engineering practices around the creation and distribution of threat detection rule databases. Our aim was to independently confirm their compliance with the highest industry security practices. The assessment will be done under the SSAE 18 standard (Statement of Standards for Attestation Engagements) with the issue of the SOC 2 (The Service and Organisation Controls) report expected in Q2 2019.

In addition, Kaspersky Lab continues to support an active bug bounty program to strengthen the security of its products, and in March 2018, we announced an increase of the reward to $100,000. Within one year, more than 50 bugs were resolved of which several were especially valuable.

In 2018 we have been developing. At the beginning of this year, Kaspersky Lab launched a new global partner program ‘Kaspersky United’ that enables our partners — including resellers, service providers, and system integrators — to focus on selling the Kaspersky Lab services and products that match their own specialties and therefore monetise better. The core set of tools, services, and incentives are available for any partner in any country, meaning that all of our partners around the world can benefit. However, we have also addressed specific regional needs by providing figures, sales indicators, rebates, and other metrics relevant to the local market. We believe this approach helps us to strengthen our global partner ecosystem, while meeting the diverse needs of our partners and customers.

Increasing connectivity of the world results in cyber threats becoming more complex. That’s why it is highly important not only to ensure the proper understanding and assessment of threat risks, but also to develop a secure-by-design environment, by integrating cybersecurity within the system from the very beginning. We at Kaspersky Lab also point to the fact the current cybersecurity situation requires a transition from ‘cybersecurity’ as it is to ‘cyber immunity’, which means that cost of a cyberattack should exceed the cost of potential damage that it can inflict.

How should businesses act to build a more proactive, strategic approach to cyber threats?

While cyberattacks are becoming more and more complex, causing financial, reputational and legal impact on businesses, they need a comprehensive approach to fight against these attacks. These range from threat intelligence to detection and response solutions, managed security services, as well as soft skills training including in reputational tactics. In addition, as supply chain attacks remains a major concern for corporate cyber protection, organisations will need to come up with more strict requirements for service providers and hardware and software makers to reduce the risks.

Alexander Moiseev Chief Business Officer, Kaspersky Lab

editor@ifinancemag.com

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Is today’s ‘hyper-connected’ global landscape more vulnerable than ever to cyber threats?

What are the steps needed to strengthen protection?

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What’s next after Bahamas decides to create a digital fiat currency?

Project Sand Dollar is a landmark initiative by the Bahamas to modernise its cash economy and to fight organised financial crime

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ast year, The Central Bank of The Bahamas announced the Project Sand Dollar to accelerate a landmark initiative to digitise the Caribbean nation’s fiat currency. The initiative is especially important for the family of islands across the archipelago because several commercial banks in the region have downsized and become isolated from their communities. These developments have affected economic growth in the region.

The Central Bank collaborated with NZIA and Zynesis, a technologyfocused blockchain consultancy, to design and implement the state-backed digital currency using blockchain.

Also in an attempt to

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Sangeetha Deepak heighten focus on the initiative, The Central Bank recently hosted a blockchain seminar: Blockchain and The Bahamas: Raising the Bar. Damian Blackburn, Chief Aliv Officer at Aliv, the new Bahamas telephone operator, who represented who Cable Bahamas and Aliv at the seminar, said that Aliv will

accept Project Sand Dollar payments from the first day of its launch. “The speed of everybody adopting it is crucial. I encourage all corporate entities and governments alike to consider receiving money in Sand Dollars from day one, as I have just announced on behalf of the Cable Bahamas group.”

At its core, the evolving Bahamian payments infrastructure will lower service delivery costs, increase transactional efficiency, and improve the overall financial system in the communities.

So, it is crucial that the Bahamas telecommunications companies and banks interact closely with solution providers, remittance providers, and emerging companies to make that happen.

If this project is correctly

BANKING

“The Central Bank has collaborated with

NZIA Limited and Zynesis to design and implement the state-backed digital currency” implemented by them all, ‘the residents will have equal, expanded access to modernised digital payments capabilities and they might even benefit from a concurrent reduction in cash transactions,’ the Central Bank said.

For the past many years, the nation’s government, bankers, and political leaders have made efforts to clean up and protect the financial system but that hasn’t worked. Although the local financial bodies regard the Bahamas as ‘one of the world’s principal international financial centres’ its money laundering problems still remain unchanged.

One proof for that is that international anti-crime bodies such as the US State Department and Financial Action Task Force have identified some of the banks and offshore companies in the Bahamas as being associated with cases of massive crime and corruption.

But an even damning indictment is that a draft risk assessment executed

by the Bahamas authorities confirmed the possibility of money laundering in their domestic private banking and trust company sectors.

Against this background, the suggested change will be positive for reasons beyond modernising the payments infrastructure. It shows that the Bahamas authorities have started to claw back against some of the destructive financial activities that previously seemed difficult to resolve.

Fighting financial crime The other benefit of the Sand Dollar is in fighting financial crime. Deputy Prime Minister and Minister of Finance K Peter Turnquest, said, “Using technology and single points of contact, we’re able to eliminate a lot of the human element that facilitates corruption.” And in the case of applying for government services, there is ‘a single portal for entry’ through which all processes will be carried out. This can prevent circumstances that require to ‘tip’ somebody for service

delivery, as the Bahamians call it.

When combined with appropriate policy and legislative reforms, the initiative might help reinforce the ‘functional aspects of digital currency’ for the Bahamas.

“Even though it is at a very preliminary form, the government is looking to see other ways in which certificates such as business licences, passports, and national insurance that require effective security measures can make use of blockchain technology to enable people to maintain their data and share it in a secure and verifiable way,” Turnquest said.

The Central Bank has said that Sand Dollar will comply with local regulations which also includes the draft regulatory Central Bank of the Bahamas Bill to be passed in 2019. This means, the Sand Dollar initiative might also work against financial corruption, such as money laundering and terror financing.

editor@ifinancemag.com

International Finance

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Why it’s too early to say that the UK’s MLR 2017 is failing For the law to fully protect the existing financial system from money laundering, the UK needs a far more risk-based approach Jessica Sobey

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he UK’s Money Laundering Regulations 2017 (MLR 2017) created several criminal offences, most significantly the breaching of a relevant requirement. The requirement demands that those operating within the regulations undertake certain activities and refrain from undertaking others unless the proper processes and procedures are in place. Regulation 86 makes it a criminal offence to breach a relevant requirement. When found guilty of any such offence, a relevant person may be liable to a fine and/or up to two years imprisonment.

The new regulations promised a far more rigorous approach to the prevention of money laundering in the UK; requiring the financial sector to have in place mechanisms that would prevent the cleaning of ‘dirty money’.

With the regulations themselves only being laid before Parliament one working day prior to commencement, those affected by their implementation were given very little time to prepare.

It was perhaps not surprising therefore that some leniency was shown to allow for such significant changes to take place. Insofar as the legal profession is concerned for example, The Legal Sector Affinity Group informed the HM Treasury that they intended to take a ‘sensible and pragmatic’ approach to supervision following the commencement of the new regulations, allowing professions a period of time to adapt the new requirements. However, a recent

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freedom of information request made by Eversheds Sutherland to the Home Office revealed that as of October 2018 there had been no prosecutions under the regulations. Some fifteen months after their implementation.

So what does that mean for the sanctions that were promised to better regulate the financial services sector that has itself spent in excess of £5 billion on core financial crime compliance measures? Are we to believe that the regulations are so successful that the very threat of a breach has led to a sea change in the approach taking to anti-money laundering in the UK? Or is this a case of the government simply giving lip service to the need to crack down on money laundering, without putting into effect the measures that allow that to happen?

Powers to prosecute are not new; having existed and been put into effect under the MLR 2007. So have the new regulations, in fact, had the opposite effect and stalled any such prosecutions that were in the pipeline while the effect of the new rules on those investigations are considered and professionals are given a chance to implement change?

In July 2018, Mark Stewart, Director of Enforcement and Market Oversight at the Financial Conduct Authority (FCA) indicated that they had started a small number of investigations into firms, systems and controls, to establish whether there has been any misconduct that might justify a criminal

Ideas prosecution under the MLR 2017. Stewart made the following four observations: •

The MLR 2017 specifically makes provision for criminal prosecutions and the FCA is simply giving effect to the purpose of the regulation

•

In most cases an investigation will be opened on a dual track with both regulatory and criminal offences under consideration with a broad range of outcomes including no further action

•

The fact that criminal proceedings may be brought does not mean that they will be brought. He reiterated than an investigation is a fact finding mission and the presumption of innocence applies during an investigation

•

In any potential criminal prosecution the FCA must satisfy both the evidential and public interest test in order to bring criminal charges

But how do those assertions sit with the apparent lack of any such prosecution?

Prosecution is not the only way Prosecution is not the only way to deal with regulation breaches as is indicated by Stewart in what he sets out as a ‘dual track’ approach. It is important to bear in mind that criminal prosecution has a high evidential and public interest test; not least due to the significant costs of bringing such proceedings. As such, Stewart made clear that prosecution would therefore be reserved for the most serious of cases: “I doubt the depths of seriousness can be fully plumbed anyway. However, it would seem safe to say that where we see what appears to be facilitation of suspected serious crime, in circumstances where plainly obvious checks and questions have neither been carried out nor asked, it is likely the test of seriousness will be passed.”

clear was the intention of financial regulators to bring about a cultural change within the sector to achieve system compliance.

Since MiFID II’s inception on January 3, 2018, the FCA’s market data processor has ingested more than half a billion reports a month on average, up 55 percent on the first six months of 2017. Stewart has drawn attention to the fact that MIFID II represents a whole market overview of trading which puts the FCA in a far better place to detect suspicious activity.

Although the FCA may be cautious to reserve its powers for the most serious of breaches, those in charge have made it clear that they will do so when the seriousness test is passed. It would be presumptuous or naive perhaps, for those affected to think that the MLR 2017 is failing in its objectives at what is still a relatively early stage. There is no doubt that the attempts to bring about a cultural change have placed far greater requirements on the financial sector than ever before. Perhaps the lack of prosecutions thus far is representative of a number of factors, not least a period of adjustment but also the sectors initial response to the threat of stricter penalties, paying head to Stewart’s assertions that the new powers will be used where necessary.

Perhaps the new ‘risk based’ approach also extends further than its intended purpose of applying greater scrutiny to the origins of finance. I suspect that those at the helm of such institutions are also taking a far more risk-based approach to what is happening under their leadership. Where before they may have been able to plead ignorance of any ‘bad practice’ and offer up scapegoats for penalties and/or prosecution, new rules mean that the buck essentially stops with them.

It is perhaps important while considering the effectiveness of new regulations to have in mind what else is being done in an attempt to bring about cultural change. Not long after the implementation of the MLR 2017, the financial services sector was required to implement further significant changes in the form of the Markets in Financial Instruments Directives II (MiFID II). MiFID II represented a regulatory overhaul for the financial services sector, no doubt representing a huge influx of work for the FCA in monitoring compliance. What became increasingly

Jessica Sobey Barrister, Stokoe Partnership Solicitors

editor@ifinancemag.com

International Finance

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Open banking is a gold mine for financial firms A Forrester study says 99 percent of financial firms expect to benefit from adopting the framework – mainly because of its impact on customer relationships

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May 2019

BANKING

associated with manual processing of data (56 percent) and customers taking too long to gather the relevant documents (50 percent) – both of which the new open banking model will address, while also improving the customer journey.

In fact, customer experience is cited as the key reason for financial firms to implement open banking, with 56 percent stating their organisations need to improve customer experience during applications.

This is closely followed by both product innovation and keeping up with the competitive landscape (53 percent).

Will North, core credit director at TransUnion said, “Financial firms are not only facing competition from their traditional rivals but from a host of specialist lenders, with new players including tech giants and nimble fintechs. The latest entrants to the market bring agility and a sharp focus on customer service.

To compete, financial services providers should be utilising data-derived insights to secure their customer base, improve their service and capitalise on their brand strength.

“In this competitive landscape, it’s unsurprising that customer experience is recognised as a top priority, and open banking is a key platform for delivering a smoother and faster customer journey.”

Reaping the rewards

A

near-unanimous 99 percent of financial services organisations by TransUnion expect Open Banking to benefit their business. Over half

(52 percent) believe that Open Banking will speed up their application or onboarding process, while 46 percent expect it to improve customer experience, according to a white paper by information solutions provider TransUnion (formerly Callcredit), one of the UK’s leading credit reference agencies.

Research conducted by Forrester Consulting on behalf of TransUnion showed that currently, over half of financial firms struggle in processing consumer applications.

Key pain points include the costs and time

Overall, there are a number of specific areas where financial services decision makers see potential for improvement in their customer relationships that will be enabled with the adoption of open banking.

North continued: “As well as the anticipated improvements in customer onboarding, our research showed that financial firms also expect open banking to deliver time and efficiency savings (49 percent) and improve their ability to crosssell products (42 percent). Navigating these opportunities effectively is essential for firms in delivering a competitive service and to realise the business growth they’re looking for – the right support from trusted partners is where we come in to help them achieve that.”

The findings are part of TransUnion’s new white paper: The Evolution of Open Banking: Adoption, Benefits and Consent.

editor@ifinancemag.com

International Finance

25

Why Cyprus might be the best location to establish your business Invest Cyprus highlights a slew of newly taken measures, low taxation, as well as easy access to the EU and the Mediterranean nations IFM Correspondent

I

nvest Cyprus is actively involved with initiatives to build Cyprus’ regulatory framework and to simplify administrative procedures to make life easy for foreign investors. In a detailed interview, the Director General of Invest Cyprus George Campanellas covers the key elements that make the country’s investment climate attractive and the role of Invest Cyprus in developing it.

What is Invest Cyprus?

Invest Cyprus is the national body responsible for promoting Cyprus abroad as an investment

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destination, as well as attracting and facilitating Foreign Direct Investment in a wide range of economic sectors.

We advocate for reforms that will lead to the continuous improvement of the business environment, and render it truly welcoming and encouraging to foreign investment.

Our experienced staff is available to international investors for any kind of enquiries, and are always eager to offer guidance and support throughout an investment cycle. In close collaboration with both the private and the public sectors, Invest Cyprus also acts as a bridge between investors and

government authorities, facilitating communication and putting forward investors’ needs and requests.

Since 2004, Cyprus has been rapidly developing into a continental business hub.

How progressive has been the investment climate over the last three years?

Cyprus has made remarkable progress in the last three years.

Overcoming difficult economic challenges, the island is now marching on a solid growth path and it is among the top five Eurozone economic performers,

Interview with a remarkable GDP growth rate

technology cluster, particularly for

of around 4 percent. The strongest

software development.

confirmation of Cyprus’ positive

credit rating agencies, with the country

What is the Cypriot government doing to ensure the country’s economic progress?

dynamically re-entering investment

The Cyprus government has shown

economic outlook though comes from the consecutive upgrades from

grade in 2018. This upward trend is

its commitment to the country’s

expected to continue and it is indeed

economic progress in a number

reflected in renewed investor interest

of ways. Through a number of

and increasing FDI inflows in a variety

initiatives, structural reforms, and a

of sectors. Significant investment has been materialised, especially in

George Campanellas

the real estate and tourism sectors, with the development of luxury resorts, marinas, golf courses, and of course the first integrated casino resort in Europe, which is expected to open its doors in 2021. The strong Cyprus maritime cluster continues to expand, while Cyprus is fast growing into an attractive investment funds jurisdiction within the EU. Indicatively,

recently, we undertook a coordinating role in an initiative involving all the actors in further improving the Cyprus Investment Programme, which is an important incentive for FDI. Moreover, we were actively involved in drafting the newest package of incentives for the film industry and we are also chairing the

sound, prudent yet growth-friendly programme, the bureaucracy has been tackled and procedures have been simplified. The results are evident now. Strong economic growth, strong future economic projections, continuous upgrades of the Cyprus economy are all worth mentioning.

