International Finance Jul - Sep 2017 Make digitisation work for you

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July - September 2017

Volume III Issue 4

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pg.08

Young hackers: Menace or allies?

pg.32

Are US and Asian investors buying control of Europe’s tech future?

pg.90

A new way to invest in fine art

Communicating achievements

pg.52

Kuwait Telecommunication Company has built the most advanced mobile network in the Middle East

The rapidly changing risk environment is a challenge for risk audit professionals as many regulatory projects come to fruition 3rd Edition

Risk Audit in Banking A deep-dive into auditing the major challenges for bank risk management departments, including IFRS9, model risk and BCBS239 18th – 19th September 2017 — Hilton London Canary Wharf, UK Expert Speaker Panel Includes

Workshop A practical look at assessing the adequacy and effectiveness of data governance through a risk-based internal audit plan

Gijs Borghouts Chief Auditor Risk and Finance RBS

Led by:

Cameron Laing Managing Director, Head of Internal Audit Mitsubishi UFJ Securities

Michael Dimopoulos Independent Consultant

Attending This Premier marcus evans Conference Will Enable You to • Hear case studies on how to audit the major risk change projects • Effectively audit your banks use and governance of models to minimise model risk • Implement appropriate audit standards for capital and liquidity risk • Gain updates on the continued auditing of the BCBS239 project • Obtain best practice in strategic audit focuses, such as defining and implementing risk culture

Nick Woods Managing Director, Internal Audit - Functions Barclays Christopher Hall Head of Model Risk Audit HSBC Riaan du Plessis Head of Audit – Operational Risk, Reform and Governance Lloyds Banking Group Stephen O’Regan Group Chief Internal Auditor Bank of Ireland

Learn from Key Practical Case Studies

Business Development Opportunities

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Constandinos Vinall, Media & PR Coordinator EMEA, marcus evans Cyprus Tel: +357 22 849 380, E-Mail: ConstandinosV@marcusevanscy.com

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conferences

Note FROM EDITOR

U

ncertainty. That was, perhaps, the word on everyone’s lips as we entered 2017. The hope was that it would be replaced with something better. Following the result of the UK general election, the uncertainty refuses to go away. In fact, the uncertainty is preceded by more.

This is a very difficult time for the UK, Europe and the rest of the world. Why Theresa May’s gamble failed will be debated for long. And it needs to be debated for long and very seriously. The answers will indicate the difficulties that the UK can expect in the days to come. For starters, the Conservative Party got many more seats than the Labour Party, but the difference in vote share was not much.

With people on both sides sticking to their stands, it will be difficult for any PM to confidently negotiate with Europe.

Comparatively, the UK’s neighbour is better off. President Emmanuel Macron’s party LREM has won a comfortable majority in the French national assembly. The 39-year-old ex-banker was elected president on the promise of cleaning up French politics and reviving the economy. This mandate — though the turnout in the second round of polling was just over 42% — in the national assembly is the electorate telling him to go ahead and give it his best shot.

On the other side of the Atlantic, US President Donald Trump is generating controversies at a speed that few are able to keep up. The protests against his stewardship of the nation may have tapered down, but instead of using the opportunity to build bridges, it appears that he is generating fresh controversies.

In the Middle East, Qatar is facing isolation at a time when it is preparing to host the football world cup in 2022.

These developments convey a picture of a rather divisive world, which is not conducive for business. They have deflected attention from the challenges brought about by digitisation, hackers and cyber crime.

In this issue, we have featured several pieces in Sector Insight to offer our readers some idea of what to expect in the months ahead as we negotiate an uncertain path. As the name indicates, the pieces will cover various sectors and are written by experts with domain knowledge.

It would seem like 2017 will end in the way it began because, looking ahead, only one word comes to mind. Uncertainty.

Dhiraj Shetty Editor editor@ifinancemag.com

Director & Publisher Sunil Bhat Editor Dhiraj Shetty Production Sarah Williams, Mark Miller Editorial Adriana Coopens, Jessica Smith, Lacy De Schmidt, Business Analysts Dave Jones, Adam Lobo, Sharon Mendis, Sean Thomas Business Development Manager Steve Martin Business Development Newton Gois, Sunny Shah, Ashish Shenoy, Sid Jain Accounts Angela Mathews 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: +91-80-40901144 Design & Layout Rahil Shaikh Miya

For advertisements, contact Adam Lobo Phone: +44 (0) 207 193 9451 | Email: alobo@ifinancemag.com

Jul - Sep 2017 International Finance

INDEX July - September 2017

Volume III Issue 4

COVER STORY

BYTE BY BYTE pg.52

Communicating achievements Kuwait Telecommunication Company has built the most advanced mobile network in the Middle East

12

Kaspar Korjus

16

economy: The Top 6 UK industries for FDI

26 30

Welcome to e-Residency

Chris Tidmore

The conventional wisdom of active management

Diana Chambers

Feelings about wealth

International Finance Jul - Sep 2017

08

YOUNG HACKERS: MENACE OR ALLIES?

38

Wealth Management Chinese companies on the rise

Prasanth Prabhakaran

42

Why Indian stocks are soaring despite less than flattering GDP figures

46

insurance: Bupa Arabia optimistic about support in 2030 Vision

48

insurance: ‘Change management poses greatest risk’

Business Leaders

P62

More CEOs being ousted for ethical lapses

pg.58

London is home to the most millionaire CEOs in the world

66 70

Micha Rose Emmett

Bright future for citizenship by investment

Peter Kirk

Why bank branches and human contact are not going away any time soon?

82

Anuj Puri

90

Miguel Neumann

94

Are CEOs a risk to enterprise security?

100

smart tips: Why should I hire you?

Decoding the Indian luxury housing story A new way to invest in fine art

OUT OF OFFICE

‘I would be very happy to run a small pg.110 hotel’

Jul - Sep 2017 International Finance

Opinion Matters Phil Beckett Phil Beckett is Managing Director at Alvarez and Marsal Young hackers: Menace or allies? | P8

Greg Smith Greg Smith is Head of Trading at Global Reach Partners Political uncertainty could impact currency value | P22

Chris Tidmore

Diana Chambers Diana Chambers is a family wealth mentor who teaches High Net Worth families how to develop financial emotional intelligence Why wealth management is as much about feelings as figures | P30

Prasanth Prabhakaran Prasanth Prabhakaran is Senior President and CEO, YES Securities India Ltd. Why Indian stocks are soaring despite less than flattering GDP figures | P42

6

Chris Tidmore, CFA, is a senior investment strategist in Vanguard Investment Strategy Group The conventional wisdom of active management | P26

Victor Basta Victor Basta is managing partner at Magister Advisors Are US and Asian investors buying control of Europe’s tech future? | P32

Peter Kirk

Micha Rose Emmett Micha Rose Emmett is CEO at CS Global Partners Bright future for citizenship by investment | P66

Peter Kirk leads Accenture’s UK and Ireland Financial Services Distribution and Marketing business Why bank branches and human contact are not going away any time soon? | P70

Anuj Puri

Jonathan Sharp Jonathan Sharp is Director, Britannic Technologies MiFID II – Opportunity for digital transformation | P86

Anuj Puri is Chairman & Country Head at JLL India Decoding the Indian luxury housing story | P82

Miguel Neumann Miguel Neumann is a Founding Partner at Maecenas and COO of Blockchain FinTech firm DXMarkets A new way to invest in fine art | P90

International Finance Jul - Sep 2017

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COntributors

Tim Evershed

YOUR ADVERT HERE.

Suparna Goswami Bhattacharya

Tim Evershed is a freelance business journalist with over a decade’s experience of reporting on the world of business and finance.

As well as contributing to International Finance his work is published across a number of titles including Global Reinsurance, Insurance Post, The Journal, Financial Solutions and Global Trader.

Susanne Jakobsen Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995.

In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012.

His latest venture, BankOn Mobile

Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995.

In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012.

His latest venture, BankOn Mobile

It’s the best way to to reach our audience that is spread across over 100 countries Susanne Jakobsen

Susanne Jakobsen

Susanne Jakobsen

platform, acquired by NCR in 2012.

His latest venture, BankOn Mobile

platform, acquired by NCR in 2012.

His latest venture, BankOn Mobile

platform, acquired by NCR in 2012.

His latest venture, BankOn Mobile

and to know what’s latest inFinancial technology entrepreneur Financialreads technology IFM entrepreneur Financial technologythe entrepreneur Gene Pranger has designed more Gene Pranger has designed more Gene Pranger has designed more Banking, than 500 bank branchesFintech, since 1995. thanwealth 500 bank branchesManagement, since 1995. than 500 bank branches since 1995.

In 2008, he pioneered the market In 2008, he pioneered the market 2008, he pioneered the market Insurance and Islamic banking Inof video of video banking with the uGenius of video banking with the uGenius banking with the uGenius Contact: Adam Lobo Email: alobo@ifinancemag.com

/InternationalFinanceMagazine

/IntlFinanceMag

/company/international-finance-magazine

Young hackers: Menace or allies?

The investigation by the UK’s National Crime Agency found that the majority of teenage hackers are mostly motivated by ‘building a reputation’ Phil Beckett

International Finance Jul - Sep 2017

byte by byte

T

he finance industry is changing, with new opportunities and threats emerging each year. Be it block chain technology, how Artificial Intelligence and automation could benefit the sector or simply the changes in user habits, the finance industry is undergoing an evolution.

Part of this transformation involves the digital side of finance; notably cyber security and its associated threats.

Cyber crime specifically is a growing threat to businesses, and it has gone from being a potential threat to an issue UK firms can no longer ignore.

Last year, 2.9 million UK

businesses were attacked digitally, at a cost of £29.1 billion. Worryingly for those in the finance industry, firms operating in the sector were 65 per cent more likely to be attacked than other specialisms. This resulted in more than 200 million records being breached in 2016, a 937 per cent increase year over year.

HSBC and JP Morgan are notable examples of financial institutions which have been hacked recently, as widely reported in the press, resulting in varying levels of carnage for both the banks and their customers. What cannot be denied, however, is the prestige of the names targeted, with multibillion

dollar firms being brought down by hackers, potentially sitting at home in their pyjamas. Whilst the motives behind every hacker will vary, some light was shed by the National Crime Agency (NCA) recently, which revealed the average age of a UK hacker is only 17. Therefore, businesses are under threat from those who have not yet left school – the employees of tomorrow are bringing down some of the UK’s biggest brands one code at a time.

The alarming investigation found that most teenagers fall into hacking after being exposed to the digital world, usually via games consoles or

spending time messing around on a computer.

By the age of 13 or 14, these web whizzkids have developed the capability and skill to begin utilising their gaming devices and digital expertise for hacking.

Among the most common types of crime the NCA referenced were developing and selling hacking toolkits, blackmailing companies and breaking into online accounts.

You would think this would be shocking news.

Children, those who legally are not old enough to be tried under adult law, but are responsible for some of the costliest attacks on UK and international businesses. But let’s not

9

»

Phil Beckett is Managing Director at Alvarez and Marsal

Jul - Sep 2017 International Finance

byte by byte

Last year million UK businesses were attacked digitally at a cost of billion

2.9

£29.1

10

forget, this generation has grown up with the web at their fingertips – is it therefore that surprising that they are able to outsmart those who have come to it later? A 15-yearold British boy is alleged to have hacked into the emails of the Director of the CIA, one of the most secure and secretive organisations around, highlighting the exponential threat young

International Finance Jul - Sep 2017

bedroom felons now pose.

Digital technology has erupted over the last 15-20 years and we now have a generation of youngsters who don’t know what it’s like to live without it. It’s not unsurprising they live their lives through the online world – social media, banking, communicating – everything is at their fingertips, including entertainment which in this

This resulted in more than

200 million being breached in 2016, a 937 per cent increase year over year

case involves hacking. This is particularly true of British teenagers, who spend more time online than most other teenagers around the world.

According to an OECD Pisa survey, British teenagers rank quite highly in terms of dissatisfaction with life, and it seems unsurprising that they are taking out their teenage-inspired angst within the world they understand the most: the

digital one.

Whilst a report on teenage hackers might seem a little tenuous or even irrelevant for businesses, it actually shines a light into better understanding cyber security risks for firms in the future. The investigation carried out by the NCA found that the majority of teenage hackers are mostly motivated by ‘building a reputation’. Like in the finance industry where reputation can help propel a career, young hackers are polishing their egos by proving themselves to be technically great, and pursuing targets on the basis of how challenging the attack will be, rather than how much money they could gain for a potential hack. Much like the more traditional morality-lead hackers who outed adulterers by stealing and publicising user information from the website Ashley Madison, these young people are interested in what they can gain on a reputational and skills-based level instead

byte by byte

By the age of 13 or 14, these web whizzkids have developed the capability and skill to begin utilising their gaming devices and digital expertise for hacking

of what they can actually gain from the data breaches themselves.

Therefore, the better the brand’s level of cyber security (along with its associated prestige) and the more hurdles needed to overcome, the more appealing the target is to young hackers who want to gain a “name” for themselves in the shadowy world of cybercrime and hacking.

Given the lack of concern these young hackers have in the intrinsic value of what is being hacked, any system at any organisation could be a potential target, rather than just those on the frontline of protecting core assets. Despite this,

what is worrying for firms, is the rate at which these youngsters are honing their skills, developing new tools and exchanging intelligence. This results in them becoming more competent at a rate which vastly outpaces how quickly most companies in the finance sector are updating and monitoring their cyber security tools.

Thus, a two pronged risk is revealed: the danger of making your firm more desirable to hack due to the prestige associated with breaking the strong protection, and that of being outnumbered by the sheer scale of hackers who collaborate to develop exploitations and share

vulnerabilities.

Considering the National Cyber Security Centre recently stated that the UK skills shortage is leaving the country open to cyberattacks, perhaps it’s time we started looking a little closer to home when identifying our next star employee to help guard against cyber crime.

Whilst the NCA research is predominantly acting as a warning for firms to wise up to cyber crime and its associated security measures, it gives those working in the finance industry an opportunity to act. Today’s deviant hackers could well be tomorrow’s cyber security experts, and targeting youngsters

with an organic interest in computer technology, as well as a known expertise in the world of hacking, could be the secret to finding and recruiting a skilled team of experts. Utilising insider knowledge and tapping into digital literacy, along with experience could ironically make organisations more secure.

Of course, this would not be void of risk. Let’s not forget it would be hard to place faith in new recruits who have a known history of data breaches and hacking. This forms part of the wider debate around hard copy vs digital and if people consider stealing soft copies of data as seriously as if they broke in and stole a hard copy. What cannot be denied, however, is that by taking a bold approach (involving the right approach and training), finance firms could be utilising the future stars of the tech world to protect themselves from threats that they perhaps do not yet understand themselves. IFM editor@ifinancemag.com

Phil Beckett is Managing Director at Alvarez and Marsal

Jul - Sep 2017 International Finance

11

Welcome to e-Residency

International Finance Jul - Sep 2017

Estonia offers a platform for digital nomads to set up and run a business Kaspar Korjus

economy

T

he connected world delivers many benefits, not least the ability to consign the traditional office to history and work effectively wherever there is a reliable Internet connection. But while the ‘digital nomad’ lifestyle is hugely attractive, the mechanics of the business world still need to be managed and maintained.