The government’s comprehensive plan has resulted in a solid,

Cyprus Film Commission.

modernised, and restructured state doing business. Stability has been

on! The investment climate is definitely

Can you elaborate on the FDI strategy of Cyprus?

positive and we will do our utmost to

In a highly competitive and

I would mention that assets under management increased by 70 percent in the last three years. And the list goes

keep it that way.

How does Invest Cyprus help boost the country’s investment appeal internationally? Can you give an example?

As part of our organisation’s mandate, we strive to help the country reinforce its competitiveness.

This is what we believe is the most valuable asset Cyprus has to demonstrate abroad and certainly it is a prerequisite for attaining long lasting and sustainable economic growth. Enriching and strengthening our offering and thus Cyprus’ competitiveness is amongst our highest priorities. Invest Cyprus is involved in a variety of initiatives to improve the country’s regulatory framework through horizontal reforms such as simplifying administrative procedures. We are also involved in advocating for and drafting of relevant regulations as well as introducing general and sectoral incentives for investment. Most

constantly evolving international economic environment, it is essential to continuously diversify and enrich our offering. Our goal is to attract value added investments, which create jobs, increase productivity, and lead to economic growth. We are generally focusing on attracting companies to set up their corporate bases in Cyprus. Our geostrategic location between three continents supports our offering in the strongest way. Cyprus can serve as a gateway for investment not only into the EU, but also to other high-growth markets. Currently, we are aiming at attracting companies from the dynamic segments of Information and Communication Technologies (ICT) and Internet of Things (IoT).

With the necessary ingredients being there, a number of multinational technological companies have already chosen Cyprus to establish their operations, giving a vote of

that ensures speed and ease of consolidated and international confidence in our financial system and banking sector has been regained. The effort is tireless and continuous. And we will continue to implement and support this growthfriendly economic model, placing Cyprus high on the global investment map.

Is there a compelling value proposition for foreign investors? if so, can you explain what it is?

Cyprus offers companies a unique value proposition that combines ease of doing business with daily life elements. The country’s geographical position in close proximity to major markets and our EU membership helps companies to use Cyprus as a regional hub or investment portal into other growth markets.

Cyprus has a simple and effective regulatory structure in place, as well as an attractive tax system. We also offer a wide range of advantages, exemptions, and deductions for both

confidence in our country’s potential

individuals and corporations of all

for development into a main

sizes and access to a broad network International Finance

27

Interview of double tax treaties with more than 60 countries, including Finland.

The island offers one of the lowest corporate tax rates in the European Union at 12.5 percent and has a competitive IP regime.

Specific tax packages apply for innovative companies and investment funds. Also, with English widely spoken, we offer a costeffective but quality business support services from a highly skilled workforce. In addition, businesses will find low operating and living costs which help Cyprus provide companies with an ideal framework to develop and excel. Last but not least, quality of life is of the highest standards and makes the island an ideal place not only to do business but also to live. Moreover, a pro-business growth model and the government’s dedication to continuous improvement and investor satisfaction are critical elements in making Cyprus an attractive investment destination.

It seems, Cyprus provides incentives to enhance its investment climate. What are they?

Cyprus has in the past few years introduced a number of incentives, both general and sectoral. These include tax benefits for corporates and individuals, as well as measures to promote startups and innovations such as an attractive IP regime, a special tax incentives package for investment into innovative companies and the introduction of the startup

Is the tax and regulatory framework making headway to reinforce the investment culture?

Cyprus offers an attractive and transparent tax regime, fully compliant with EU directives, OECD requirements and international laws and regulations.

In addition to a low corporate tax of 12.5 percent and access to a wide network of more than 40 double tax treaties, the Cyprus tax framework offers a variety of benefits, deductions, and exemptions for both corporates and individuals. Completing the package are an attractive IP regime, the tonnage tax system for shipping companies, and tailor-made elements for the investment funds industry.

Complementing these are incentives for investments into innovative companies as well as incentives for filming in Cyprus, a new industry in which we see great potential. As regards the legal and regulatory framework, Cyprus’ system is widely recognised as a business-friendly and effective system that ensures transparency and reliability in business practices. Based on English Common Law principles, it offers foreign businesses a familiar and reliable framework with which to operate.

Cyprus’ legal system is also fully compliant with the EU, the

also a key tool in attracting foreign direct investment and is being continuously enhanced, just like all of our incentives’ framework.

May 2019

through developing new sectors, and, subsequently creating new opportunities for investment. As far as Cyprus is concerned, business people and corporations worldwide realise there is much more to this island than a ‘sun and sea’ destination. Cyprus is a business and academic centre of excellence, hosting a world class maritime cluster and possessing a strong flag. It provides enriching tourist experiences and advanced strategic infrastructure projects. Companies can explore the prospects of encouraging oil and gas discoveries in the island’s Exclusive Economic Zone. We are currently targeting the global film market. Cyprus is also a fast growing investment funds centre, with assets under management witnessing a 70 percent growth in the last three years.

We aim to create a knowledge-based economy and we are one of Europe’s leaders in emerging technologies.

Cyprus’ focus on ICT and innovation was established by the launch of the Innovation Hub, and the creation of accelerators and research centres.

We are trying to attract more their operations. In general, we aim to encourage development of corporate

Development (OECD), the Foreign Account Tax Compliance Act (FATCA), the Financial Stability Forum laws and regulations and the EU antimoney laundering (AML) directives.

investments in a variety of sectors.

Shipping, tourism, real estate, and financial services have traditionally been the driving forces of the island’s

regional headquarters in Cyprus and we are interested in increasing the number of new and established companies that locate their regional or global headquarters on the island.

Few other countries enjoy such easy access to the EU and other high-growth markets surrounding the Mediterranean. We do see an increase of multinational companies wishing to explore alternative EU jurisdictions, especially in view of Brexit, as well as an increase of companies actually deciding on

economy. Energy, investment funds,

Cyprus being the best choice to

startups, ICT, education, and filming

set shop.

editor@ifinancemag.com

28

while also diversifying our offering

for Economic Co-operation and

Cyprus offers great potential for

Cyprus Investment Programme is

areas where we traditionally excelled,

Laundering (FATF), the Organisation

as well as an enhanced framework regulating investment funds. The

The goal is to enhance our edge in

companies to choose Cyprus for

film industry has been developed,

programme for the promotion of the

creating new, exciting opportunities.

Financial Action Task Force on Money

What are the opportunities for international companies in Cyprus?

visa. Moreover, a comprehensive

are now sunrise sectors that are

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conferences

As the network perimeter expands, so should financial firms’ cyber security readiness From just protecting the network at the core, organisations should focus on robust hardware and edge solutions Nick Offin

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May 2019

Global

International Finance

31

T

he financial services sector has seen digital technologies such as AI and analytics increasingly being woven into everyday practices, boosting efficiency in routine tasks and supporting an evolving mobile workforce.

Recent research by Microsoft found that only 11.4 percent of European employees feel highly productive at work. Amid the arrival of innovative technologies such as 5G, mobile working is not only becoming increasingly prevalent, but also more popular, with offices no longer confined to four walls. As financial services organisations adapt to this rapidly changing environment, they must also be mindful that — as handlers of extremely sensitive information in an age of mass data proliferation —the wider a network perimeter stretches, the more the scope for security breaches.

The 2019 financial cyber threat landscape As financial organisations adapt to this rapidly changing environment, they must be cautious of technology’s role as both enabler and inhibitor of cybersecurity. With so much confidential data increasingly central to the financial ecosystem, for example, the rise of mobile banking applications, the cost of any security breach quickly escalates.

An Accenture and Ponemon Institute report showed that cyber attacks are more costly within the financial services sector than in other industries, with the average cost of a data breach rising by over 40 percent between 2014 and 2017 to $18.28 million per firm.

Coupled with this is the growing intelligence of the cyber criminals attacking this data while constantly evolving their methods to stay ahead of the game. This is demonstrated by the 2018 SonicWall Cyber Threat Report, which reported a 101.2 percent increase in never-seen-before cyberattacks and malware variants. Criminals are developing increasingly effective weapons like ransomware, IoT malware and TLS/SSL-encrypted malware to target organisations across the globe.

The Accenture and Ponemon Institute study revealed denial of services, phishing, and social engineering attacks to be among the most costly for financial companies, while those committed by malicious insiders and malicious code take the longest time to resolve. It’s therefore no surprise that, according to Toshiba, 62 percent of Europe’s IT leaders still consider data security to be a key investment priority.

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May 2019

Devices and employees: the first line of defence for finance Devices are in many cases are the first line of defence for organisations and instances of laptops being lost or stolen on a busy commute, or connected to a coffee shop’s unsecure network, can leave sensitive data exposed. IBM and the Ponemon Institute found that almost half of security breaches involved a malicious or criminal attack, while a further 27 percent were due to the carelessness of negligent employees. Combining the two creates a potent concoction which financial services CIOs need to manage.

It is therefore essential that organisations ensure their security solutions provide a strong foundation to protect sensitive information at both a hardware and network level. Financial services firms should look at devices such as Toshiba’s X-Series that boast biometric features alongside in-built smart data encryption tools. Along with these initial barriers, remote access and wiping tools are important in enabling IT teams to centrally remove

Global

policies. Security specialists such as Avast are specifically calling out IoT as a key battleground in 2019 as sophistication in this area increases.

As a result, the finance sector needs to consider new and innovative security methods. One such approach is to turn to mobile edge computing, which not only paves the way for IoT to be used in the enterprise operationally, but also ensures that it’s achieved in a secure manner. Such solutions enable data communication to be locally encrypted and translated to a communication protocol before being sent to the company’s network core through the cloud. As we see new IoT-driven solutions such as wearables entering the enterprise, the need to protect the ever-growing swathes of data created by this trend will result in financial services placing even more value on mobile edge computing.

files and data from devices, should they land in the wrong hands. Even within an organisation, it is important for individual departments to ensure security and confidentiality for sensitive documents.

Central administration tools can grant access rights based on job type and job seniority — for example, restricting sensitive financial information from those sitting outside of that department.

Beyond digital technological solutions, financial services organisations must also invest in training and education to ensure employees are taking the right steps to identify and mitigate potential security attacks, as well as preventing them from happening altogether. Toshiba research also suggests two thirds of organisations want to engage their staff in IT training, in turn ensuring correct and secure usage, ultimately reducing the chances of employee negligence.

The rise of IoT and the mobile edge The growing adoption of IoT is creating an urgent need for even more stringent data protection

For banks and other firms within the sector, security remains the most important element of the IT infrastructure, with the current threat landscape more diverse and testing than ever before. It is essential that such companies constantly stay on top of evolving cyber threats and build strong security fundamentals across their networks, incorporating solutions that future proofs them against the increasingly intelligent methods of cyber criminals. In the age of IoT, this means going beyond protecting the network at its core, but also using robust hardware and edge solutions to nullify the threat across the ever-expanding network perimeter.

Nick Offin Head of Sales, Marketing, and Operations dynabook Europe – UK Branch editor@ifinancemag.com

International Finance

33

What is the merchant value proposition as Sweden’s Trustly and France’s Ingenico combine forces?

The partnership aims to bring a sea change to e-commerce payments and refunds in 26 European countries

T

hrough the partnership between Trustly, a Swedish fintech company and Ingenico a French company focused on secure electronic transactions, their customers will be able to make payments directly from their bank accounts, which

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May 2019

IFM Correspondent improves the merchant value proposition. This is especially true for countries such as Sweden, Finland, the Netherlands, Poland, and Germany, where electronic payments are preferred. The level of convenience promised for both merchants and customers

is largely possible because of Trustly’s relationship with more than 3,000 banks in Europe. In a conversation, Nick Tubb, vice president of commercial affairs, Ingenico ePayments, tells us what the partnership means to the e-commerce sector across Europe.

Interview

What does this collaboration mean to customers and merchants using Ingenico’s payment platform?

The collaboration will see Ingenico expand its range of online payment solutions and enhance its position in 26 European countries, with online banking payment capabilities now integrated into Ingenico’s payment platform.

Ingenico’s customers can now get paid through a quick, seamless, and secure bank transfer, receiving real-time confirmation after the checkout process has been completed. Merchants and consumers will also benefit from Trustly’s unique refund functionality.

Can you elaborate on Ingenico’s online payment solutions?

Ingenico offers over 150 payment methods and currencies and delivers a fully localised payment experience to customers anywhere, on any device. With our full service model, merchants are able to collect payments from around the world without the need for a local bank account or legal entity.

One single integration with our global payment platform connects merchants to markets around the world.

Through this, how will the merchants be able to boost conversion rates?

Definitely. Allowing e-commerce customers to make payments directly from their bank account improves the payments experience, leading to higher conversion rates.

How will users benefit from Trustly’s unique functionality that enables swift and easy refunds?

Trustly’s solution removes

administrative complexity for merchants while allowing consumers to get fast refunds, helping cut chargeback rates. For the majority of the banks it works with, Trustly is able to refund the funds instantly, leading to higher basket values on the original order.

How distinct and advanced are your offerings compared with the existing platforms?

Ingenico’s platform connects merchants to their customers through over 150 e-commerce payment methods, including all major card schemes and alternatives. Our teams tailor the payment mix to the specific needs of each region, so regardless of the market, we have the payment methods that meet customers’ expectations and can be optimised for top line results.

What has been the feedback so far?

Our goal is to offer more choice in payments and a deeper integration of e-commerce into consumers’ lifestyles.

How secure is the payments sector with the rising cyber threats?

As technology becomes increasingly sophisticated, so do fraudsters, posing new and ever-evolving challenges to fraud prevention managers and merchants. Both online merchants and shoppers should be confident that they are operating in a safe environment and are protected against fraud. Our industry-leading fraud detection tools and experts bring over 20 years of industry and regional expertise, and we work closely with merchants to develop, implement, and manage a holistic fraud offering that includes prevention, detection, and management.

We are currently working with a number of international customers and the integration with Trustly has been very well-received.

In your views, what are the necessary changes that need to be introduced to advance online payments?

In order to advance online payments, there needs to be a focus on: • Inclusion — enabling as many consumers as possible to use their preferred payment method • Instant payments including real-time confirmation • Automation of the payments processes to reduce the number of steps required to complete a purchase

Nick Tubb Vice President, Commercial Affairs Ingenico ePayments

editor@ifinancemag.com

International Finance

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How Islamic Finance and Investment Limited is changing Bangladesh’s Finance sECTOR MD A Z M Saleh says that the company is committed to making Islamic financial services accessible through its new Shariah-compliant products

What are the significant changes and challenges you have encountered during your tenure in banking?

For an expanding economy, a developed and efficient banking system is important. It helps in the transfer of financial resources from surplus units to deficit units, and accelerates the pace of development by securing uninterrupted supply of financial resources from people who engage in numerous economic activities.

The tremendous development that the world economy has experienced in the last few decades is due to several factors of which,

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May 2019

growing institutional supply of loanable funds has played a pivotal role.

These changes have impacted the Bangladeshi financial system. From the 90s, we have seen the public banks undergo privatisation and the private banks emerge as the new medium for transactions and payments. Likewise, IT-based banking rose in the beginning of 2000s and management information systems became popular for enhancing the efficiency of banking services.

Currently, the country’s financial system is overwhelmed with green banking, internet

Company profile

banking, mobile banking, application-based banking, and much more. With that, the people in Bangladesh are used to better financial services and they expect more from the banking system.