Depending on your country of residence, that can mean dealing with bureaucracy that today’s entrepreneurs just don’t have the time or inclination to patronise.

Estonia has long been at the forefront of digital evolution, and is renowned for its e-government solutions. Recognising the increasing need for ‘businesses without borders’, and developing its leadership in all things digital, in 2014 the government launched the innovative e-Residency programme. This enables foreign citizens wishing to benefit from the efficiency

of e-Residency platform – including both Estonian e-services and e-services from international service providers – to become an e-resident, register their business in Estonia and run the global EU company fully online.

As well as to serve the needs of those looking for a nimble business management model, the initiative was launched to help bring investment to Estonia and accelerate economic growth. To date, some 20,440 people from 138 countries have applied for e-Residency, and e-residents are engaged to 3,256 companies (as owners or board members).

Until this year, everything except the establishment of a business banking account could be completed remotely, online. Then in May 2017, we partnered with Finnish fintech company Holvi (https://about.holvi.com) to provide ‘borderless business banking to the borderless digital nation’. This means

a complete EU company with complete EU business banking and a credit card can be established entirely online. In preparation for this expansion of the programme, we also launched a new website www.e-resident.gov.ee to encourage more people to join our new digital nation and enjoy the freedom to both open and run a global EU company from anywhere in the world.

How it works I caught up with two e-residents – Pete Boraso from Italy and Dirk Singer from the UK – to see how e-Residency is benefiting their businesses.

Pete was the first e-resident to sign up to the Holvi service. Pete has extensive experience of running businesses in several countries, starting his first venture when he was 22 to bring the first iPhones into Europe. Today, the Boraso family owns the largest Apple distributor in Italy, and Pete has opened

“

I was in Portugal looking to move my company there when I read about the new e-Residency programme. I didn’t apply immediately as I wanted to wait and see if it was going to become established, but once I did apply earlier this year I was blown away by the speed and efficiency of the process Pete Boraso, the first e-resident to sign up to the Holvi service

Jul - Sep 2017 International Finance

13

economy

»

Estonia has long been at the forefront of digital evolution, and is renowned for its e-government solutions

14

companies in the US, Hong Kong and Europe. Before becoming an Estonian e-resident earlier this year, his business was based in Italy.

“My current company, Moonrise, is a consulting agency that works with major distributors, retailers and wholesalers. There has always been bureaucracy and complications involved in setting up companies, and I have never until now found a regime that suits my mobile lifestyle. Running a business in Italy is very paper-based, you need to be there in person to sign anything, and making any change to a company structure, even an address, can be time-consuming and expensive,” said Pete.

“I was in Portugal looking to move my company there when I read about the new e-Residency programme.

International Finance Jul - Sep 2017

I didn’t apply immediately as I wanted to wait and see if it was going to become established, but once I did apply earlier this year I was blown away by the speed and efficiency of the process.”

Pete did not need to, and has yet to, set foot in Estonia. He visited the Estonian consulate in Lisbon, provided some documents, and the e-Residency was confirmed within three weeks. He appointed Estonian company LeapIN (www.leapin.eu) as his accountants. LeapIN provides a turn-key solution to set up a locationindependent company with a bank account, handling incorporation, accounting, taxes and compliance.

“LeapIN guided me through the whole process.

It was all very easy – not

least because in Estonia when someone says it will take two to three weeks, it usually actually means three to four days. I also had amazing customer service from Holvi – as the first e-resident to sign up, there were minor glitches that needed sorting, and I’m looking forward to greater competition in this space bringing the monthly cost down (!) – but all is working well. I have a company Mastercard and online services wherever I am in the world, and the Holvi system also works with the LeapIN platform. I do usually like to be critical, but the whole thing ran so smoothly!

“I feel about a hundred times more confident about online banking than I do about traditional banks – the latter are the ones being scammed, not the start-ups

providing new innovative solutions for banking. The old traditional behemoths are too closely tied to the state. Personally, I prefer to have my money in a smaller bank that is not focused on anything other than encrypting my data to keep it secure, and being really user-friendly.

“Has e-Residency made a huge difference to me?

In one sense no, as I had an established business to move over, and the structure remains the same. In another sense, yes absolutely. Much of a business’s success is based on its reputation, and with the Estonia e-programme everything around ‘doing business’ becomes easier.

It’s all transparent, and I – and most importantly my clients – have the confidence that everything is being done correctly.

economy

e-Residency is designed for the digital future – and that future is here now.”

UK-based Dirk Singer has been an Estonian e-resident since June 2016. Having founded two successful agencies from scratch, he began to question the business model that needed people sitting in offices in specific locations.

He re-launched his current agency Rabbit as a virtual business in response to clients who were looking for flexibility.

“In the social media world, my clients need an agency that can respond 24 hours a day, from anywhere. So a location-independent business makes perfect sense, said Dirk. “In addition, with Brexit then on the horizon, I wanted to have a business established in the European Union.

“Becoming an e-resident was very easy, just involving a visit to the Estonian embassy in London. I did need to travel to Estonia

to open up my bank account – I chose LHV, which is Estonia’s biggest domestic financial group.

Everything was waiting for me – the process took just 20 minutes, and I also had the opportunity to look round the charming Tallinn Old Town. I didn’t consider the travel to be an inconvenience, but I can see if you are coming from further away it might be.”

Dirk also uses LeapIN and has nothing but praise for the service, which includes providing his registered office address. He also uses TransferWise (https:// transferwise.com), another disruptive fintech company that is revolutionising the international money transfer market – the service integrates seamlessly with LHV. “We don’t know what’s happening regarding Brexit, what shape or form it will take, particularly after this UK election. If it’s a hard Brexit, then I have a

business that will still be in the EU. I can still go for RFPs and work in euros.

The e-Residency makes everything administratively very efficient, including the ability to pay bills through my e-Residency card. If you’re running a small creative business, or you don’t have to be physically in a location, it’s a nobrainer, and it’s a Brexit insurance – all for the set up cost of around €300.” IFM

“

In the social media world, my clients need an agency that can respond 24 hours a day, from anywhere. So a location-independent business makes perfect sense Dirk Singer, has been an Estonian e-resident since June 2016

editor@ifinancemag.com

Kaspar Korjus is Programme Director, e-Residency, Estonia

Jul - Sep 2017 International Finance

15

economy

The Top 6 UK industries for FDI

16

The USA remains the largest source of inward investment

I

t has been reported that investors now own £483 billion pounds of commercial property in the UK, representing 55% of the combined total. Not only is this the highest value to date, but it exceeds the previous peak reached prior to the global financial crisis in 2008.

Previously, UK institutions, such as insurance companies and pension funds, were the biggest direct investors; now, they account for just a fifth of the total, down from a quarter in 2005.

In contrast, foreign investment in

International Finance Jul - Sep 2017

commercial property has increased rapidly over the last decade and overseas investors currently own 28% of UK commercial property – typically held as investments.

Savoystewart.co.uk decided to consider exactly which industries are benefiting the most from this surplus of foreign investment, in terms of job creation specifically. In fact, data collated from the ‘Department for International Trade’ report (first published 30th August 2016) by Gov.uk dictates 2,213 FDI inward investment projects were secured in

2015 to 2016 – altogether generating 116,000 jobs – the second highest number on record.

The same year, almost 1,600 new jobs were created per week by FDI and, since 2010, nearly 390,000 new jobs have subsequently been created in the UK. The USA remains the UK’s largest source of inward investment; providing 570 projects. This was followed by China, including Hong Kong, with 156 and India with 140.