The reach of banking has improved through financial inclusion and implementation of agent banking, school banking, banking for farmers, and so on. A thorough and widespread risk management system was introduced the banking and financial infrastructure.

The regulatory and legal compliances have been prioritised to minimise systematic and unsystematic loss. Against this background, Bangladesh has a mature money market and the increasing financial inclusion will create a better future for its residents.

The banking sector in Bangladesh is facing a crisis because of non-performing loans.

How does that affect your company?

Over the last few decades, non-performing loans have become one of the many burning problems in the banking sector in Bangladesh.

The globally approved ratio of non-performing loans is 2 percent or below, but in Bangladesh it is much higher. The proportion of nonperforming loans in Bangladesh is five to six times higher than the global norm, which is alarming for the sector. Domestic banks suffer from high levels of non-performing loans that reached 10.8 percent in March 2018. Moreover, they weigh on the supply of credit and on

investment and growth through a number of channels, such as locking in bank capital into unviable projects and unproductive activities, reducing bank profitability, and distorting capital allocation. High non-performing loan levels can also impair the mechanism of monetary transmission to the real economy.

I believe it is possible to reduce the level of non-performing loans within the existing framework, if a consensus is developed among all the concerned divisions.

The following steps can help reduce nonperforming loans in the banking sector: 1. The government can form a special tribunal court for large scale nonperforming loan cases 2. Banks can realise a down payment before any writ petition 3. Banks can also encourage a social boycott of clients with non-performing loans 4. The government can create social awareness about the problem of nonperforming loans and publish a list of defaulters in the national media 5. The government must also prohibit defaulters from making luxury purchases 6. It can seize the passports of defaulters to prevent them from travelling abroad

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Islamic Finance and Investment Limited holds a good reputation among non-bank financial institutions since inception. It is listed on both the Dhaka Stock Exchange and the Chittagong Stock Exchange with good credit ratings, earnings per share, and consistently provides dividends to general shareholders. That has been possible because of its focus on compliance in both legal and regulatory issues.

Risk management in every aspect of the operation is a practice in Islamic Finance and Investment Limited. We have skilled, knowledgeable, and experienced risk managers working with us. As a result, non-performing loans are within a tolerable limit in the company.

We are looking forward to incorporating international standards in our risk management operations through the introduction of an enterprise risk management system very soon.

Which are your company’s major product offerings?

Islamic Finance and Investment Limited offers various deposit products which comply with regulatory and Shariah rules. Among them is the newly introduced Mudaraba Asaan Deposit Scheme which appears to be quite popular. In this scheme, a depositor can deposit any amount at any time for a competitive rate of profit. The flexible deposit scheme is highly recommended to clients who have limited or irregular income.

In addition to that, the company has introduced two investment products: The first is Raha, which is designed to help clients by issuing

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a guarantee through letters of credit. The second is Silaa Ul Istihlaq which will finance the client to facilitate storage of seasonal commodities, and aims to stabilise the market prices of those commodity. These products are becoming very popular and profitable.

The company recently received the International Finance Award for the Most Innovative Shariah Compliant Financial Institution Bangladesh 2018. What distinguishes your company?

The International Finance Award is one of the most prestigious awards globally. It has been recognised as best in class among other banking and financial awards. Previously, Standard Chartered Bank, HSBC, and Citi received the award from our country. A variety of banks and non-bank financial institutions from different countries participated in the nomination process across categories.

Islamic Finance and Investment Limited won the award for the category: Most Innovative Shariah Compliant Financial Institute Bangladesh 2018, as no other banks or non-bank financial institutions were able to demonstrate their innovation in the Shariah product categories. Our product and research teams have worked hard to introduce these products into the market on time.

Do you think Islamic financing has an advantage over non-Islamic financing? If so, what are the reasons?

Company profile

I believe this is not an advantage but a demand from the people who belong to any Muslim country, such as Bangladesh because they prefer halal income for their livelihood.

People in Bangladesh are very religious. That is why the market share of the Islamic banking system in the country is increasing day by day. At present, there are eight commercial banks and two non-bank financial institutions operating as per Islamic Shariah, and Islamic Finance and Investment Limited is leading the sector since 2001.

There are around 1241 branches operating as an Islamic window for traditional and Islamic banks across the country. The market share of Islamic banking in the domestic sector is around 24 percent, which reveals its popularity in the country.

Understandably, in countries with a Muslim majority, Islamic banking is very popular, but based on the data, non-Muslims in Bangladesh are also fond of the system because of what it has to offer.

How do you see your company’s growth in the next five years?

Islamic Finance and Investment Limited, the first Shariah-based financial institution of Bangladesh, has played an important role in popularising banking backed by the Islamic

principles since its inception in 2001. Now, it is swiftly moving toward expansion, while focusing on branding so that the citizens of Bangladesh can understand more about the country’s first Shariah-based non-banking financial institution and its products. We mainly emphasise on the quality of service, better risk management, and wealth maximisation for shareholders in the coming days.

In the next five years Islamic Finance and Investment Limited has a plan to achieve the following: 1. Become one of the top three financial institutions in Bangladesh 2. Gain an international rating from a globally recognised company 3. Gain access to foreign funds for investment 4. Issue bonds to raise capital 5. Diversify portfolio through new product innovation 6. Create an IT savvy manpower base 7. Double the portfolio size 8. Reduce non-performing loans below 2 percent 9. Expand the branch network

editor@ifinancemag.com

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Banks with a digital core and APIs to benefit from new open banking regulations Technology, valuable customer data, and the public trust to use and share that data gives such banks a distinct competitive advantage Steen Jensen 40

May 2019

Banking

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t’s been almost ten months since the new regulations on how companies collect, store, and use personal data became law–the General Data Protection Regulation GDPR. It is one of a triumvirate of new regulations that could open up new revenue streams for banks in the name of open banking.

Together with the new Payment Services Directive (PSD2), which opens up regulated third-party access to customer data, and the Payment Access Directive (PAD), which makes it easier to compare bank charges, the new regulations are designed to make banking more competitive and to allow providers to offer modern, value-added services to their customers while keeping their data safe.

To quantify the opportunity, one study by PwC estimates that open banking could generate more than £7.2 billion by 2022 for banks, fintechs, credit scoring agencies, and the tech giants. So what do banks have to do ensure they don’t get left behind?

The size of the prize means new entrants are keen to try their luck at taking market share. But banks have a huge advantage over them as established and trusted players in terms of looking after customers’ assets, including personal data, which they have in abundance.

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This is critical because data will be the key to successful open banking.

By analysing it, banks will be able to maximise existing revenue streams and create new ones by more easily cross-selling and upselling, and by offering new services with third-party partners such as account aggregation via fintechs and timely and appropriate discounts or offers with retailers.

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Done well, it promises to bring back a level of service that bank customers still value and want but has disappeared from the industry years ago due to the high cost of providing it.

At its heart, open banking is about engendering trust, leveraging personal data and providing great service.

The first thing banks need to do to succeed is to recognise the

opportunity and leverage their advantage. To date, too many have seen open banking regulation as a cost – even a threat. GDPR in particular has been viewed as an unnecessary burden thanks to the very fact that the sector has one of the best track records when it comes to keeping customer data safe. This is perfectly illustrated by a recent survey by Accenture that found that the 70

Banking

percent of respondents don’t like the idea of using social media channels, for example, to access or communicate with their bank.

Next is to realise that while banks can make open banking work on an old legacy system, the task will be far easier and more efficient with a digital core platform.

The old legacy systems still operated by so many banks run a multitude of databases, each a data silo. The real opportunity in open banking is for banks to be able to access and analyse all of a customer’s data so that it can anticipate and accompany that customer on more of their financial journeys.

At the same time, banks need to be able to store customer consents for data use in a central, easily accessed format. That way, when requests for data are made – perhaps by third party banks as part of an enhanced service such as account aggregation they can be easily and cheaply fulfilled. Both are far easier with a digital core.

Customers are also becoming increasingly aware of their data protection rights such as data portability where personal data must be presented in a machinereadable format with fines for organisation that fail to do so. A legacy system will

have problems finding all the right data and delivering it quickly and efficiently in the right format. But that’s not the only downside: failure or delay will also likely damage a bank’s reputation and there’s the potential to lose business when customers become frustrated at a slow or inefficient service.

Data protection by design Next, banks will need to adopt a data-protection-by-design approach to security and train staff to be data aware. This means building processes that only access and display the data required to perform each task. For example, does a failed payment screen need to identify the customer or just display the account number? This will require thinking about processes and data management to ensure personal data is never accessed unnecessarily. It’s a case of compliance helping to build and reinforce trust.

can share the data securely and check it is shared compliantly.

So banks with a digital core using APIs will be able to take full advantage of the new open banking regulations.

And what is more, they will be in pole position to fight off the competition. They will have the technology, the valuable customer data and the public trust to use and share that data – something other providers might lack.

This is important because companies that understand how to use data to their advantage – the platform companies like Amazon, Google and Facebook – are likely to pose the biggest threat to banks in the world of open banking. But if the platform companies aren’t yet trusted, banks have a huge advantage – for now.

Similarly, banks will have to work with their third-party partners, those with which they share customer data, to ensure the latter have the right customer consents and that the data is secure. This is where APIs come in.

APIs allow banks to share data and check any GDPR requirement about consent.

When it comes to working with merchants, again, an API

Steen Jensen Managing Director Temenos Europe

editor@ifinancemag.com

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Is a multilingual app really an advantage in digital banking?

UK digital bank Monese’s customers who travel from country to country can do business in their own languages

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he UK banking app service Monese has 12 languages added to its app, email, and in-app customer support.

The app also supports English, French, German, Romanian, Polish, Portuguese, Italian, Spanish, Bulgarian, Czech, and Lithuanian.

In a conversation, CEO and Founder Norris Koppel discusses the importance of using a multi-lingual banking app and how well Monese is progressing in its target markets.

Is there is an exclusive reason for Monese to include Turkish language in its app?

We always listen and respond to the needs of our increasingly international and mobile user base.

We knew Turkish would be popular with our customers and have already had a very positive response from existing and new customers.

What are the other languages supported? Is there any criteria behind the selection of the languages?

There are no criteria for our languages, but we do adopt languages that we know will be popular and will make life easy for our customers. As well as Turkish

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IFM Correspondent language, Monese fully supports: English, French, German, Romanian, Polish, Portuguese, Italian, Spanish, Bulgarian, Czech, and Lithuanian.

As a company, our operations are focused in Europe, so nearly all of our languages are from the continent.

What are the advantages of having a multilingual app for banking?

There are many advantages to banking in your own language. We find that a lot of our customers find themselves travelling between countries for work, travel, study, or retirement. They want banking to be familiar. They don’t want to start again, in an unknown language, every time they arrive in a country. Banking in the language you feel most comfortable with is also very helpful in emergencies. If you have got to speak to your bank urgently because you’ve lost your cards, or you’ve noticed something unusual about your account, you want to do this in your native language.

How well established is the Monese banking app in the Turkish market?

With Monese being available in Turkish and the ability to send Turkish Lira provided, all Monese customers can use their Monese debit card to withdraw cash and make purchases when in Turkey. However, we do not provide a banking service to customers who live in Turkey.

It is too early to tell, but we’ve seen good adoption of the Turkish

Interview

language within the app in the UK, Germany, and France in particular.

How will the app enable customers to transfer funds in Turkish Lira at highly competitive rates?

Turkish Lira can be sent to bank accounts in Turkey at highly competitive rates, which can be up to eight times less expensive than high street banks. Our fees vary depending on the plan customers sign up to with Monese. For example, our Premium plan comes with no fee for transfer in Turkish Lira. Our Plus and Starter plans have 0.7 percent and 2 percent fee, respectively.

We use the mid-market rate for transfers. The fees for Plus and Starter are on top of the mid-market rate. We compared our transfer fees to those of European high street banks, we found that they were up to eight times less expensive than high street banks.

However, this depends on the pricing plan and the amount you send.

For this year, what are the plans to expand Monese’s offerings?

We’re always looking to make our banking service smarter and faster,

as well as offer greater functionality to our customers. We plan to roll out more partnerships to offer a broader range of services to our customers and we hope to unveil more on our exclusive partnership with Avios. We will also be enhancing our spending overview feature so customers can easily manage their money.

Why did Monese recently enable Apple Pay for customers in the UK?

borders. A banking service that makes it easier for our customers to live, study, work, travel, or retire anywhere in the world. One that is fast and keeps people connected.

A banking service that speaks their language wherever they happen to live. From day one, Monese was established with a global ambition.

At the moment, our core market is Europe and that has been our focus, but we plan to expand in the future.

We introduced Apple Pay to our customers in the UK in February.

Apple Pay is transforming mobile payments with an easy, secure, and private way to pay that’s fast and convenient. Customers can switch between their Monese cards, within their Apple Wallet, as easily as they would do within the Monese app.

Does Monese have a presence in the Middle East region? Do you plan to expand beyond Europe?

Monese cards can be used globally, including in the UAE, but we don’t have any other presence in the region at the moment. Here at Monese, we are building a new kind of banking service — one that is unrestricted by national boundaries or financial

Norris Koppel Founder and CEO Monese

editor@ifinancemag.com

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Historical performance of prime central London property prices overrule Brexit fears The stagnant property rates and the drop in pound value mean good for the City — the slowdown can push global HNIs to start investing Alpa Bhakta

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Market

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ike most financial sectors in the UK, speculation has been rife regarding the impact Brexit will have on investors’ returns in the real estate sector. And when it comes to prime central London (PCL) real estate, which is as much sought after by foreign buyers as it is by domestic high networth individuals (HNIs), there have been widely varying forecasts for the coming months and years.

As is often the case, the truth does not lie at one extreme or the other, but requires a more careful consideration of influencing factors and market trends.

Prime central London property prices UK investors are always fascinated with property prices, and each month different estate agents release their own data to show how markets across the country are faring.

According to new research from Lon Res, prime central London property prices fell by approximately 4 percent last year. It would

be easy to link this trend to Brexit, but this is likely not the case. In fact, figures released

by HMRC at the start of this year actually showed that there was a 50 percent increase in the number of homes sold for over £10 million between 2017 and 2018.

In reality, property prices at the top end of the market have been impacted far more by George Osborne’s stamp duty hike in December 2014 – the market has taken some time to recalibrate to this tax reform.

Ultimately, taking a short-term view of property prices presents certain difficulties. The property market is seasonal, which means there are inevitably monthly and quarterly variations. Moreover, anyone purchasing a property as an investment (or even as their primary residence) is typically looking for capital gains over a

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number of years, which therefore requires a more long-term perspective.

And of course this is why London property has established itself as such a popular asset among both domestic and international buyers. In the two decades between 1998 and 2018, the average selling price of a London property rose from approximately ÂŁ120,000 to ÂŁ700,000, an increase of 500 percent.

Regardless of Brexit uncertainty and the shift in the market following the aforementioned stamp duty changes, the

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predictions by market experts remain positive. Savills, for example, is predicting price growth in the prime central London market of 12.4 percent between now and 2023.

Demand remains strong The reason why many forecasts are charting long-term growth for prime central London property prices is that demand is still strong.

Indeed, figures from real estate firm Knight Frank show that there was a 5 percent rise in the number of new prospective buyers during 2018 in the prime central London market. And interest from overseas is undoubtedly playing a major role in this regard.

The longof London

term strength real estate coupled with the weakening value of the pound – it has

Market fallen by approximately 15 percent against the value of the dollar and euro since the EU referendum in June 2016 – continues to whet the appetite of international buyers. Underlining this point, Hamptons International research found that foreign investors bought 57 percent of homes in central London locations during the second half of 2018, and now account for a higher proportion of prime property buyers than they have in the past 6 years.