Darren Best, director, Savoy Stewart, said, “There’s no doubt that we are in a dubious time: a lot is set

economy

to change in 2017, and the free fall we are all experiencing post-Brexit is certainly chaotic, particularly in terms of business. However, from analysing recent data, I am confident the UK will remain a key market – just as it ever was. Our ties with investors all over the world remain interwoven and strong; we should embrace change, reaffirm our partnerships and focus on all that we have to offer.” IFM editor@ifinancemag.com

2,213 FDI projects were secured last year: generating 116,000 jobs 1,600 new jobs created per week by FDI: 390,000 jobs created since 2010

DATA INDICATES THE TOP 6 INDUSTRIES BENEFITING THE MOST FROM FOREIGN DIRECT INVESTMENT IN THE UK JOBS FINANCIAL AND PROFESSIONAL SERVICES

20%

17

PROJECTS

ADVANCED MANUFACTURING

9%

13%

11%

CREATIVE INDUSTRIES AND ICT

7%

ENERGY AND INFRASTRUCTURE

15%

8% -8%

ELECTRONICS AND TELECOMS

LIFE SCIENCE

6% -32%

25% -12%

Jul - Sep 2017 International Finance

Banking

18

HSBC is Europe’s largest bank by assets Yet, the British banking giant had a tepid 2016

F

or the fifth consecutive year, HSBC Holdings Plc is Europe’s largest bank by assets, according to the latest ranking by S&P Global Market Intelligence released in April 2017 . The London-based bank reported €2.251 trillion in pro forma assets at the end of 2016, €174 billion more than Paris–based BNP Paribas SA, Europe’s second-largest.

Yet despite its heft, the British banking giant had a tepid 2016. Its profitability fell sharply and its total assets fell in US dollar terms, the

International Finance Jul - Sep 2017

company’s reporting currency.

Overall, 2016 was a volatile year for European currencies, particularly the British pound following the UK’s vote in the summer to exit the EU. At the end of 2016, £1 bought €1.171, compared to €1.357 at the end of 2015.

The euro bought $1.055 at the end of 2016, compared to $1.086 a year earlier, while the British pound fell to $1.235 from $1.474 over the same period.

The drop in the pound spurred a €225.36 billion drop in the asset size

of London-based Barclays Plc, which nevertheless retained its position at number five in the ranking. At the end of 2016, the bank’s assets were worth €1.418 trillion, but would have been worth €1.644 trillion using the yearend 2015 conversion rate.

Similarly, the drop in the pound versus the euro helped to knock number nine Lloyds Banking Group Plc and number 10 Royal Bank of Scotland Group Plc below the €1 trillion mark at the end of 2016.

Banco de Sabadell SA would have

Banking

climbed a spot to number 37, but the adjustment for the pending sale of its US-based subsidiary Sabadell United Bank NA caused it to fall to number 39 from number 38.

Germany has seven banks among the top 50, the most of any country, while France, Spain and the UK are each home to six.

In this ranking, company total assets were adjusted for pending mergers, acquisitions and divestitures, as well as M&A deals that closed after the end of the reporting period used through March 31 on a best-efforts basis.

Assets reported by non-euro filers were converted to euros using periodend exchange rates.

The majority of banks were ranked by total assets as of

December 31, 2016. In the previous ranking published on April 19, 2016, most company assets were as of December 31, 2015 and were adjusted for deals through April 15, 2016.

No adjustments were made for differences between GAAP and IFRS filings.

19

Jul - Sep 2017 International Finance

Banking

Largest banks in Europe by total assets Pro forma for recent and pending acquisitions

20

Current rank *

Previous rank**

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1 2 3 4 5 7 6 8 10 9 11 13 12 14 16 15 17 18 19 20 22 21 23 24 25 27 26 31 32 29 30 28 34 36 33 35 37 40 38 41 39 45 42 44 43 47 46 48 49 50

Current vs. previous NC NC NC NC NC ▲ ▼ NC ▲ ▼ NC ▲ ▼ NC ▲ ▼ NC NC NC NC ▲ ▼ NC NC NC ▲ ▼ ▲ ▲ ▼ ▼ ▼ ▲ ▲ ▼ ▼ NC ▲ ▼ ▲ ▼ ▲ ▼ NC ▼ ▲ ▼ NC NC NC

Company(ticker-exchange) HSBC Holdings Plc (HSBA-LON)1 BNP Paribas SA (BNP-PAR) Credit Agricole Group Deutsche Bank AG (DBK-ETR)2 Barclays Plc (BARC-LON)3 Societe Generale SA (GLE-PAR)4 Banco Santander SA (SAN-MAD)5 Groupe BPCE Lloyds Banking Group Plc (LLOY-LON) Royal Bank of Scot land Group Plc (RBS-LON) UBS Group AG (UBSG-SWX) ING Groep NV (INGA-AMS)6 UniCredit SpA (UCG-MIL) Credit Suisse Group AG (CSGN-SWX) Credit Mutuel Group^7 Banco Bilbao Vizcaya Argentaria SA (BBVA-MAD) Intesa Sanpaolo SPA (ISP-MIL) Rabobank Nordea Bank AB (NDA-OME) Standard Chartered Plc (STAN-LON) DZ BANK AG Commezbank AG (CBK-ETR) Danske Bank A/S (DANSKE-CSE) Cassa depositi e prestiti SpA ABA AMRO Group NV PAO Sberbank of Russia (SBER-ME)8 Caixa Bank SA (CABK-MAD)9 DNB ASA (DNB-OSL) KBC Group NV (KBC-BRU)10 Svenska Handelsbanken AB (SHBA-OME) Skandinaviska Enskilda Banken AB (SEBA-OME) Nationwide Building Society (NBS-LON)^^ Landesbank Baden-Wurttemberg La Banque Postale SA Swedbank AB (SWEDA-OME) Dexia SA (DEXB-BRU) Bayerische Landesbank Erste Group Bank AG (EBS-WBO) Banco de Sabadell SA (SAB-MAD)11 Raiffeisen Gruppe Switzerland BFA Sociedad Tenedora de Acciones SAU^^ JSCVTB Bank (VTBR-ME)+ Nykredit A/S Belfius Banque SA Norddeutsche Landesbank Girozentrale Banco BPM SpA (BAMI-MIL)^^^ Landesbank Hessen-Thuringen Girozentrale Banca Monte dei Paschi di Siena SpA Banco Popular Espanol SA (POP-MAD) Zurcher Kantonalbank

Headquarters U.K. France France Germany U.K. France Spain France U.K. U.K. Switzerland Netherlands Italy Switzerland France Spain Italy Netherlands Sweden U.K. Germany Germany Denmark Italy Netherlands Russia Spain Norway Belgium Sweden Sweden U.K. Germany France Sweden Belgium Germany Austria Spain Switzerland Spain Russia Denmark Belgium Germany Italy Germany Italy Spain Switzerland

Accounting Total assets Principal (€B) IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS U.S. GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Swiss GAAP IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS Swiss GAAP

2,251.10 2,076.96 1,722.85 1,589.10 1,418.43 1,378.70 1,340.38 1,235.24 957.80 935.38 872.45 845.08 818.79 765.00 742.85 731.86 725.10 662.59 615.66 613.19 509.45 480.45 468.50 410.43 394.48 392.27 386.21 292.27 278.70 274.32 273.60 260.71 243.62 229.58 224.90 212.77 212.15 208.23 207.02 203.93 199.95 195.41 188.36 176.72 174.80 168.25 165.16 153.18 147.93 147.41

The banks are ranked by total assets for the most recent period available. Only one institution per corporate structure is included in the ranking Rankings account for completed and pending SNL-covered bank deals on a best-efforts basis Deals where the assets sold are in excess of 300 million or the deal value is in excess of 200 million have been adjusted using the most recent available assets of the target company or the deal completion assets where available.

All date reported in native currencies and converted to euros using the end-of-period exchange rate.

Total assets are as if Dec 31, 2016, unless stated otherwise. * Pro forma for mergers as of march 31, 2017. ** Pro forma for mergers as or April 15, 2016. ^ Data is as or Dec 31, 2015. ^^ Date is as of Sept 30, 2016.

- Previous ranking or BFA Seceded Tenedorade Acetones SAU is based on Bunkie SA. + JSCVTB Bank appeared in the previous ranking published April 19,2016 by the name of PAOVTB Bank NC=no change ^^^Banco BPM Spa’s previous rank is based on preform combined asserts of merged companies Banco Populate societal Cooperative and Banca Populate dill Milano Scar, as per the ranking published April 19, 2016 1 Financial data adjusted for the pending sale of the Lebanese business or HSBC Bank Middle East Ltd. 2 Financial data adjusted for the pending sale of Mexico-based Deutsche Bank Mexico SA Institution de Banca Multiple Deutsche Bank AG ‘s assets were also adjusted for the pending sale or Argentina-based Deutsche Bank SA whose assets were 277 million, in the 100 largest banks ranking published on April 11,2017; however, it did not meet 300 million criteria for this ranking 3 Financial data adjusted for the pending sale of Egypt-based Barclays Bank Egypt (SAE) 4 Financial data adjusted for the pending sale of Croatia-based Societies Generate-Splits kea Banka dd.

5 Financial data adjusted for the pending purchase of Argentina-based consumer banking business or Citigroup Inc. 6 Financial data adjusted for the pending sale of Poland-based Bank Peko SA and Germany-based Backhaus Nee Meyers AG. 7 Financial data adjusted for the completed purchase or Belgium-based Key trade Bank SA. 8 Financial data adjusted for the pending sale of Ukraine-based PJSC S Burbank.

9 Financial data adjusted for the completed purchased or Portugal-based Bunco BPI SA 10 Financial data adjusted for the pending purchase of Bulgaria –based United Bulgarian Bank AD. 11. Financial data adjusted for the pending sale of the U.S.-based Sabadell United Bank NA The rankings have been created on a best-efforts basis and exclude development banks and entities that act as central banks/banking associations/supervisors for banking groups.

Source: SNL Financial, an offering of S&P Global Market Intelligence

International Finance Jul - Sep 2017

Banking

Largest banks in Europe by total assets

Norway

1

Netherlands

Denmark

3

Sweden

Russia

4

2

2

Belgium United Kingdom

3

6

Germany

7

France

1

6

Aggregate assets (â‚ŹB)

Italy Spain

6

21

Austria

4

5

Greater than 3,000 1,501-3,000 500-1,500 Less than 500

Switzerland

S&P Global Market Intelligence Date is proforma for mergents as of March 31,2017.

Assets are aggregated based on company headquarters.

The figures inside each circle represents the number of banks included in the top 50 list that have headquarters in that country.

Source: SNL Financial, an offering of S&P Global Market Intelligence Map credit: Alip Artates

Jul - Sep 2017 International Finance

22

Political uncertainty could impact currency value International Finance Jul - Sep 2017

23

Later this year when Germans go to the polls, we are likely to get a further perspective of what voters think of the EU Greg Smith

A

s the UK election results dramatically back-fired on Theresa May, the Pound is now likely to face an even rougher ride in the months ahead as Brexit negotiations gain momentum.

An election which was intended to deliver strength and stability seems to have had the opposite outcome.

Meanwhile, our continental colleagues are, at least for now, breathing a sigh of relief that political events have not had a similar impact on the value of the Euro.

It could have so easily have been ‘un catastrophe’ for the single currency had the anti-EU Front National leader Marie Le Pen come out on top in the

final run-off of the French presidential elections in May. Her centrist and proEU rival, Emmanuel Macron, secured a substantial victory in the head-tohead vote, as predicted. But in a year which has delivered both Brexit and President Trump, who could have been absolutely certain that Macron would prevail?

Jul - Sep 2017 International Finance

forex

The refugee crisis in 2015, which saw Germany welcome 1.1 million people from countries like Iraq, Syria and Afghanistan, has been followed by some high profile terror incidents in the country, which have adversely affected Merkel in the polls

24

Although the outcome of the French elections did not have an overall positive impact on European markets - after a brief rally in which it hit a sixmonth high against the US Dollar, the Euro fell back in value, France’s CAC 40 index closed down 0.9 per cent and Germany’s DAX dropped 0.2 per cent – the potential for much greater damage from a Le Pen victory was at least averted.

Here in the UK, we are well aware of what an unanticipated political event can do in terms of its impact on currency values.

Following last year’s vote to

International Finance Jul - Sep 2017

leave the European Union, businesses had to quickly come to terms with the fact that Sterling sank by 20 per cent against other major currencies. In the immediate aftermath of June’s general election, it fell even further with potential for it to plummet again as the UK must now negotiate its departure from the EU with a minority government in place.

Even prior to the UK general election, leading strategists, including Deutsche Bank’s George Saravelos, had already suggested the Pound may endure a lot more pain

before making any recovery.

The outlook now is even worse.

While both French and Dutch voters have so far delivered relatively secure election results for the markets, potential threats hang over the future value of the Euro as an anti-EU mood continues to grow in some parts of Europe.

While this isn’t anywhere near the same scale as we experienced in the UK in the lead up to the 2016 EU referendum, the year ahead could be one of the most significant ones in determining the longer term fate of the single currency.

Later this year when Germans go to the polls, we are likely to get a further, and very important, perspective of what voters in the biggest and most influential member state think of the EU. In this election, which takes place on September 24, Chancellor Angela Merkel will be running for her fourth term at a time when she has seen a significant fall in her popularity. The refugee crisis in 2015, which saw Germany welcome 1.1 million people from countries like Iraq, Syria and Afghanistan, has been followed by some high profile terror incidents in the country, which have adversely affected Merkel in the polls.

The forthcoming contest now looks set to be a fight between Merkel’s centreright Christian Democratic Union (CDU) and Martin Schulz of the centre-left Social Democrat Party (SDP). Following the recent and unexpected regional election win for the CDU in North Rhine-Westphalia, an area which traditionally votes SDP, Merkel’s forthcoming demise might well be over-exaggerated.

While the far-right and

forex

The unfolding scenario in the UK and across the EU presents a challenge to any businesses transacting in Pounds and Euros

anti-European Alternative für Deutschland party saw its vote squeezed in that election, it’s difficult to predict at this stage whether these more radical parties might still gain further traction during the national election campaign; all of which could impact the stability of the single currency.

The potential for continuing currency fluctuations is, of course both a threat and an opportunity for importing and exporting businesses operating within these markets. What is vital in this climate of uncertainty is that companies implement a robust and comprehensive risk-management strategy

to minimise their exposure to foreign currency movements which often result from political uncertainty.

Any business with foreign currency requirements, especially those which trade across Europe, must conduct their transfers strategically to manage their exposure if they want to secure profitability. The starting point for developing such a strategy is to clearly understand what their level of exposure is in terms of currency movement, and from there they can set out an appropriate budget rate and create a suitable hedging plan. Using a combination of forward contracts, spot deals and

orders according to such a strategy can provide certainty and protection, shielding their bottom line and maximising the funds they receive.

The unfolding scenario in the UK and across the EU presents a challenge to any businesses transacting in Pounds and Euros.

Brexit negotiations led by a weakened minority government will make the plight of Sterling even more unpredictable than it had been, while the German elections later in the year are also likely to have an impact on currency markets, one way or another. Let’s also not forget the very real potential for the US Dollar to fluctuate significantly

over the course of Donald Trump’s presidency.