Brexit, it would seem, is doing little to deter foreign investors from considering prime central London for their next property purchase.

universities, a plethora of cultural sites, huge professional opportunities, amazing bars and restaurants, and beautiful properties in all manner of styles.

This is why it is important not to fall into the trap of believing one extreme narrative or another. Instead, one should see the bigger picture when looking at the prime central London property market, appreciating the strengths it has to offer and its historical performance as an asset class.

The desirability of the capital Cutting through the noise and speculation, the strength and stability of the prime central London property market should not be underestimated. And headlines about the impact of Brexit or price crashes must be taken with a rather big pinch of salt.

Even during the past two decades, when house prices in the capital increased by 500 percent on average, there were still months, quarters, or even years when the market slowed or dipped. But the appeal of London remains a constant. The City boasts world-leading

Alpa Bhakta, CEO Butterfield Mortgages Limited

editor@ifinancemag.com

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Trulioo builds a universal verification system for the borderless world Canadian RegTech startup’s API helps verify two-thirds of the world population with just a few lines of code IFM Correspondent Stephen Ufford, the CEO of Trulioo, a Canadian RegTech company that provides identity verification services for businesses worldwide, explains how the company’s expansion into Dublin will allow it to scale into new European markets and firm up its compliance framework through a single solution.

Why did you choose Dublin to set up Trulioo’s satellite office?

With Dublin continuing to emerge as a financial and technological hub with international gravitas, it made perfect sense to set up our satellite office there. In fact, 80 percent of global technology firms have a presence in Dublin so it’s no surprise that the city is emerging as a RegTech hub. In addition, the location allows us to develop a more personal working relationship with our partners and customers in Europe and the wider Eastern Hemisphere.

With the company penetrating into the European market, how will it reinforce the compliance systems and prevent fraud on the global front?

We help organisations prevent fraud by building a framework of trust on a global scale. We serve hundreds of global clients, enabling them to verify five billion individuals and 250 million businesses, and we are continuing to scale into new markets, adding new countries each month.

In just the last few months, we have broadened our coverage to include the Philippines, Czech Republic, Slovakia, Bangladesh, and Poland.

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In an online and borderless economy, cross-border compliance can become an impediment to business on account of regulatory differences between markets.

Our solution has solved this problem by allowing organisations to meet regulatory requirements across these markets through a single solution.

You said your physical presence in Dublin will allow you to work more personally with partners and

customers in Europe. Can you elaborate?

As mentioned, we serve hundreds of clients all over the world. Our teams in Vancouver and San Francisco work closely with our clients in the Americas.

However, as it happens, a large number of our customers are actually based in Europe. Dublin’s proximity to Europe and the abundance of great tech talent in the city guided our decision to open an office there. As a result of our expansion into Dublin, we now have team members on the ground who are able to work more closely with partners and customers based in Dublin and the EU

Is the city’s financial and technological climate attractive enough to bring more business opportunities?

Dublin has become a gateway to the European market. Major North American tech companies are expanding their presence in Dublin at a rapid pace.

Dublin offers quality talent, a fantastic ecosystem, and a business-friendly environment. Seeing Ireland become the fastest-growing economy in the EU for four consecutive years now, Dublin seemed like a natural choice for us.

What are the plans in the pipeline for the next three years — with Trulioo expanding its operations into Europe?

We champion the harmonisation and centralisation of data across the industry, globally, to promote identity verification, while still ensuring we address privacy, interoperability, infrastructure and security. In an effort to keep momentum and exceed

Interview our current pace of growth, we will continue to focus on R&D to improve our existing product and, in turn, expand our product offerings based on customer and market demand. The world’s population is at seven billion people and counting; currently, we verify five billion individuals around the world, which means we are already past the halfway point. Our mission for the future is to be able to verify each and every individual on the planet.

We will also continue to leverage the power of mobile data, from device IDs to GPS location, biometrics and mobile number identification, to cover populations that aren’t currently in the global financial system but have access to mobile phones.

GlobalGateway is Trulioo’s marketplace of identity data and services. By integrating with GlobalGateway, organisations can instantly verify the identity of five billion people and 250 million businesses in 195 countries through more than 400 unique, trusted data sources.

Developed for the international market, the solution helps businesses comply with a wide range of both local and cross-border regulatory requirements such as Know Your Customer (KYC) and Anti-Money Laundering (AML).

GlobalGateway allows our clients to scale into new markets around the world in minutes, through a single touchpoint, under a single contract.

In a world without GlobalGateway, organisations would have to build multiple integrations and sign multiple contracts to enter a new market and fulfil regulatory requirements there – a process which can take years.

Additionally, GlobalGateway offers the widest coverage in the market; not only are we able to verify individuals, we can verify businesses through our Global Business Verification service; we also offer Mobile ID and ID Document Verification.

It’s also important to be aware that GlobalGateway plays an instrumental role in fraud prevention and risk mitigation. Prevention is the operative

word here because, too often, fraud is only caught after the act. By enabling organisations to verify individuals and businesses during the signup process itself, we enable organisations to keep bad actors at bay and asses risk levels posed by customers before they are onboarded.

GlobalGateway was recently ranked the number one identity verification tool for the third year running in the 2018 RegTech Supplier Performance Report. How did you achieve this?

The RegTech Supplier Performance Report, which is published annually by Market Fintech, provides a clear view of the RegTech sector and focuses on the solutions gaining market traction, the scope of these solutions and the areas of compliance they address.

We are really proud that, in addition to ranking Trulioo as a top ID verification tool, the 2018 report also ranked Trulioo number three in the Overall RegTech Supplier Rankings.

Echoing what we said at the time, the report showcases a highly complex, yet burgeoning, area of financial technology and in the process, brings attention to the regulatory solutions that are making a real impact in today’s digital world.

It’s clear that automated eKYC tools offer more reliable, customer-centric solutions for financial institutions dedicated to delivering a seamless, digital-first experience. As a result, businesses are able to abandon problematic, manual processes and implement more reliable, crossfunctional solutions.

of building a diverse and talented team that genuinely cares about the product and, indeed, the problems that the product is trying to solve.

Having a team driven by a purpose to carry out a mission because of its sheer importance is one of the most significant factors behind our success.

The online, borderless economy is growing exponentially. As it matures, there is a tremendous need for securing greater trust online and making the internet a safer place to do business; our data expertise and technological advances put us at the forefront of meeting those needs. Identity verification is integral to our global business ecosystem. Our customers choose our service because we deliver real-time access to secure and reliable data sources. In today’s fast-moving digital and mobile world, companies are no longer restricted to doing business locally. With our technology, which enables faster global reach and fulfilment, it is no surprise that many of our customers are based locally, with a global footprint.

The development and evolution of our API has been another turning point: Over the course of countless iterations, we have perfected our API to the extent that any client of Trulioo can essentially verify two-thirds of the world’s population with only a few lines of code.

Trulioo supports over 500 clients worldwide to verify five billion customers and 250 million enterprises in more than 100 countries. What is the chief reason behind its swift growth?

Trulioo was founded to solve the one problem that had been considered unsolvable: Identity verification. If there are any takeaways from our journey, it’s the importance

Stephen Ufford CEO and Founder, Trulioo editor@ifinancemag.com

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Implementing technical and organisational measures to defend against cyber risks the priority for UK FIs in 2019 The Financial Conduct Authority in its latest report says lack of technical expertise within organisations is the reason they are unable to mitigate risks

I

Rosemarie Paul n a multi-firm review of 20

their capability to respond to and

companies of varying sizes,

recover from cyber attacks.

structures, and business models in the UK conducted in late

2017 and early 2018, the Financial Conduct Authority of the UK found that the lack of technical expertise is the chief reason why financial companies in the country are unable to mitigate cybersecurity risks. The aim of the review was to assess how asset management and wholesale banking firms oversaw and managed, identified, and mitigated cybersecurity risks and

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While acknowledging that the small sample size is not statistically significant, the FCA report makes it clear that the organisation considers its findings to be relevant to all firms in the asset management and wholesale banking sectors. Given that the FCA is taking an increasingly aggressive approach to enforcement of cybersecurity incidents, regulated firms need to pay close attention both to the report and possible future

developments in this area.

The following were the key findings of the report: Most boards have limited familiarity with the cyber risks their organisations face •

Almost all of the board members and non-IT senior management interviewed told the FCA how difficult it is to fully understand and explain these specific risks. This challenge is compounded by the fact that most board

Ideas members and non-executive directors lacked familiarity with, or specific technical expertise in, cybersecurity.

•

Some firms have hired external parties to advise them on cybersecurity. While endorsing this approach, the FCA cautioned against an overreliance on such advisors, which it said could hinder the development of firms’ in-house cybersecurity awareness and abilities.

Risk and compliance functions have limited technical cyber expertise •

The FCA observed that a company’s second line of defence — its risk and compliance functions — also had limited technical cybersecurity expertise, raising the prospect that such functions would struggle to challenge technically sophisticated first line business units.

Firms do not actively consider how to include cybersecurity in their broader approach to conduct risk assessment •

Many firms in the wholesale banking sector — including those with robust conduct risk frameworks already in place — fail to join the dots between cyber and other conduct issues that may occur through cyber channels, such as market abuse and financial crime.

•

Firms told the FCA that their most significant cyber risks related to “insiders”, highlighting the importance of embedding a security culture throughout all aspects of the business.

•

The firms interviewed mitigated the threat of insiders in various ways, including:

improving logical access controls; classifying data according to its sensitivity, commercial value, or other special characteristics; and training and awareness initiatives.

The report comes amid a heightened focus on cybersecurity following a series of high-profile data breaches at UK multinationals and the introduction of the EU’s General Data Protection Regulation, under which fines of up to 2 percent of an organisation’s annual worldwide turnover can be issued for failing to implement security measures to protect personal data.

Unsurprisingly, information security is now firmly at the top of most boardroom agendas — as well as those of UK, EU, and international regulators. For example, in a report on global cyber resilience practices issued on December 4, 2018, the Basel Committee on Banking Supervision echoed several of the FCA’s findings — including that cyber resilience is not always clearly articulated across all technical and business lines, hampering their effectiveness; and there is a skills shortage of individuals with cybersecurity expertise across industries and regions.

cyber attack in November 2016. In announcing the fine, the FCA’s first for cyber fraud, the regulator said: •

A financial institution’s board has the ultimate responsibility for ensuring that its cyber crime controls are designed to meet standards of resilience.

•

The board must set an appropriate cyber crime risk appetite and ensure that its institution’s controls are designed to anticipate and reduce the risk of a successful attack.

•

Where an attack is successful, the board should ensure that its institution’s response plans are clear, well-designed, and that the institution recovers quickly from the incident.

The report’s focus on board-level ownership of and responsibility for their firm’s approach to cyber security is not new. However, given the FCA’s stated position is that many organisations have work to do in implementing the technical and organisational measures required to defend against cybersecurity risks, regulated firms and their boards should ensure that these measures are put in place as a matter of priority in 2019.

Although firms and regulators are both navigating uncharted waters in relation to cybersecurity compliance and enforcement, UK authorities have historically been willing to exercise their powers in this area. The FCA’s predecessor, the Financial Services Authority, fined a number of financial services organisations for their data security failings, while the UK’s data protection regulator, the Information Commissioner’s Office, twice issued a £500,000 penalty — the maximum permitted under the previous legislative regime — in respect of personal data breaches.

Most notably, the FCA in October 2018 fined Tesco Personal Finance £16.4 million for its failings in relation to a

Rosemarie Paul Partner, Ropes & Gray

editor@ifinancemag.com

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Dewa steps up

customer satisfaction efforts with Western Union TIE-UP The partnership between both companies focuses on customer happiness — a particularly challenging task to sustain in the long run

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Sangeetha Deepak

ast year, Dubai Electricity and Water Authority (Dewa) launched a new service to empower its customers with a seamless cash transfer: on request for a refund, customers will receive their security deposit in cash through The Western Union Company — in the UAE and anywhere in the world. This means, customers will have to

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send a request through Dewa’s website or smart application and choose Western Union as their payout option. After that, they will receive a notification, stating that their deposit is available with the Western Union agents of a specified location. A more exciting possibility is that the transaction will only take up a few minutes — and it is that straightforward.

Interview

Until the year before, the system was different: customers had to visit Dewa’s customer happiness centres to collect their refund— but now that is changing.

Through this service, the big trouble with receiving the refund is no longer a cause for inconvenience to them — like what His Excellency Saeed Mohammed Al Tayer, managing director and CEO of Dewa, implied: The new service will “provide the best government services that make customers’ lives easier and reduce the number of visitors to government offices by 80 percent by 2019.”

Likewise, for Western Union — customer convenience has is because a ‘key’ factor — more so because it is often used to transfer cash between places. Thus, one reason the partnership is promising because Western Union has a strong presence with ‘more than 5,000 agent locations across the Middle East’ — which is obviously favourable to all parties. So far, its digital services have been launched in Kuwait, Bahrain, Qatar, and Oman.

“Globally, we have plans to be in 200 countries and are working in every continent to ensure the success of our digital strategy,” Hatem Sleiman, vice president Middle East, Pakistan, and Afghanistan at Western Union, said in an interview with Muscat Daily. “I believe we will be able to cover the entire Middle East region

In the last quarter the adoption rate for Dewa’s smart services touched 93 percent with digital services in the next couple of years because our aim is to be in 200 countries by 2020.

“We were impressed when people in the Gulf region quickly adopted these new digital services. We have realised that the customers in the region prefer digital services to send money 24/7 to avoid the hassles of visiting retail outlets. Western Union would continue to innovate on various fronts and while doing this, customer satisfaction remains our top priority. We have been innovating our technologies for both digital services and retail outlets. With fast evolving technology, the speed of sending remittances is improving continuously.”

Seizing the opportunity by ‘constantly developing creative ways to build fast and reliable transfer of funds and payments’, Western Union is working toward providing solutions that will improve the quality of people’s lives, which is ‘in line with the UAE Government’s efforts to promote innovation’, Jean Claude Farah, president of global payments at Western Union said.

This digital service in its prime will use ‘innovative tools’ coupled with the ‘highest standards of efficiency and reliability’, to swiftly process all customer transactions anytime, anywhere using Dewa’s multiple smart channels. Even though, that is not a world-first implementation, it still stands as a medium to benefit customers in many ways.

Customers will get mileage out of this service, if they continue to use it extensively.

In the last quarter — the adoption rate for Dewa’s smart services touched 93 percent — meaning that it was well received by the majority of customers — and they had reason to. In addition to Western Union, Dewa is also collaborating with ‘other public and private organisations to provide multiple options and innovative services’ for its customers and to make ‘Dubai the city of the future’ ahead of other global cities through government innovation, Farah said. editor@ifinancemag.com

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Environment activists are pushing banks out of African coal projects Under pressure from climate activists, banks and MNCs like GE are being stopped from financing fossil fuel projects in the continent

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Robert Blood

n June last year, Britain’s largest asset manager Legal & General announced that it would remove Japan Post Holdings (JPH) from its $6.7 billion Future World index funds.

It added that any of its funds that still held shares would be instructed to vote against the re-election of JPH’s chairman. L&G justified the move by saying that JPH had ‘shown persistent inaction’ to address climate risk.

L&G’s decision to take action did not come out of the blue. It was the result of pressure on global financial institutions generated in the last few years from American college campuses and subsequently by allies across the US and Europe.

They demanded that university endowments and major banks, insurers, and pension funds prove they are serious about climate change by exiting ‘extreme carbon’ such as coal and Canadian oilsands.

These campaigns were modelled on the effective US campus divestment battles of the 1980s intended to undermine the economy of apartheid South Africa. The campaigns helped make South Africa a pariah investment until elections and black majority rule in 1994.