Business will have little impact on the outcome of these events, but companies can prepare so they are able to mitigate the potential financial affect that the outcomes will have on their bottom line. IFM editor@ifinancemag.com

25 Greg Smith, Head of Trading, Global Reach Partners

»

Interior of state parliament (Landtag) in Berlin, Germany

Jul - Sep 2017 International Finance

Wealth Management

26

The conventional wisdom of active management With improvements in technology and rising competition, it is becoming increasingly difficult for active managers to consistently outperform relevant market indexes net of all costs Chris Tidmore

International Finance Jul - Sep 2017

Wealth Management

W

hen I tell people about the seven-day race I ran in the Sahara last year, they ask questions.

The most common one is, “Why?”1 A close second is, “How did you get all the water you needed?”

Now, you’ve probably heard that you should drink eight glasses of water a day. It’s one of those bits of conventional wisdom that a lot of people just absorb along the way. But it turns out not to have a lot of data behind it.

There’s no formal recommendation for water intake. The eightglass figure appears to come from a 1945 report recommending 2.5 liters a day. And even then, the report suggested much of

1 2

quintile over the previous five-year period (from 2007 to 2011). Going by the conventional wisdom, we’d expect to see most of these funds remain on top.

Instead, we see the opposite. The most common result for the top performers from 2007 to 2011 was to fall into the bottom quintile over the next five years.

A significant number of funds ended up merged or liquidated in the five years following top-quintile performance.

The conventional wisdom does not hold. that could come from food.2 Do the best active managers know more?

That’s how conventional wisdom often works. A widespread “fact” becomes so ingrained that it’s slow to change. Here’s another bit of conventional wisdom you might have heard: The less efficient that a market is, the more likely that an active manager will be able to outperform.

It makes sense at first glance. If there is less informational efficiency, the odds increase that a manager with an informational edge can consistently beat the market.

But just like our water example, we need to ask if there are data behind this idea.

What the data say To test the conventional wisdom on active management, let’s examine active managers in US small-cap equities and emerging markets equities.

There’s a general belief in the industry these are easier segments of the market in which to outperform because there are more informational advantages available to active managers. So it seems reasonable to expect to find active funds that consistently outperform their peers over long periods.

The chart below tests that hypothesis. It shows the most recent five-year performance (from 2012 to 2016) of active funds that performed in the top

Conventional wisdom can’t win the zero-sum game Let’s take a step back and remember that the stock market is a zero-sum game.3 Every time an investor makes a profitable trade, another investor must take the opposite side and incur an equal loss. And investors are subject to costs to participate in the market.

While inefficient market sectors could offer informational advantages with attendant opportunities for outperformance, their participation costs (such as wider bid-ask spreads, market impact, and expense ratios) are significantly higher than in larger, more liquid areas of the market.

Remember, you only keep after-cost returns.

I have three teenagers at home. This was a vacation.

Food and Nutrition Board, National Academy of Sciences, 1945. Recommended dietary allowances, revised 1945. Washington, D.C.: National Research

Council. (Reprint and Circular Series, No. 122.)

3 William F. Sharpe, 1991. The arithmetic of active management. Financial Analysts Journal 47(1):7–9.

Jul - Sep 2017 International Finance

27

Wealth Management

Every time an investor makes a profitable trade, another investor must take the opposite side and incur an equal loss. And investors are subject to costs to participate in the market

28

With improvements in technology and rising competition, it is becoming increasingly difficult for active managers to consistently outperform relevant market indexes net of all costs. They’re no longer competing against “mom and pop”.

They’re competing against the professionals in the neighbouring skyscraper, and the ability to find an informational edge is shrinking along with their margins.

Outperformance requires talent, low costs, and patience So does this leave active investing in the same boat as the myth about the eight glasses of water? Not really.

But if the best way to get ahead in active investing is to know something other investors don’t, perhaps the first thing to reconsider is the conventional wisdom.

Our research shows that long-term, active outperformance is possible.

© The Vanguard Group, Inc., used with permission.

4

There are much easier ways.

International Finance Jul - Sep 2017

But choosing recent high performers in inefficient markets isn’t the answer.

Instead, we found that lowcost funds run by talented managers can achieve longterm outperformance for patient investors. Patience is key, because returns will be inconsistent even for successful managers.

One good way to learn patience is running a sevenday race in the desert.4 And while we’re rethinking, I can report another flaw in conventional wisdom. You

need way more than eight glasses of water a day when you run through the Sahara.

I’d like to thank Tom Paradise, Kunio Iwata, and Tim Clavin for their invaluable contributions to this blog post: Chris Tidmore IFM editor@ifinancemag.com

Chris Tidmore, CFA, is a senior investment strategist in Vanguard Investment Strategy Group

Wealth Management

Funds ranked in the top quintile of performance for the five years ended December 31, 2011 Top quintile All actively managed US equity funds

Performance for the five years ended December 31, 2016

16% remained in top quintile 12% fell to second quintile 12% fell to third quintile 14% fell to fourth quintile 21% fell to bottom quintile 25% liquidated/merged

Top quintile Actively managed US small-cap equity funds

10% remained in top quintile 18% fell to second quintile 14% fell to third quintile 14% fell to fourth quintile 18% fell to bottom quintile 26% liquidated/merged

Top quintile

12% remained in top quintile 22% fell to second quintile

Actively managed emerging markets equity funds

10% fell to third quintile 8% fell to fourth quintile 30% fell to bottom quintile 18% liquidated/merged Jul - Sep 2017 International Finance

29

Wealth Management

Feelings about

30

wealth F

rom Gordon Ramsay declaring his children won’t inherit his fortune to EasyJet founder Stelios Haji-Ioannou dedicating his wealth to charity, the relationship between high net-worth individuals (HNWIs) and their financial assets has captured the media’s fascination in recent months. Indeed, the financial choices we have – how we make money, how much of it we have or want, what we do with it, the role it plays in our life, and how we pass it on – raise questions that affect us all.

When we think of wealth management, we normally think in terms of learning how to manage investments. But in the broadest context, it’s how we manage money in our lives and relationships. My work is to help people understand their relationship to money so they are in control of it, rather than it being in control of them.

Often I find many highly successful, intelligent people, both individuals and families, don’t prioritise financial emotional intelligence (EQ); that is, understanding their

International Finance Jul - Sep 2017

Why wealth management is as much about feelings as figures Diana Chambers

feelings, beliefs and expectations around wealth so they can foster a positive experience around their financial assets, including in their relationships. This is understandable.

After all, feelings about money are often harder and more complex to address than hard financial facts.

The pitfalls of wealth Money is simply a means of exchange that should be used to serve social, intellectual, human, and spiritual needs – both our own and those of others. But failure to explore and constructively talk about our feelings about wealth can be the first step towards money becoming our priority and us becoming subservient to it.

I have seen that if a family makes money a priority per se and adopts a competitive attitude towards gaining the most – either in relation to other families or within the family itself – the family members become lost in the process.

They can become mistrustful, even paranoid, as their wealth

Wealth Management

»

Diana Chambers is a family wealth mentor and philanthropic advisor, and President and CEO of The Chambers Group

defines them and money becomes the determining factor in their relationships.

Ultimately, money starts to inhibit rather than facilitate their lives.

Developing financial emotional intelligence Building our selfawareness is the first step towards financial EQ. This is expressed as we overcome the taboo that surrounds talking about our wealth, which in turn increases our clarity. By having freedom to talk to those close to us about our wealth, we can also come to appreciate what we have in abundance and learn to establish ‘what is enough’. Once we have such clarity, we are no longer pawns to our financial desires.

The second step is to determine exactly what brings us true satisfaction

and fulfilment. There is nothing wrong with money itself, but it cannot ultimately offer true power, freedom, control, security and happiness. A strong network of relationships and a sense of meaning and purpose in our lives are the true drivers of happiness.

The power of giving Those with wealth who are fixated on acquiring more tend to focus on personal rather than collaborative success.

They forget that real significance is found in our contributions to others, our communities, and our society – not in the extent of our bank balances.

This is one reason why helping clients with their philanthropy is such a central facet of my work.