That is how an NGO campaign made in America and endorsed by a financial institution in Britain, can end up punishing a major institutional investor in Japan.

The ‘pariah’ strategy that helped end apartheid in the 1980s is killing coal today. In the

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US, JP Morgan Chase, Bank of America, Wells Fargo, Citi, Morgan Stanley, and Goldman Sachs have all announced coal exits. BNP Paribas, AXA, Allianz, RBS, Munich Re, ING, Rabobank, Standard Chartered, and HSBC are among the institutions that have made similar moves in Europe.

Africa becomes a target As Africa is increasingly integrated into the global economy, it has not escaped the wrath of climate activists. Development banks have long been put under pressure to stop financing coal-related developments in Africa. Now we are seeing Western banks and global multinationals such as GE also being pressed to walk away from African fossil fuel projects. Export banks are being lobbied not to support major project finance deals, with the result that in April last year, South Africa’s Nedbank became the first global south bank to announce an end to coal financing. Meanwhile China’s banks and power companies are being lambasted for stepping in where their Western counterparts fear to tread.

The ‘global ripple’ of NGO campaigning is not confined to carbon. Western activists have learnt from the climate divestment movement that support from sympathetic financial institutions is a highly effective way to give a campaign ‘bite’. In the last two years we have been tracking campaigns targeting investments in Africa in palm oil, logging, mining, water privatisation, private education, eucalyptus plantations,

Ideas

biofuels, mobile phone networks – even wind farms (which most NGOs support) when built in the ‘wrong’ places. These campaigns often try to put pressure on both foreign and local investors to pull out or reconsider terms.

The growth of ESG One reason for the greater role of financial institutions is the ‘mainstreaming’ of ethical and sustainability concerns by investment funds and banks. Once the preserve of socially responsible investment (SRI) and clearly denominated ethical funds, exclusion policies on environmental, social, and governance grounds have been adopted by most leading financial institutions.

The world’s largest asset manager BlackRock has just announced a range of exchange – traded ESG – focused funds in the US and Europe. Meanwhile in the vanguard of this movement, investment funds are behaving increasingly like activists, actively lobbying companies to raise sustainability standards and threatening to vote down managements or divest should they refuse.

It is also now commonplace for financial institutions, especially those in Europe but increasingly in the US too, to consult with NGOs before drafting or revising policies on environmental and social issues. NGO support for reforms is actively sought and NGO criticism is taken seriously, right up to board level.

Much of this change in attitude by financial institutions is in reaction to pressure from political stakeholders and customers. The 2008 crash left banks bereft of public sympathy and deserted by political friends. Beefing up ESG policies and engaging with NGOs was an obvious way to recover some of their reputation.

African financial institutions need to start doing the same, if they are to avoid being caught on the wrong side of increasingly fierce arguments concerning rapid economic development, such as agriculture encroaching on wilderness and selfdetermination for indigenous peoples.

Sustainability, human rights, labour standards, and even animal rights will become more

important for financial institutions, as they develop ever more expansive ESG policies and standards under pressure from NGOs and other stakeholders. This will have major implications for the firms and industries in Africa in which these institutions invest, and make it hard for African financial institutions not to follow suit.

Robert Blood Founder and Managing Director SIGWATCH editor@ifinancemag.com

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Modulr is moving millions of UK SMEs from ‘bank hours only’ to any time, real-time payments A tie-up between Sage and UK payments fintech Modulr is bringing much needed innovation to the nation’s payments services

S

age, a market leader in cloud business management solutions, has partnered with the rapidly growing UK payments fintech startup Modulr, to simplify the task of managing accounts payable and payroll payments for millions of UK small and medium enterprises. In an interview, Myles Stephenson, founder and chief executive of Modulr Finance speaks about the company’s partnership with Sage Group and their vision to improve payments services to SMEs.

What is the aim behind Sage and Modulr joining forces?

Overall, this partnership aims to

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IFM Correspondent improve the payments offerings available to small and mediumsized enterprises (SMEs) and accountants, helping to bring much-needed innovation and competition to the UK SME banking and payments market.

The partnership will do this through Sage Salary and Supplier Payments, powered by Modulr.

This new solution gives SMEs access to a secure, automated way to pay employees and suppliers through the Sage platform. It will help them move away from the cumbersome and error-prone batch processing currently required by traditional accountancy and banking methods.

How will this partnership help to strengthen UK’s banking and payments sector?

This partnership will help strengthen the UK’s banking and payments sector by filling a payments automation gap in the sector. Our solution brings some much-needed competition to the space, proving it doesn’t have to take three days or longer to process business payments – they can happen as quickly as P2P or other consumer payments.

What are the key functions delivered by your product for banks and businesses?

This solution provides an alternative to banks, so

Interview

customers no longer need to use their bank for payments.

The primary functions of this solution for businesses will be to automate vital financial processes, like payroll payments, and to automate payments data reconciliation while delivering a service available 24/7, 365 days a year.

How does it allow them to manage and secure payments swiftly?

Modulr’s payments-as-a-service API enables partners, like Sage, to quickly, easily, and securely integrate existing core products to automate pay out, simplify pay in, and launch new services.

Authorised and regulated by the Financial Conduct Authority, we give businesses access to faster, easier, and more reliable end-toend payment services, all through one simple integration.

How is your product different from the already existing solutions?

We do not have a one-size-fits-all mentality. Our API-first, paymentsas-a-service solution is more in line with giving businesses the adaptable and flexible payment solutions that fit their business now and in the future.

The solution provides delegated access for accountants, letting them control and manage payments processing on behalf of their entire client base from one place. Accountants can set up payment accounts for each of their clients instantly, removing the complexity of manually managing multiple clients.

Open banking and the RBS Alternative Remedies Package are creating new opportunities in the market. So, how will your product reinforce SMEs’ competitiveness?

UK away from ‘bank hours only’ payment processing and into the digital age – allowing businesses to manage money in a similar way to consumers.

In recent years, SMEs have

How has the feedback been so far?

alternatives to existing banking

The feedback has been very

suffered from an absence of

and payments technology, partly due to a lack of technological innovation within the sector.

However, with open banking, PSD2, and the RBS Alternative Remedies Package, new innovations

like Sage Salary and Supplier Payments are breaking into

the sector and providing new

opportunities for SMEs to adopt

simpler and more effective ways of managing their business and finances.

This reinforces market

competitiveness by offering an

alternative solution to payroll and supplier payments that gives businesses more choice.

What are the visible benefits for clients adopting your solution?

positive, and customers have lauded the simplicity and speed of the solution.

How do you plan to improve the product?

We are building the digital alternative for commercial payments so that money flows more efficiently through businesses and the economy.

While I can’t disclose the entire pipeline for the year, I can say we will be working to improve our API platform, expanding our payment services, and growing into new verticals and markets.

Our ultimate aim is to give more businesses better access to the payment services they need.

Clients adopting Modulr’s

payments-as-a-service solution will experience many added benefits. Because nearly 60

percent of SMEs in the UK are

currently Sage customers, they can now automate manual

payment processes, effectively reducing the costs and time

associated with the administration processes required to keep accounts up to date.

Additionally, this solution will

allow Sage customers to manage payments in real-time at any

time. This transformation will move millions of businesses across the

Myles Stephenson

Founder and Chief Executive Modulr

editor@ifinancemag.com

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Ideas

A strategic approach based on value is key to implementation of AI in banking As AI evolves, analysts believe that the technology will save global banking $1 trillion in operating costs by 2030 Grant Goodband

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B

arely a day goes by without the launch of a new report extolling the potential benefits of Artificial Intelligence (AI) in the banking industry, in cost reduction, operational efficiency, improved customer experience and, ultimately, bottom line growth. Indeed, analysts predict that AI will deliver a 22 percent reduction in operating costs (more than $1 trillion) across the global financial services industry by 2030, as banks look to transform both front and back office functions.

Established banks are recognising the need to respond to huge disruption in the market and to develop more agile operations to compete. Smaller players are looking to AI and automation as a way to scale quickly while keeping costs down, and navigating their way around skills shortages.

For many banks, AI has become something of a holy grail and, in their desperation not to fall behind, the danger is that banks start to invest in AI for all the wrong reasons; to keep up with the Joneses rather than to deliver against specific business objectives. The result of this approach is that organisations are too often jumping in at the deep end, looking to implement AI technologies within their operations, but without the necessary strategies or groundwork in place to reap the full benefits of the technology.

Focus on the outcomes, not the technology The best way to approach and drive the maximum benefit from AI is, in fact, to try to put AI to

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one side and start by defining clear objectives and desired outcomes, whether that’s wide scale digital transformation across the organisation or process optimisation within a particular department or service.

Once the objective has been defined, then you can work backwards from there, exploring the role that technology, AI included, can play in achieving the outcome.

Similarly, rather than thinking about AI as a new technology that is deployed wholesale across an organisation, banks are better served by thinking of AI as something that builds upon existing technologies and processes, and that they can work toward over time.

Build a strategic roadmap for AI implementation If we take automation as an example, Robotic Process Automation (RPA) has been widely deployed by all banks for a number of years, to take out cost and streamline processes.

But now, by integrating AI into their RPA platforms, banks can begin to move beyond the tactical automation of basic back-office tasks and processes, (in the contact centre, HR function or accounts department), to more complex and strategic initiatives.

Intelligent Automation (IA), which combines RPA with AI functionality, and additional capabilities such as Natural Language Processing, enables banks to automate a far wider range of workplace processes, in a fast, effective, and secure way. This means being able to understand and interpret

unstructured data across channels such as email and being able to make intelligent decisions based on historic data.

With AI, digital labour and automation moves from being primarily a cost reduction exercise to becoming a strategic asset to change and optimise the way that banks run their entire operations. And with this shift, the benefits become greater— increased productivity, more robust regulatory compliance, enhanced capacity, more fulfilling work for staff, and more agility and scalability of resource across the entire organisation.

We can talk about three waves of AI adoption. The first wave of RPA deployment is about cost reduction efficiency. But once you add in AI, organisations can progress onto the second wave, where automation and digital labour drive improved business performance, and the third wave, where the technology delivers genuine business transformation.

Indeed, as automation moves beyond high-volume processes, the relationship between human workers and digital labour becomes critical. The success of any AI or intelligent automation programme depends on the knowledge and understanding of staff, and their appreciation of the role that a virtual workforce can play in supporting them.

This is why it’s essential for banks to adopt a measured approach to AI adoption, ensuring that they build the right skills and cultures within the workforce along the way, so that the introduction of AI becomes a natural progression on their digital transformation journey.

Ideas

Beyond the hype — how AI is really making a difference With the right approach, where AI and technology deployment are aligned to wider strategic objectives, AI has the potential to radically change how banks operate, both internally and externally.

Already, we are seeing banks that are using AI (for example, chatbots) to deliver a highly optimised customer experiences while providing a level of data-driven service and personalisation to all customers that was previously only available to a select few.

Elsewhere, banks are deploying AI as a way to manage an increasingly vast and complex compliance landscape, ensuring consistency and accuracy in the way that all transactions are actioned, monitored, and reported,

leading to a higher degree of certainty and reduced risk.

Another area where banks are now using AI to great effect is within fraud detection and prevention. The ability of AI to sift through massive amounts of data, 24 hours a day, and identify patterns is one of its greatest strengths, allowing banks to detect fraud and take appropriate action in real-time.

AI lies. Therefore, it’s essential that banks adopt a long-term strategic approach, deploying AI and intelligent automation where they can deliver most value now, but ensuring that they have the skills, culture and governance to navigate the upcoming AI journey in the future.

Select projects that deliver value faster AI and automation will enable banks to redefine their resourcing models, allowing them to do what they already do in a more cost-effective and efficient way. But, more importantly, as their use of the technology matures over time, AI will be the catalyst for innovation, growth and genuine differentiation in the market.

That’s where the real value of

Grant Goodband Client Manager Thoughtonomy editor@ifinancemag.com

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European banks

must seize the immense opportunities presented by open banking The framework has gained prominence because of its ability to supersede archaic interfaces and slow networks in a short time span Paul Higley

B

ank account switching is a big focus area for the Competition and Markets Authority, regulators, and the UK government.

Yet, the latest figures show that promoting switching is not working for the public.

In the UK for example, the latest research reveals that there are around 70 million deposit accounts,

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and yet the market is only seeing a million account switches a year. That is, only 1.4 percent of customers switch, while 98.6 percent of customers stay with their banks. At face value, that is impressive customer loyalty.

The problem is, it’s not that clear cut. The reality is that customers are now likely to have multiple accounts.

For instance, Monzo, the

digital bank startup, is attracting a staggering 60,000 new accounts per month which customers are using to supplement dissatisfying experiences with their traditional bank.

On a daily basis, customers also face problematic mobile banking transactions, archaic interfaces, and slow networks. This points to an alternative, and ultimately

BANKING

less positive, explanation for their apparent loyalty.

Historically, the key driver in customer loyalty has not been user satisfaction, but the complex layer of policies for sharing data with third parties that has governed the industry. This siloed control over customer data has made it difficult for competitors to encourage

customers to switch, and has stifled innovation. But, with the rise of open banking this is about to change.

registered with the UK

Leading the open banking charge

enacted in 2018. This change

Open banking — a policy that requires financial institutions to provide complete and standardised access to customer data by third-parties that are

Financial Conduct Authority (FCA), so long as the customer consents — was in policy gives financial institutions the opportunity to access potential customers and offer them a more attractive alternative to their existing bank, increasing the likelihood they will switch.

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Banking

While the UK might have taken the lead, it is not alone in adopting open banking as a standard. In Europe, EBA Clearing subsidiary Preta has also signed up 40 banks and tech firms to open banking Europe, an initiative launched in June last year to create a centralised PSD2 directory. As such, with the backing of major European banks, open banking Europe is seeking to address regulatory concerns about the interoperability of bank data sharing initiatives under PSD2.

Ultimately the open banking movement — with its focus on democratising data and enabling innovations — hands back control to the customer. And once customers, and end-users, have control, the banks will have to invest more time and money in developing user-friendly systems which provide a superior enduser experience for customers and staff. Those who do not, will be incapable of competing with fintech startups and alternative money management app players who are sleeker and more responsive.

Improving offerings Despite clear user dissatisfaction with faulty or slow systems — as expressed on review sites, as such Trust pilot, and social media platforms — customers and employees alike are surprisingly unwilling to report ill-performing technology to the bank or service provider; meaning IT teams are at a disadvantage to resolve the issues, while their reputation slips.

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Therefore, overcoming the need to rely on endusers to report problems is essential. End-user experience monitoring solutions do just this. They measure user experience by establishing ‘normal behaviour’ and then proactively identify deviations from this benchmark. As a result of having a more intelligent and proactive infrastructure, areas of degrading performance can be identified and resolved more easily, empowering banks to offer superior digital services and become competitive players in the market.

of banking worldwide. If companies want to survive and stay ahead of competitors, at home and abroad, it is vital that they embrace the new policy and use it as motivation for designing and delivering superior services. Failure to do so will mean the loss of the business they depend on.

However, it’s the customers who are willing to share their data that will be the biggest beneficiary of all.

An opportunity It’s understandable that companies may initially see open banking as a nuisance rather than an opportunity.

However, greater access to customer data, mined through intelligent end-user experience monitoring solutions, will empower institutions to develop innovative, customised offerings they know will resonate with users, driving customer satisfaction and retention.