Everyone who gives well feels good about doing

so. Giving can generate a lasting impact, offers an avenue for a legacy that extends beyond immediate family, and generates great satisfaction knowing a wellplaced social investment has been made.

Educating the next generation With wealth comes the responsibility to ensure that not just ourselves, but future generations, are equipped with financial EQ. How large financial assets are handed down to the next generation is one of the issues that most concerns my clients. Parents and grandparents who have high financial EQ are inevitably concerned with how their wealth will help or hinder their next generations.

Considerable inheritance carries considerable responsibility, which may be

experienced as burdensome.

There is a risk that young people are unable fully to define their own identities as the weight of the wealth shapes and suffocates them.

The ability of parents to talk openly to their children about money and inheritance is crucial in this situation. Doing so will ensure children feel trusted and are made aware of the wealth before they can access it, so they can be well-prepared and financially intelligent enough to handle the money well upon receiving it. Involving children in philanthropy from a young age will help ensure they enjoy the experience of giving to others and want to continue this as adults.

The media often highlights young people who have fallen into a bad place because of the wealth they have inherited. Their parents have not tailored the inheritance to ensure it genuinely enhances their children’s lives and they may not have maintained an advisory role once the money has been passed down.

But with a strong grounding in financial EQ, coupled with the values of hard work and resilience, as well as a growth mindset, considerable wealth needn’t negate the recipient’s appetite for being a productive member of society. In fact, it can be the trigger for developing greater meaning, purpose, and generosity in their lives. IFM editor@ifinancemag.com

Jul - Sep 2017 International Finance

31

Wealth Management

Are US and Asian investors buying control

of Europe’s tech future?

32

International Finance Jul - Sep 2017

Wealth Management

They provided 76% of all the capital invested in European late-stage tech in the last 12 months, and stand to benefit most from Europe’s unprecedented success in tech Victor Basta

E

urope has created an unprecedented number of tech companies these last 10 years. Early stage money, once so hard to come by, is now 25% of US levels, an astonishing statistic given how young the European tech industry is.

Yet, it is later stage money which is so crucial to creating global winners, and where so much of the real value is

generated. By the time a tech company achieves a $1B exit, late stage investors usually own most of the equity.

While European tech has come very far in terms of early stage money available, later stage money remains elusive for most growth companies; US tech attracts 4x the early stage money available in Europe, but 10x the late stage money.

Surprisingly, according to a

recent Magister Advisors analysis, what little late-stage money that is available is mainly provided by US and Asian investors. While it’s no secret international capital has been flowing to Europe in greater amounts, surprisingly over half of all late-stage rounds were driven by US or Asian capital.

The impact is even greater when we look at total amount, rather than

Jul - Sep 2017 International Finance

33

Wealth Management

US and Asian investors have driven 76% of all the capital invested in European late-stage tech. The largest rounds creating the biggest tech companies are driven disproportionately by international interest

number of rounds. US and Asian investors have driven 76% of all the capital invested in European late-stage tech. The largest rounds creating the biggest tech companies are driven disproportionately by international interest.

34

The implications are clear: • European tech has ‘come of age’ in the last five years, attracting more money from international investors overall; all signs point to this growing even more over the coming five to 10 years • Because of the lack of European late-stage investors, the most promising European tech players have mainly been funded by overseas capital.

While this is a huge validation

of the quality and attractiveness of European tech competitors, it is also a huge indictment of the ‘local’ tech investment marketplace • Put simply, the quality of available ‘demand’ (companies looking for funding) far outstrips EU capital ‘supply’.

There are far too few late-stage EU investment funds in Europe to fuel the next generation of winners • European investors have started responding. 1/3 of all $400m later stage European tech funds have been raised since the start of 2016, but the evidence shows it’s still far short of the available quality supply While the imbalance is slowing

changing, we expect the number of European success stories deserving of late-stage funding to double in the coming years. We cannot see how the gap can be filled quickly enough by the still sub-scale European late-stage sector, so unless something changes fast, we expect over 80% of all capital for these companies to be driven by investors outside the EU. Europe is now a proven laboratory for creating world-class start-ups capable of competing internationally.

However, the huge value created this seismic trend looks set to flow mainly to investors outside Europe.

Put bluntly, Europe is in the process of creating unprecedented value which the rest of the world can capitalise on. IFM editor@ifinancemag.com

Victor Basta is managing partner at Magister Advisors

International Finance Jul - Sep 2017

Wealth Management

European Investment Funds over $400m+in the past 5 years Sorted by Fund Size in USDm

Fund Name

Vintage

Fund Size

Fund Type

Fund Country

Total Investment

Preferred Industry

1

ETI 2020

2013

2,528

PE Growth

FRA

67

Commercial Services. Communication and Networking Energy

2

DST Global V

2015

1,092

Venture Capital

RUS

9

Software

3

Rocket Internet Capital Partners SCS

2017

811

Venture Capital

DE

1

Information Technology

4

Ardian Expansion Fund IV

2016

789

PE Growth

FRA

9

Healthcare Devices and Supplies

5

CVC Capital Partners Growth Invertors

2015

700

PE Growth

UK

13

Business Products and Services (B2B), Consumer Products and Services (B2C), Energy, Financial Services, Healthcare, Information Technology

6

Actis Energy 3

2013

687

PE Growth

UK

7

Energy Equipment Energy Services Exploration Production and Refining

7

The Competitive Start Fund

2012

525

Venture CapitalEarly Stage

Ireland

274

8

Atomic IV

2017

520

Venture Capital

UK

9

FSN Capital IV

2013

526

PE Growth

Norway

10

European Financing Partners V

2013

516

PF Growth

Belgium

11

Cocoon Network Venture Capital Fund

2016

500

Venture Capital

12

Index Ventures Growth IV

2016

493

Venture CapitalLater Stage

13

African Development Partners II

2015

486

PE Growth

14

Index Ventures Growth III

2015

470

15

EQT Venture Fund

2015

16

Rocket Internet Fund

17

18

Software

Information Technology 39

Commercial Services

UK

67

Biotechnology Financial Software

SWE

38

Information Technology

UK

7

Venture CapitalLater Stage

SWE

28

Software

441

Venture Capital

SE

8

Information Technology

2013

418

Venture Capital

DE

53

Software

Summa Equity I

2016

407

PE Growth

SE

2

Commercial Services, Containers and Packaging, Software

Inflexion Partnership Capital Fund I

2014

400

PE Growth

UK

16

Commercial Services

Communications and Networking

Jul - Sep 2017 International Finance

35

Wealth Management

VC Investments in

Technology 2012-2017 European Investment

2012 2013 2014 2015 2016 Total # # # # #

Deal Count Global Investors

28

35

52

44

43

Series C

17

19

33

24

27

Series D

7

7

10

11

8

Series E+

4 9 9 9 8

Investments from US & Asia 36

202

15

12

32

32

24

Series C

8

7

17

16

13

Series D

5 3 9 9 6

Series E+

2

2

6

7

5

54%

34%

62%

73%

56%

Series C

47%

37%

52%

67%

48%

Series D

71%

43%

90%

82%

75%

Series E+

50%

22%

67%

78%

63%

Investments from US & Asia

International Finance Jul - Sep 2017

115

57%

Wealth Management

VC Investments in

Technology 2012-2017 European Investment

2012 2013 2014 2015 2016 Total $m $m $m $m $m

Deal Size Global Investors

321

324

Series C

155

143

428

428

608

Series D

160

147

276

547

150

Series E+

7

34

388

1,048

537

267

175

965

1,474

978

116

76

342

385

398

Investments from US & Asia Series C

1,092 2,023 1,295 5,055

3,859 37

Series D

148

84

267

421

115

Series E+

3

15

356

668

465

83%

54%

88%

73%

76%

Series C

75%

53%

80%

90%

65%

Series D

93%

57%

97%

77%

77%

Series E+

47%

43%

92%

64%

87%

Investments from US & Asia

76%

Jul - Sep 2017 International Finance

Wealth Management

38

Chinese companies on the

rise

Indicators of 2016 Global Private Wealth Managers AUM Ranking from GlobalData and Private Banker International

International Finance Jul - Sep 2017

Wealth Management

• Switzerland’s UBS continues to top the global assets under management (AUM) list with over £2 trillion, while Credit Suisse sits in 4th place • US wealth management companies in the top five are Bank of America Merrill Lynch in 2nd, Morgan Stanley in 3rd and JP Morgan in 5th • Chinese companies, led by China Merchant’s Bank (11th), are rising up the rankings

T

he world’s 25 largest private wealth managers grew their assets under management (AUM) by 5.5% in 2016, compared to a growth rate of 2.9% a year previously, according to the Global Private Wealth Managers AUM Ranking revealed by research and consulting firm GlobalData and Private Banker International.