The introduction of open banking across Europe is indicative of the future

Paul Higley

Regional Vice President Riverbed Technology editor@ifinancemag.com

Effective management of initial margin does not just mean accurate modelling alone but also smart portfolio decisions 3rd Annual

Impact of CCP Risk and Initial Margin on Counterparty Risk Management Strategic risk management to minimise the implications of CCP default and bilateral initial margin rules of CCR 22nd – 24th of May 2019 — London, UK

Attending this Premier marcus evans Conference will Enable You to • Manage exposure to CCP risk through strategic risk management decisions in CCR • Understand the implications of initial margin reforms for CCR • Understand the margin and capital costs of CCPs and IM, and relating this back to CCR • See what clearing activities will look like following Brexit

Who Should Attend From Bank, Heads of: • Counterparty Risk Management (CCR) • Counterparty Exposure Management (CEM) • CCP Risk • Collateral Management/Initial Margin

Testimonials “A great conference covering centrally cleared and uncleared derivatives. Lots of ideas discussed and lots of things to learns” CA-CIB “Good course and venue” Norges Bank Investment Management

Expert Speaker Panel Eric Salomon Head of Counterparty Credit Risk Projects Natixis Hansjorg Schmidt Principal Supervisor, Internal Models Counterparty Risk European Central Bank Mourad Berrahoui Head of Counterparty and Credit Risk Modelling Lloyds Banking Nicolas Cerrajero Head of Counterparty Risk Methodologies Deutsche Bank Alejandro Gisbert Head Research Country Risk and Financial Counterparty Risk Caixabank

Anders Oksendal Risk Advisory DNB Markets Nicholas Lincoln Head of Market Risk LCH Kevin O’Donovan Head of Counterparty Risk Trading RBC Rafael Plata Secretary General EACH Bravo Bessa Head of Strategic Initiatives Credit Suisse Maurizio Garro Senior Audit Manager – Market, Credit and Model Risk Lloyds Banking Group

Business Development Opportunities Does your company have services, solutions or technologies that the conference delegates would benefit from knowing about?

If so, you can find out more about the exhibiting, networking and branding opportunities available by contacting:

“Very useful conference for me” Caxiabank

Yiota Andreou, Digital Marketing & PR Executive, marcus evans Cyprus Tel: +35722849404, E-Mail: YiotaA@marcusevanscy.com

conferences

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Interview

What does the launch of Omnio Group mean for the fintech sector?

The merger of Payment Cloud and Tuxedo creates a company with a truly global reach IFM Correspondent

I

n an interview Ian Clowes, CEO of Omnio Group, talks about the launch of the new brand — and what it means for the UK’s fintech sector and the predecessor companies.

What does the Omnio Group’s exclusive launch at the Tower of London mean for the fintech sector?

The launch showcases the successful merger of our two predecessor companies — Payment Cloud Technologies (PCT) and Tuxedo Money Solutions. PCT was an incredibly strong fintech in cloud-based banking while Tuxedo was a leader in digital payments, so the powerful combination of the two gives Omnio the scale, resources, and the global reach to be a true global fintech partner.

What was the main focus of the launch?

The opening ceremony was attended by over 250 of the some of the most important influencers and experts in the global banking and payments industry. Attendees were formally introduced to Omnio’s new brand and vision which takes into account our insight into the state of the global financial services sector.

Ian Clowes CEO Omnio Group

In addition to the Omnio presentation, some of our industry friends and partners took to the podium to talk about the highlights of their experience with the business.

Peter Altabef, Chairman and CEO at Unisys explained the strategic partnership with Omnio and how the partnership helps power its Elevate product set that are being used to deliver cloud-based digital current

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account services to their global customers, including the signed deal with the Monmouthshire Building Society (MBS).

Former Senior Executive Director at AnPost, Liam Sheehan, highlighted the business’ unique platform and how it powered the digital banking element of AnPost’s Smart Account. While Chris Pond, Chairman at Lending Standards Board, in his key note address explained the scale of financial exclusion, alluding to the 1.3 million citizens in the UK without a bank account and how the government is now recognising the problem. He spoke about how, Change Account, one of Omnio’s subsidiaries, is doing sterling work in this area with the credit unions.

What is Omnio’s new brand all about?

The new brand is an opportunity to redefine Omnio, by showcasing how we are at the heart of the revolution sweeping through the global financial services market in digital banking and payments.

In the world of B2B, it’s important that we ensure that all of the key stakeholders in the world of banking and payments know our new brand, while at the same time taking steps to safeguard against the loss of past collateral or brand equity. It’s also vital that our existing stakeholders and prospective partners fully understand our bold new vision, and appreciate our new capabilities as a true global fintech player. Our launch has been carefully calibrated to achieve all of this — communicating our new brand and our new capabilities, while also highlighting and reinforcing our impressive pedigree.

How will the merger of Payment Cloud Technologies and Tuxedo Money Solutions help innovation in the global banking and payment services market?

Bringing together the two expert PCT and Tuxedo teams, combined with the £70 million investment, means that we at Omnio Group now have a great deal of talent, digital assets, and resources at our disposal.

This will particularly benefit the product innovation for our digital banking and payments propositions — we will be able to significantly speed up the delivery of innovative new products. These will join our innovative cloud based Omnio. VISION client engagement platform is already on the market, supported by our programme and reliable banking system, VISION digital banking offering, as well as our flexible payment VISION payments option.

The increased resources will also help us further boost the support we offer our clients through our Global Managed Services. This offering allows us to guide our clients through the launch of their banking or payment service, from initial conception, to development and implementation, to ensure they have the best solution for their needs. We are even able to offer on-going customer service and technical support once the solution is launched so that we can support clients in meeting their customers’ evolving needs. Omnio is a member

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of Visa and MasterCard and a preferred supplier to both the schemes. Thanks to the merger, we can further enhance these managed services, opening up new revenue streams for our business.

In addition, merging the two companies also means that we will be able to create synergies in the services we offer all of our customers. This will enable us to benefit from economies of scale, which we can pass on to customers. As a result, it will help us become even more competitive, driving more sales.

Interview Finally, the merger has given us a truly global reach — now we will be able to provide banking and payment support to our customers no matter where in the world they are operating, enabling them to grow their business internationally.

Can you explain Omnio’s role in powering the digital banking element of AnPost’s Smart Account?

AnPost’s Smart Account was the second banking-grade product to go live with our bank VISION platform. It equipped the smart account with a digital account that included all the cloud-based functionally rich benefits of a top tier current account, with two unique additional features: Digital wallets that allow for the subdivision of spending, budgeting and bill payments and Smart Rewards, a cash-back loyalty scheme that benefits customers who use the account at selected retailers.

This means that Smart Account customers can make payments, and transfers, switch funds between main accounts and wallets, and check their balance online or through mobile. They can also complete transactions at the branch including account application, lodgements, withdrawals, mini statements and balance enquiries at one of AnPost’s 1,100 branches nationwide. The new cloud-based platform helps Anpost to leap from its competitors and dramatically lower its cost of operations allowing them to focus on giving their customers a superior experience.

The partnership with AnPost represents a significant step for us as we were building on our reputation in the digital banking market and furthering our goal of widening access to fit-for-purpose financial products for customers worldwide.

How will Omnio lead the fintech market in the next two years?

The next two years will see significant growth in the markets and Omnio is going to be part of leading the changes this brings. We already serve more than two million users around the world on our Omnio. VISION platform and we want to grow this number further through direct sales and through our strategic partnerships such as Unisys. The Omnio team will focus on completing a number of key strategic acquisitions that are currently in the pipeline.

These will reinforce our product scope and our international expansion, enabling us to continue growing our banking platform throughout Europe.

In doing so, it will further strengthen our international presence. This will give us a strong foundation to build on the support we provide to our existing customers, so that we can help them achieve their ambitions to grow and scale their businesses around the world.

editor@ifinancemag.com

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Ideas

Investment banking set to sustain the high growth rates of the recent past Taking a contrarian view, one can see four factors driving investment banking growth momentum in 2019

I

Mahesh Singhi nvestment bankers world over have reasons to be pretty pleased with how business has turned out to be in the

recent past. The question facing investment managers who

manage billion dollar plus deals is the following: Can investment banking, which is central to the cross border financial flows

across the world, sustain the

momentum it inherited into what is left of 2019?

There is an outside possibility

that the mergers and acquisitions activity at the global level will

shrink as the slowdown in the

global economy gathers pace.

The latest to raise the spectre of

gloom is the estimate from OECD which in its interim assessment

recently pared global economic growth forecast for 2019 to 3.3

percent citing shrinking economic

activity levels in Europe and China.

The recent US payroll data, the

rising interest rates and a strong

dollar hint that the two-pronged growth theory might no longer be relevant: that the US economy will expand without hiccups while the rest of the world hits the slower lane of economic growth. The confusion over whether Britain will have a soft or hard landing once it ejects from the European Union confounds the thinking.

Against such a backdrop, it is only natural to expect that the investment banking segment at a global scale may hit a rough patch. But being an investment banker for decades, I have real reasons to make a pitch for a contrarian view — that the investment banking business will continue to grow at a faster clip and there is no need to read too much into the sagging global growth leading or the resulting volatility in equity markets.

To put it in the simplest possible terms, I anticipate strong cross-border financial flows to

support the heightening activities at the micro enterprise level, despite increasing and newer risks to global growth. Going forward, the most important factor to drive the new wave of cross-border financial flows will be the appetite for increasing market share to power growth as volatility in the markets has capped the room for organic growth. This is not to say that there are no bumps ahead, but to put it simply, positives outweigh the negatives. You can predict increasing investment banking activity based on four factors.

Clients raise the bar for investment bankers Increasing client awareness calls for higher diligence by investment banks in their business activities. While scaling up business still remains the dominant theme, there is an ever-increasing emphasis on portfolio clarification. This is International Finance

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because firms are starting to take a clear call on businesses that they see as their core.

They are also more than willing to put their non-core assets on the block, if necessary, to raise capital and sharpen focus on the core business. Moreover, since volatility and uncertainty became the new normal for the market, the needle has moved toward more accountability in transactions with a core focus on returns on investments and capital employed, respectively.

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Liquidity is now abundant In spite of the fact that major central banks are tightening their balance sheets and sending lending rates soaring in major economies, there is still plenty of liquidity available in the market for business with good AA or AAA rating. It is true that while hardening interest rates will make capital costlier, the system is still awash with funds and the lenders are pricing capital more

realistically and accurately.

The more the private funds available with private equity, sovereign wealth funds, family offices, and others are at their historically high levels, together they may set a new floor for the market from a value perspective.

Technology to the rescue The market for capital, especially the IPO market, which has been remaining lacklustre for a while, is set to see elevated activity levels

Ideas

India becomes a major player

because more and more technology firms in key verticals are poised to hit the market in full force to raise growth capital. This is expected to rekindle investors’ interest in the primary equity and debt markets. Once the mood in the market lifts, brick and mortar firms too will join the rush to raise funds from the market lifting the spirits of investors.

In India, the looming political uncertainty with the nation shifting to the poll mode and the liquidity strain that still haunts the financial sector, weigh on domestic growth. However, benign price levels and softening lending rates still put India on a high visibility growth map.

A leading global brokerage house has just added muscle to the India growth story by saying that funds could shift to emerging markets in coming days from developed markets and included India among its most preferred emerging market economies.

The traction will also come from the on-going resolution processes as the seminal bankruptcy (IBC) code comes into force as well as from the planned divestments by the government. Moreover, companies in India that are aiming either to disrupt the market or consolidate the market are mainly driving the M&A wave in India. Together, these factors will put India high on the global investment bankers’ radar.

According to a recent report, the value of the announced merger and acquisition (M&A) transactions, involving Indian

companies, has more than doubled in 2018 to reach $129.4 billion, the highest since 2007. In addition, according to EY’s Private Equity Monthly Deal Tracker - February 2019, investments worth $2.6 billion across 61 deals and exits worth $472 million across 10 deals were recorded in India.

To come to the question posed in the beginning: Can the investment banking business sustain the high visible growth it has clocked in the past few years? The answer is a resounding yes provided the bankers keep playing by the new rules of the play book that place value in each deal high on priority.

Mahesh Singhi Founder and Managing Director Singhi Advisors

editor@ifinancemag.com

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CHANGING INDUSTRY PERCEPTIONS WITH NEW IDEAS This edition is an overview of the recent occurences in the finance and business – and what you can expect from them.

TOP STORY The world's leading decacorns — and how long it took them to hit the $10 billion milestone

SUPPLEMENTED BY

FEARURE | NEWS | TRAININGS | ANALYSIS

How many startups will achieve unicorn and decacorn status in 2019?

With more than 300 unicorns and nearly 20 decacorns globally, analysis by RS Components and CB Insights reveals how many more will join their league Alexandra Berger

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Top story

T

he term ‘Unicorn’ — referring to a privately held startup company valued at over $1 billion — was coined by venture capitalist Aileen Lee in 2013, choosing the mythical creature to represent the statistical rarity of such highly valued ventures.

As of January 2019, there are more than 300 unicorns around the world. A variant of the unicorn is the decacorn, which refers to companies valued at over $10 billion.

Other types of startups include ‘my little pony’ — a startup worth $10 million or more; a ‘centaur’ — a startup worth $100 million or more; a ‘quinquagintacorn’ — a startup worth $50 billion or more; and a ‘unicorpse’ — a former ‘unicorn’ now valued at less than $1 billion. Although the vocabulary may sound ridiculous, the development of these new industry jargons represents the vast proliferation of startups all over the world, in the past decade.

This coming year is expected to be shaped by decacorn IPOs, with at least five of the nine US-based startups valued at more than $10 billion by private investors expected to go public in 2019. But exactly how long does it take for them to reach decacorn status?

RS Components has investigated how quickly it took some of the world’s leading businesses to go from unicorns to decacorns. Of the ridesharing startups aiming for success

Uber, Lyft, Didi Chuxing, and GrabTaxi have already hit $10 billion.

•

Uber is likely to fetch a valuation of between $90 billion and $100 billion, following its IPO later this year, despite Wall Street banks’ proposing a valuation of $120 billion. Recently, the company was valued at $76 billion in the private fundraising market

•

Didi Chuxing, among Uber’s biggest rivals, is one of the fastest companies to transition from unicorn to decacorn status

•

US-based ride hailing app Lyft was valued at $24.3 billion in its IPO this year, according to Reuters

•

GrabTaxi is a Singapore-based technology company that offers ride-hailing in Southeast Asian countries, and it took just three and a half years to go from unicorn to decacorn status

The transportation network giant Uber, founded in March 2009, reached unicorn status in August 2013, only four years and five months after starting up.

Uber offers on-demand private cars and food delivery — the company has operations in 785 metropolitan areas worldwide.

The on-demand transport service reached decacorn

status 10 months later in June 2014, much sooner than the global average.

Similarly, Didi Chuxing, reportedly looking at a $80 billion valuation from its still in the works IPO, is a Chinese ridesharing, artificial intelligence, and autonomous technology conglomerate. Headquartered in Beijing, the company offers services including private carhailing, social ride-sharing, and food delivery to Chinese users through smartphone. Didi Chuxing reached decacorn status only six months after reaching unicorn status in December 2014, two and a half years after being founded.

Lyft and Uber Lyft, a ridehailing unicorn from the US, is in its initial weeks as public company and it is in a stiff competition with Uber. Lyft was valued at $24.3 billion in its IPO this year. The company priced its IPO at $72 per share, which was slightly above its initial offering between $70 to $72 per share.

However, at the start of its IPO roadshow, the company had disclosed a price range between $62 to $68 per share.

Despite its name, GrabTaxi is not just a taxi service — it offers food delivery services too. At the young age of two and a half years, it reached $1 billion (unicorn status) in valuation.

Just three and a half years later it hit the decacorn status and is currently valued at $11 billion.

So, why is the on-demand transportation industry doing

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so well in reaching its unicorn and decacorn milestones?

The ease of adoption of technology has helped these companies to create apps that make getting from A to B far easier and quicker.

The total number of decacorns grew 67 percent from 2017 to 2018. So, what can we expect to see in 2019 with the new wave of unicorns rising through the ranks?

Summer seems to be the season for ‘decacorn-ing’ with 45 percent of decacorns achieving their status in June or July of 2018. While predicting trends, we can expect to see new companies reach unicorn and decacorn status or go for IPOs around this summer, too. But which type of companies can we expect to see in that league?

According to CB Insights, the technology and mobile service industries are among the easiest ones to achieve unicorn status in. A new algorithm used alongside CB Insights data helps predict the companies that are expected to become unicorns and decacorns.

The 50 predicted future unicorns hail from various industries and the median company has received about $111 million in total funding.

The majority are based in the US, with 22 from California, five from New York, and two from Massachusetts.

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The 50 future unicorns hail from various industries and the median company had about $111 million in total funding Some of the companies that are expected to reach unicorn status in 2019 are in the technology industry and include mobile software as well as internet services startups. MapBox is a company based in the US that is a large provider of custom online maps for websites and applications such as Foursquare, Lonely Planet, Facebook, the Financial Times, The Weather Channel, and Snapchat. Not only is MapBox worth $225 million, but it is working alongside some of the biggest brands in major industries, so, it is likely to become a unicacorn in the summer of 2019.

C2FO is a fintech company that takes control of your capital to help improve cash flow. Founded in 2008, the company is now worth $200 million. C2FO was also previously known as Pollenware. Not only is the company in CB Insights’ top 50 companies to possibly achieve unicorn status in 2019, but it also ranks ninth.

The total number of decacorns grew 67 percent

from 2017 to 2018 (from 12 to 20). At the rate companies are progressing to unicorn status we can expect to see more and more of them achieving decacorn status in 2019.

There are currently over 20 companies in the ‘decacorn’ club and it’s predicted that this figure will increase to 30 by 2021.

Alexandra Berger Senior Vice President, Marketing and Communications RS Components

editor@ifinancemag.com

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Why are banks the most vulnerable to cyber threats?

Cyber criminals who target banks are sophisticated and organised, which means banks must approach cyber security holistically Paul Knott

T

he relentless pace of change is one of the key reasons cyber security is such a dynamic field to work in. When criminals can succeed by striking just once, you cannot take your eye off the ball for a second.

Over the past couple of decades, the nature

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of the threats facing security professionals have changed. The stakes are higher and there is a greater potential for criminal gain or malicious disruption. Like any enterprise, the more money you make, the more you can invest in making money. Which is why today, cyber criminals have

become so incredibly well resourced, sophisticated, and organised.

But there is one type of target that’s uniquely attractive to attackers, because of the huge potential financial gains by successfully compromising their defences. Financial institutions such as banks

Banking

Legacy challenges Banks were early adopters of technology modernised book-keeping practices and automated other manual processes.

hold a massive amount of

in 2017 and from ATMs in 23

consumer data that can be

separate countries in 2018. To

sold on the black market for a

date, this specific activity is

healthy return.

estimated to be responsible

Alongside the value of consumer data that can be compromised, banks are also exposed to risks through weak

for the theft of tens of millions of dollars — and that’s just the work of one attack group.

There’s a big difference,

points in their IT infrastructure.

of course, between being a

To get an idea of the impact

target and being vulnerable;

from exposed weak spots,

and banks remain vulnerable

the Lazarus FASTCash

to cyber threats — despite

operation saw cash withdrawn

the advances in security

simultaneously from ATMs

technologies and compliance.

in over 30 different countries

So why is this?

As computer technology became more ubiquitous and indispensable, the result was new systems were being repeatedly layered upon incumbent and legacy systems.

This resulted in complex interdependencies, and the necessity for legacy systems to be maintained. Maintaining these interdependencies can fall short of the bank’s priorities over time.

Older systems eventually reach their end-of-life without being suitably replaced, leaving the organisation vulnerable to new zero-day threats and emerging malware.

As a result, these decaying

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banking

and unprotected systems are attractive areas for criminal organisations to target.

Complex relationships

All mergers and acquisitions introduce a degree of uncertainty to the enterprise.

For context, there were 697 merger and acquisition deals in global banking in 2017.

The acquiring organisation must understand the risk presented by the acquired business. This includes everything from how endpoint and network access is controlled, and how the cloud extends on that network infrastructure. This is complex enough, without the recent introduction of regulatory compliance with legislation such as GDPR and the NIS Directive, while balancing the playing field of different security postures and risk appetites.

IT teams face the additional strain of integrating and standardising security controls across both organisations. In this way, each M&A becomes a kind of digital transformation project, except with potentially twice as much complexity and disruption. At this scale, some of those vulnerabilities can be missed or deprioritised for more business-critical matters — leaving banks blind to entirely new threat vectors after the M&A.

The data mystery Accounting for an organisation’s data estate can be tough — where it lies, the type, and where in

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the organisation it touches.

These undefined data flows are even more complex and problematic for large banks that have overlapping legacy systems and a sprawling organisation extended through M&A deals.

For example — one project to upgrade user web browsing for a large multinational bank involved a brief planned outage. It emerged that this outage affected one of the business processes for approving loans — which used the browser system to function.

It’s because of unexpected connections like this that clear visibility and an accurate understanding of organisational processes and the IT estate are fundamental principles for building a robust security strategy. When system integrations and data flows are not fully understood then it’s much harder to protect all your data, which leads an increased risk of a bank being compromised.

the bank’s security ecosystem.

In short, banks need to an integrated platform-led approach.

The ideal platform should offer tools with reporting and shared telemetry across each layer of defence. Due to the fast-moving nature of the threat landscape and the practicalities of managing complex systems across large financial services organisations, the platform should also be extremely adaptable — it must be able to rapidly deploy new modules, plug in legacy systems, and integrate continuously evolving intelligence and threat detection.

Cybersecurity professionals in this sector face a challenge distinct from any other.

Throughout history, banks have served as institutions of trust and responsibility – and in today’s digital economy, that responsibility takes on entirely new forms.

Time for a platform-led approach When you consider the breadth of these issues, and the legacy headaches that lead to banks juggling more and more point solutions from different vendors — as they seek to bolt on new protections for new kinds of threats — the scale and complexity of the challenge is laid bare.

Banks must manage their cyber-defences holistically — with fewer vendors and centralised tools that match

Paul Knott Director and Security Strategist Symantec editor@ifinancemag.com

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Ignore at your peril: The UK HMRC’s new tax letter is a warning to tax cheats Anyone receiving a letter from the HMRC is suspected of tax evasion and will need to act on it immediately Mark Wilson

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May 2019

Ideas

H

ave you or your clients received a letter headed ‘Important: Your final opportunity to bring your worldwide tax affairs up to date’ from Her Majesty’s Revenue and Customs (HMRC)?

Perhaps you brushed it off thinking it was merely a ploy to gain information by the government? If you did, then you are at risk of further action that could result in an investigation into your undeclared offshore income.

The letters in question are being sent out by the Risk and Intelligence Service, a dedicated project team within the Wealthy, Mid-Sized Business and Compliance Unit. This is part of HMRC’s new investigation tool called Certificates of Tax Position to elicit undeclared offshore income and gains from UK citizens.

But how did they decide who to send these letters to? HMRC have gained information from international and foreign banks on customers who have accounts with them through the Common Reporting Standard (CRS).

The CRS was created in response to G20 request that calls on jurisdictions to acquire information (such as the different types of accounts and taxpayers)

from banks in their own countries and automatically exchange that information with other jurisdictions on an annual basis.

Be aware that taxpayers who receive this letter are required to sign a ‘Certificates of Tax Position’ within 30 days. This is a formal declaration of three options: ‘Yes, I need to bring my tax affairs up to date’, ‘No, I do not have offshore assets, income or gains’ and ‘No, my tax affairs do not need updating’. It might be tempting to give a false answer in the assumption that it will get rid of the problem or to ignore the letter completely. However, both of these actions will invite further action from HMRC.

Severe consequences

information that indicates they have tax irregularities.

Regardless of whether this is correct or not, HMRC will fight tooth and nail on their position, so it is recommended that you gain expert assistance if you wish to challenge their stance.

Ultimately, the Certificates of Tax Position campaign is being led to draw out tax irregularities.

If you are concerned about the repercussions of undeclared offshore income, it would be incredibly beneficial to possess experienced tax investigation representation. This is so that a specialist can reach an agreement with HMRC that avoids criminal action, and limits the possibility of tax penalties.

The potential consequences should outweigh the temptation to ignore the letter or give a false answer.

There is the likelihood of criminal investigation and prosecution for taxpayers who give an erroneous statement. Above all, it could result in a higher penalty if the response was not completely accurate.

It is important to remember that those who have been sent a Certificate of Tax Position letter have received it because the HMRC have

Mark Wilson Partner, Richard Nelson LLP and specialist in tax investigations and fraud editor@ifinancemag.com

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A counter-intuitive take on the stock market is relevant amid Brexit and the Trump trade war

Stock sentiments are notoriously hard to explain with Brexit and Trump at play; here is one explanation of the markets’ performance

T

here is a phenomenon in the stock markets known as ‘buying the rumour and selling the story’. This is also known

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May 2019

Guy Stephens as the difference between ‘travelling’ and ‘arriving’.

More commonly, it relates to good news expectation or some exciting development that gets everyone’s pulse

racing. The technology bubble is the best known recent case of this where the infinite possibilities of the internet were going to transform our lives and

Market

make billionaires of many.

This certainly wasn’t wrong but it took ten years longer than everyone envisaged and no one had heard of Facebook, Amazon, Netflix or Google at that time. However, the ‘rumour’ or ‘travelling’ phase was the period from 1995 to 2000 when markets went ballistic and anything vaguely related to dotcom went stratospheric.

positive development arrives — this is because all the good news is already priced in. Many an investor gets to the party late, not realising that the markets have been there for weeks — any upside is limited and a hangover is about to set in.

Opposite also applies

When the millennium finally arrived, the bubble burst shortly afterward and much of the profit that had been made in the travelling phase disappeared when the reality arrived. Investors suddenly realised that everyone had been caught up in the hype and in reality most of the forecasts for earnings were profitless.

Those that bought the rumour and speculation but sold the story on arrival were very wise, banked their profit and saw it for what it was — a bubble!

However, the opposite can also apply. When markets appear to be anticipating a doomsday scenario and sentiment feels extremely bearish, there is a point of maximum negativity where some investors capitulate and manage to sell at the bottom of the market cycle. An example of this is Christmas Eve just gone by, when a multitude of negative stories appeared to combine into an environment of extreme weakness, not helped by thin holiday markets or an overwhelming sense of desperation fed by the political turmoil.

This phenomenon is a part of human nature and the inherent greed and fear of the investor. Anxious to make as much money as possible and not miss out when others are profiting, but also anxious not to lose money, especially when news headlines are reporting the sell-off as many start to panic. It also goes a long way to explaining why markets often appear blind to the reality of when a

Since that point, markets have rallied with the MSCI World Index rising by 14.5 percent year to date at the time of writing (April 18 2019). The FTSE-100 Index which also managed to hit a low on Christmas Eve, dragged down by the US market, has also rallied by 10.4 percent year to date despite all the Brexit noise (April 18 2019). If anything, since the market lows, the intensity surrounding

Trump’s actions and his tariff negotiations with China and the approaching Brexit cliffhanger has become much worse, but the markets have been rising.

This is travelling and arriving in reverse. The travelling period is the gradual realisation that the bad news that caused the previous low is fully priced in and all it takes is any glimpse of a ray of light for the gloom to lift.

This is exactly what we have witnessed. Donald Trump desperately needs some good political news as his opponents start to stir ahead of the next Presidential race. He has taken the heat out of the March 1 Chinese tariff deadline by announcing an extension if a deal isn’t done by then. This implies there is a deal on the table and the much feared second phase of tariffs will be avoided. As Trump is obsessed with his standing in the media and judges his performance by the stock market, he realises that this will be seen as a political coup.

Sentiment has also been lifted by the Federal Reserve reducing the degree of planned rate rises it has scheduled this year in light of softening economic growth. The anticipation of the negative news caused the market low and, as we

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approach the reality, the worst outcome (which has so far failed to materialise) was priced in three months ago with investors seeing returns of up to 12 percent till March.

Human nature defines the greed and fear characteristics of the markets. Overexpectation of the upsides and downsides leads to opportunity for the active and brave investor. It is often said that time in the market is more important than timing the market. However, at times, extreme swings provide opportunity to boost the longterm returns that reward the patient investor.

Brexit is another case in point. The UK equity market was composed as the UK approach the March 29 deadline without a deal. While it would be understandable that most would have lost

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interest and just wanted some sort of resolution, it was rather more sophisticated than that. As many in Parliament lamented about the removal of ‘no-deal’, the reality is that Theresa May needed that option on the table during the negotiations, because it kept the pressure on Brussels as the German car industry, to name just one affected industry, predicted catastrophe.

Market sees two scenarios With regard to Brexit, the market sees two scenarios.

First, a backstop fudge which delivers a majority in Parliament with the alternative being ‘no-deal’ or more likely, an extension to kick the can down the road to seek more time for a backstop fudge.

Either way, we get a deal but

remember, this is only a deal for the withdrawal agreement before we start the actual trade negotiations.

Trade negotiations are interesting. Liam Fox, the UK’s International Trade Secretary, is having a hard time with regard to the number of deals he hasn’t done. Once we do successfully pass a deal (assuming the UK does it) would appear that we will then use the transition period to strike trade deals with all our trading partners, based on our current trading arrangements under the EU. It appears to us that even if the EU says we can’t have our cake and eat it by trading with the EU on the same terms as previously.

However, if we are able to replicate at least the same trading arrangements with the rest of the world as we currently have in place with

Market

the EU, then as far as that goes, we will be eating our cake too. The issue lies with the EU itself and whether they choose to impose tariffs where they don’t currently exist.

The UK is a big market and a big importer of European goods. If German cars suddenly become 10 percent more expensive as with many other car imports into the EU, we doubt that the German car industry is going to take that sitting down. The same goes for French wine, Italian fashion, Dutch flowers, or Spanish fruit. We could at last start to see some of the bargaining power that we don’t appear to have enjoyed while negotiating with the EU colossus over the withdrawal agreement.

The UK is the fifth largest economy in the world and is currently experiencing stronger economic growth than both Germany and Italy, despite all the Brexit disruption.

Imagining an investment world without having to think about Brexit seems distinctly more positive than where we are today.

An investment world without the overhang of Trump’s tariffs on China also seems rosy. Although his negotiations with North

Korea have faltered, he can still advertise the fact that he is talking with Kim Jong Un rather than grandstanding about missiles and red buttons.

He can also not be accused of caving in to achieve a political coup at home.

Determined leaders We hesitate to compare Trump and May, but both show a single-minded determination to pursue what they believe to be right for their country. Both are probably the most criticised leaders within the G20 and both have huge challenges to overcome.

Most importantly, both are most definitely up for the fight and us mere mortals can only stand back and admire how an individual can put themselves through so much pain in pursuit of a goal in which they steadfastly believe. Both are driven by ego and power, but

both also appear to have a sense of responsibility to leave their country in a better place once their era has passed. Perhaps this is what the markets are sensing. Despite the struggles and uncertainty along the way, we will soon experience a better economic environment with greater certainty and more prosperity for our nations.

Guy Stephens Technical Investment Director Rowan Dartington editor@ifinancemag.com

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Under supply of housing, a challenge in the UK despite Brexit The government should help put the 200,000 properties lying uninhabited on the market to solve the crisis

I

t’s fair to say that the UK has endured a bumpy ride in the two and a half years since the EU referendum.

The immediate effects of the vote on June 23, 2016 were obvious; the sterling took a dive overnight, while people waited with bated breath to see how the aftermath would pan out.

But since that fateful day, the doom and gloom predictions have largely proven unfounded — or else largely exaggerated — and the UK continues to be an attractive destination

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Paresh Raja for students, businesses, professionals and investors.

With Brexit dominating the headlines for the past 30 months, however, many other issues were moved down the long list of national priorities; including housing.

And while many indicators suggest that the UK property market is demonstrating great resilience in the face of the current political and economic uncertainty (recent data reveals that the number of property sale completions

grew 112 percent year-onyear in January 2019), we can’t let Brexit overshadow the challenges currently facing the sector.

After all, the government must continue to push for much-needed reforms to ensure more people can access and benefit from the property market.

What are the current challenges facing the UK property market?

Without a doubt, one of the

Ideas

biggest obstacles hindering the property market is the undersupply of housing.

Admittedly, this issue has long been on the government’s radar. Last year, Prime Minister Theresa May pledged to build 300,000 new homes every year by the mid-2020s in order to solve the imbalance.

As it stands, these targets appear overly ambitious — less than half of house builders surveyed recently are confident that this goal is achievable. This is despite increasing the rate at which they have built homes over the last year. Evidently, we are in desperate need of more creative solutions to make housing more accessible.

There is also the added issue of affordability. Average house prices are 2.9 percent higher now than in January 2018 — and while this underlines the attractiveness of UK real estate — it also means that many people are being priced out of the property market.

Meanwhile, for those gearing up to purchase a property in the coming months, the high rate of property chain collapses presents an obstacle.

Half (49.8 percent) of all transactions in England and Wales fell through before completion in the final quarter of 2018; one of the most common reasons for this was ‘gazumping’, when sellers accept a higher offer from another buyer after a sale is already agreed.

How can we overcome these challenges?

Clearly, there is a lot of work to be done to ensure more people can engage with the housing market. For one, we must advocate creative new ways to put more homes on the market — without simply relying on the construction of new-builds alone to solve the housing crisis.

One promising solution is to cast an eye towards the thousands of properties that currently stand empty across the UK. It is thought that more than 200,000 homes are unoccupied, with more than 11,000 having been left untouched for more than ten years. Hiding stores of untapped potential, it might just take some incentives to encourage people to refurbish these derelict properties and put them back onto the market.

Moreover, the public is eager for such solutions. Last year, Market Financial Solutions conducted a nationally representative survey to uncover what housing reforms Britons would like the government to introduce.

A significant number (44 percent) believe that financial incentives should be on offer for those seeking to renovate derelict properties in order to then rent or sell them.

At the same time, MFS uncovered clear demand for the introduction of new laws to prevent gazumping.

editor@ifinancemag.com

More than half of households (55 percent) want to see this action banned, with the number rising for those who own a home—just under a two thirds (64 percent) are keen for stronger government action to reduce the risk of a property chain collapsing.

What is the outlook for the property market?

Given the current political climate, it is difficult to predict what changes the government might make in the coming months to instil greater confidence into the housing market.

For the time being, Brexit clearly remains a priority — but we also shouldn’t ignore the challenges people are facing daily when it comes to getting on, and moving up, the property ladder. As the uncertainty fades and the UK’s future post-Brexit becomes clearer, I urge the government to make housing a priority once more.

Paresh Raja

CEO Market Financial Solutions

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Why the Kenyan banking and finance sector is likely to see further regulations in 2019 From mobile transaction fraud to plain mismanagement, Kenya’s financial institutions face critical challenges

W

ith the recent advances in the banking and finance sector, the importance of regulatory oversight the keeps pace with the advancements has risen globally. The central banks play a key role in keeping the regulations in the banking sector up to date and the Central Bank of Kenya is making major efforts to tackle

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John Ndung’U the unique challenges the African nation’s banking and finance sector faces.

Recently, the CBK has played a watchdog role to protect consumers from fraud, unfair levies an other practices, while preventing unfair competition among banks. Additionally, the CBK has tried to avoid the dominance of the bigger

banks over smaller ones as well as to prevent the type of mismanagement that has led to the collapse of a number of Kenyan banks in the past.

Over the past few years, the country has seen waves of bank failure and collapse.

The first wave happened between 1984 and 1989, before the Kenya Banking Act was constituted. Nine

Market banks including Union Bank, Estate Finance Bank, Rural Credit and Finance, and Nationwide Finance, among others, collapsed causing losses of millions of shillings to customers.

to the source of the money and its intended use. This rule, among others, is also intended to prevent money laundering which has become a serious challenge to the financial system in the country.

While the second wave happened between 1993 and 1995 when 19 more banks collapsed, the third came to the fore in 1998 when six banks, Bullion Bank, Fortune Finance, Trust Bank, City Finance Bank, Prudential Bank and Reliance Bank also collapsed causing customers losses of millions of shillings.

Transit route

In June 2015, the then Dubai Bank collapsed taking along with it 1.7 billion shillings in customer deposits. On August 14 2015 the Kenya Deposit Insurance Corporation (KDIC) took over as its receiver manager through CBK intervention. On August 20, the KDIC was again appointed by CBK as liquidator of the bank. In October of the same year, the Imperial Bank started wobbling and was put under the KDIC management by CBK, placing a cloud of uncertainty over 58 billion shillings of customer deposits.

Corruption is a serious socio-economic challenge in the country, both at national and devolved government’s levels. Cash diverted from socio-economic and other empowerment projects or even from the bank accounts of government institutions have been laundered through other banks and financial institutions. The CBK Governor Peter Njoroge introduced a new rule a few months ago that requires any person depositing or withdrawing more than one million shillings in cash to provide a written explanation or justification with regards

Kenya happens to be a transit route for drug traffickers and people who deal in game hunting and poaching. Such people often make huge cash transactions and have in the past used banks and financial institutions as a conduit for their payments while escaping scrutiny. The new rule targets such people.

The DTB Bank of Kenya is under scrutiny following its failure to question and stop the withdrawal of millions of shillings from accounts that were linked to people who are also key suspects in the January 15 terror attack at the Dustin Hotel in Nairobi.

Financial fraud has become a bane, especially in mobile financial transactions. Today it is common for citizens to receive calls or messages from unscrupulous people who pretend to be agents of the bona fide mobile telephone services providers and seek the personal details of customers including personal identification numbers (PIN) which they later use to pilfer cash from the victims’ accounts. Following the rise of such incidents, the government, the mobile operators, and the banks and financial institutions that offer mobile money services are working together to design rules and regulations that can curb such malpractices.

Unfair competition and the domination of some big banks and financial institutions over small banks have

necessitated rules that can ensure fair play. The demand for more consumers’ protection created the need for on-going regulation of the sector. The capping of interest rates at four points above the CBK’s monetary policy committee (MPC) level in 2017, for instance was touted as a measure to stop banks and related financial institutions from charging too high interest rates that could harm consumers.

This has, however, proved to be counterproductive with banks and financial institutions preferring to reduce the quantum of consumer loans disbursed while investing in other vehicles that ensure higher returns.

Mismanagement is another issue that can spur further regulation of the sector in 2019.Many Savings and Credit Co-operative Organisations (popularly known as SACCOs and that have attracted 14 million investors, especially from the SME and related informal sectors), are currently reported to be facing management challenges. Three SACCOs in the country: Ekeza, Mwalimu Cooperative, and Stima Investment Co-operative are currently under investigation for not meeting their customer needs by providing loans in time or for not facilitating acquisition of properties as stipulated by their original mandate. The issue can only be untangled by bringing clarity to the grey area in the role that the Saccos Societies Regulatory Authority (SASRA) plays at the national level and the role played by Saccos regulatory bodies at the county level, which leaves many Saccos in the counties unregulated.

editor@ifinancemag.com

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Technology is

finally democratising

securities lending For a long time, a group of financial institutions were the sole beneficiaries of securities lending – but that is changing with digitisation Boaz Yaari

Ideas Ideas

T

he year 2018 brought a sea change across the global markets. Much of the ten years prior

to 2018 were characterised by smooth and stable growth in asset prices. By comparison,

100

of the next global recession, following the rough ride witnessed by the markets in the fourth quarter of 2018.

A select group of asset owners, however, experienced 2018 in

2018 was a tempestuous year,

a very different light. Between

markets and global equity

additional revenue by engaging

emergence of volatility caused

as one of the best-kept secrets

Many asset managers and

be? These asset owners engaged

HSBC and BNP Paribas,

lending out their stocks, bonds,

the end of 2018 as a key driver

in the same way, that many

analysts even heralded that

At its very core, securities lending presents a lucrative opportunity that all investors in stocks, bonds, and ETFs can benefit from. Furthermore, this additional revenue stream does not require investors to sacrifice their economic rights,

as volatility returned to the

them, they shared $10 billion in

indices fell. Mainly, the re-

in a practice which is described

much concern to investors.

in finance. What could this secret

investment banks, including

in the 50-year-old practice of

highlighted market volatility at

and exchange traded funds

for diminishing returns. Some

homeowners choose to rent out their home or, in other words, they

representing a ‘real’ shrinkage

2019 would see the beginning

engaged insecurities lending.

in the industry size.

May 2019

other than the right to vote.

Sounds cool, right? But despite all this, while the market capitalisation of global equities has trebled since the 2008 trough, the value of securities on-loan, a common measure for the size of the securities lending industry, is still way below its pre-recession highs,

Ideas

it themselves, or hand over control to someone else.

As a result, globally more than $40 trillion worth securities are idling instead of collecting income. These assets belong mainly to private investors, through their banks and online brokers, as well as small and medium asset managers, and digital wealth managers.

So how can we level the playing field and enable these investors to benefit from this basic right?

So why has the securities lending industry failed to keep pace with the rest of the market?

Until now, securities lending operated as a closed ‘members club’. For decades, a small group of financial institutions, mainly pensions funds, asset managers, and ETF issuers, were the sole beneficiaries of securities lending. That’s like a housing market where only real estate conglomerates are able to rent. But even these institutions faced a trade-off. Either they had to invest considerable time and money in doing

For most investors, securities lending is too complex, too opaque, and not user-friendly.

While the rest of the world has moved to transparent pricing and user empowerment, securities lending is still heavily intermediated, traded over the counter, and is extremely opaque. Worst of all, securities lending requires a large investment of time and money, even though it will likely never be an investor’s primary investment objective – leaving them with little interest inactively managing it.

It can, however, become a secondary investment objective, if extracting additional value from a portfolio can be done with minimal risk and in a simple and transparent manner. In that respect, user-experience is not just a fancy dashboard with buttons and dials. Rather, it is the ability to deliver a simple solution which most investors can ‘set and forget’, retaining full control,

transparency and the peace of mind. What the securities lending industry needs is to design an equivalent user experience to the one offered by modern day digital wealth managers.

At Sharegain, we offer a securities lending solution fit for the 21st century, which we have achieved by relentlessly focusing on the user. In doing so, our offering finally brings a fully automated solution that enables investors to set their lending appetite and let our technology work for them. By introducing the world’s first digital agent lender, we eliminated the need for operational overheads and high level proficiency in the technology, enabling all investors to benefit from this basic right. Our vision is to fully democratise the securities lending industry, effectively bringing the ‘Airbnb moment’ to the stocks, bonds, and ETFs of each and every investor.

Boaz Yaari CEO and Founder Sharegain editor@ifinancemag.com

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One year into GDPR, how are financial firms managing?

Financial services firms might face consequences other than fines that come with non-compliance, such as brand damage

S

ince the EU’s General Data Protection Regulation (GDPR) came into effect on May 25, 2018, financial services firms have been waiting to see how seriously the EU would enforce penalties on organisations found to be non-compliant.

For the first few months, it was safe to say that it appeared the EU was taking a decidedly conciliatory approach. For the most part, information commissioners seemed to lean toward a less-strict approach — if an organisation at least had a plan to be compliant, then they would be given time to execute that plan and move towards achieving full GDPR compliance.

This was borne out by the research conducted by AIIM and Nuxeo just after the May 25 2018 deadline. While just 30 percent of organisations said they were 100 percent ready, an additional 50 percent said they were 75 percent of the way toward achieving compliance.

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David Jones But as we approach one year since GDPR came into effect, and with signs the EU is getting much tougher with penalties, it’s time for financial firms to accelerate their GDPR compliance initiatives, or risk facing substantial fines.

The consequences of GDPR non-compliance Since the start of the year, the EU has upped its stance on enforcing GDPR. News emerged in January 2019 that Google is to be fined 50 million euros by the French data regulator CNIL for a breach of the EU’s data protection rules, and there has been a number of smaller penalties announced too.

While Google is still mulling over its options, this is clearly a landmark case. Targeting an internet giant, one of the biggest companies in the world whose very business model is built on the use of consumer data, means that no organisation can feel truly safe.

But there are other consequences of noncompliance that can be just as damaging. Respondents in the AIIM / Nuxeo research said their organisation’s investment in GDPR compliance was motivated first by the legal obligation, then reputational damage, and thirdly the prospect of a fine. The damage to reputation is especially

Global

pertinent in financial

services. Consumer data is

an increasingly highly prized asset. Any bank or other

financial services firm found to be in breach of GDPR

(that is, not protecting its

customer’s data effectively) could find the long-term brand impact more of a problem than any fine.

Another point to consider

ensure that all existing data was managed in accordance with GDPR, but they also had to do so with every new item of data entering the organisation. When we live in an era that generates more data and content than at any other time in history, that is no small undertaking, and further increases the pressure on financial services firms

is that GDPR is not regulation

to implement solutions that

Not only did firms have to

on-going basis.

that has a fixed end point.

manage compliance on an

Increased volume of SARs A perhaps slightly overlooked aspect of GDPR is the Subject Access Request (SAR), which is issued by an EU citizen who wishes to see the personally identifiable information (PII) held on them by an organisation. There is no fee for this service, and organisations must respond within 30 days.

As expected, the enactment of GDPR has led to International Finance

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an increase in the volume of SARs over the past 12 months.

Furthermore, research by cloud and data firm Talend revealed that just 50 percent of FS firms are fulfilling SARs within the legal timeframe, so there is a clear issue to address.

Part of the reason that some financial services firms are struggling with SARs is because they are addressing GDPR as purely a data issue, when they should be approaching it from a data, content, and process perspective. A content services platform (CSP) approach can be a major asset when it comes to GDPR compliance and efficiently handling SARs. These platforms can help firms easily identify data residing within multiple, different information systems and repositories within the business, and quickly serve up this data as SAR requests are made.

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May 2019

A CSP can also look at file systems for unstructured content in the enterprise systems it connects with, as well as with database applications containing structured data. A centralised hub that connects structured data systems with unstructured content repositories means organisations benefit from a 360-degree view of GDPR related data.

There is also the prospect of financial services firms differentiating themselves via GDPR compliance and using that in their marketing.

Demonstrating that they care about their customer’s data privacy will become a powerful unique selling point (USP) and can be a true differentiator. Consumers are asked for more and more of their data by financial services organisations, so surely those firms that proactively and transparently protect that data will be favoured over those that do not.

It’s clear that GDPR fines are going to be enforced more strictly in 2019, and those financial services firms could also face other penalties that come with non-compliance, such as damage to the brand.

The best way of addressing this is to approach GDPR from an intelligent information management perspective, not just data, otherwise financial services companies could run into serious difficulties.

David Jones Vice President of Product Marketing Nuxeo editor@ifinancemag.com

Asia Commercial Bank received the award from International Finance for Best Commercial Bank and Best CSR Commercial Bank in Vietnam 2018.