The latest classification ranks Switzerland-based UBS as the global leader, with AUM exceeding $2 trillion, with Bank of America Merrill Lynch and Morgan Stanley making up an unchanged top three on the previous year.

Despite this, Bartosz Golba, GlobalData’s Head of Content for Wealth Management, predicts the two American giants might

switch places next year: “While Bank of America’s AUM decreased for the second consecutive year, Morgan Stanley recorded double-digit growth.

Growth was even faster in the division catering for high net worth (HNW) individuals at Goldman Sachs, which overtook Citi Private Bank.

“In terms of top performing banks, however, China may dominate the field. The country’s banks have grown their private banking AUM in recent years, riding the wave of an expanding domestic wealth management market.

However, a select few have crept up into the top global echelons of wealth managers by prioritising the HNW and ultra HNW segments.”

China Merchants Bank,

long one of the most commercial of China’s leading banks, boasts an exemplary focused growth strategy. While the bank ranks well behind the top five in the domestic retail banking market, its focus on private banking has seen its AUM grow faster than larger rivals, and it now leads the Chinese market.

Andrew Haslip, GlobalData’s Financial Head of Content for Asia-Pacific, explains: “Despite a smaller footprint on the mainland, China Merchants Bank’s focus on helping affluent Chinese internationalise their wealth has fueled its growth. The 2017 expansion of its private bank in Singapore still needs to be seen through the lens of its mainland strategy, giving its Chinese clients more options in Asia’s

“

The Asia-Pacific region, which saw much M&A activity in 2016 and will see more in 2017, is where we expect new top international wealth managers to emerge. Banks such as DBS Private Bank and OCBC’s Bank of Singapore, which have been bulking up significantly through acquisitions, are the ones to watch Meghna Mukerjee, Editor, Private Banker International

Jul - Sep 2017 International Finance

39

Wealth Management

The latest classification ranks Switzerland-based UBS as the global leader, with AUM exceeding $2 trillion, with Bank of America Merrill Lynch and Morgan Stanley making up an unchanged top three on the previous year

40

private wealth management capital.”

Although the industry should be happy with the overall growth seen in 2016, some players saw their asset books shrink remarkably.

Golba continues: “HSBC and Deutsche Bank reduced their international footprints and now neither is present in the top 10 ranking. Divestments will continue to affect the competitive landscape, creating opportunities for smaller players to expand their operations. Gone are the times of pursuing growth at all costs. Every merger and acquisition will be analysed carefully before any deal is signed. Out of this continuing divestment trend, we are seeing more Asian private banks, with an increasing international focus, joining the top ranks

of Global Private Wealth Managers.”

Meghna Mukerjee, Editor of Private Banker International, concludes: “The Asia-Pacific region, which saw much M&A activity in 2016 and will see more in 2017, is where we expect new top international wealth managers to emerge.

Banks such as DBS Private Bank and OCBC’s Bank of Singapore, which have been bulking up significantly through acquisitions, are the ones to watch.”

Methodology of ranking - The ranking captures the AUM of private banking and wealth management operations of the world’s leading competitors. The data was collected from competitors’ publicly available materials (such as annual reports and

financial statements), or from contacts in relevant organisations.

- The definition of AUM differs between wealth managers. To ensure figures are comparable, the data underwent our standardisation process, with the aim of capturing assets held with a provider for investment purposes by private clients, under the beneficial ownership of the client. Presented figures exclude assets held only in custody, as well as pure asset management operations. Where no detailed breakdown of AUM was provided by a competitor, we used our model to estimate the most accurate numbers.

- The AUM data was collected in competitors’ reporting currency. Where this is not US dollars, data was converted using the 2016 end-year exchange rate. IFM editor@ifinancemag.com

International Finance Jul - Sep 2017

“

Despite a smaller footprint on the mainland, China Merchants Bank’s focus on helping affluent Chinese internationalise their wealth has fueled its growth. The 2017 expansion of its private bank in Singapore still needs to be seen through the lens of its mainland strategy, giving its Chinese clients more options in Asia’s private wealth management capital Andrew Haslip, GlobalData’s Financial Head of Content for Asia-Pacific

Wealth Management

2016 Global Wealth Managers AUM Ranking Rank

Competitor

AUM($bn)

2015-16 rank change

2,069.41

=

1

UBS

2

Bank of America Merill Lynch

886.15

=

3

Morgan Stanley

877.00

=

4

Credit Suisse

719.05

=

5

JP Morgan

435.00

=

6

Goldman Sachs

413.00

+1

7

Citi Private Bank

389.70

-1

8

BNP Paribas

361.98

=

9

Julius Baer

323.77

+1

10

Northen Trust

248.40

+2

11

China Mechants Bank

238.96

+3

12

Wells Fargo

231.00

+1

13

Deutsche Bank Wealth Management

227.29

-4

14

HSBC Private Bank

222.00

-3

15

Santtander

192.20

+1

16

Pictet

180.50

+1

17

ABN Amro

178.34

-2

18

ICBC

174.23

=

19

Bank of China

143.99

+3

20

Credit Agricole

143.84

-1

21

RBC Wealth Management

139.92

+5

22

J. Safra Sarasin

131.55

-2

23

Bank of Montreal

126.20

+1

24

Societe Generale

122.06

-3

25

Lombard Odier

116.74

-2

Source: GLobalData’s Wealth Management Competitor Analytics

Š GlobalData

Jul - Sep 2017 International Finance

41

OPINION: Markets OPINION

OPINION

Prasanth Prabhakaran

Why Indian stocks are soaring despite less than flattering GDP figures 42

International Finance Jul - Sep 2017

OPINION: Markets OPINION

Upward movement is based on expectations of improvement in the macroeconomic situation

S

tock markets are considered to be the barometer of the country’s economic conditions.

As such their direction represents the overall expectations of the direction of the economy. Since the current government came to power, the Indian stock market has been soaring.

However, if one looks at the underlying economic data, the results are not as flattering. This may lead

one to question the sanctity and continuity of the stock market performance.

The movement in stock market was based on expectations of improvement in the macroeconomic situation of the country and consequently in the corporate earnings led by lower inflation, easing interest rates, revival in the capex and enactment of key reforms. Three years hence, we have already

started seeing the benefits of these in the high frequency indicators which suggest that things are improving in the economy albeit at a moderate pace. The much awaited GDP growth for FY17, came in at 7.1%YoY unchanged from the advance estimate of 7.1% (announced in Feb-17).

However, closer look at quarterly trends indicates that there was a moderation in growth beginning in 2QFY17 and that there was

a sharp slowdown in the second half of the fiscal year as compared to the first half.

Heading into FY18, we expect economic recovery to gain traction on the back of recovery in rural demand given the government’s focus on rural spending and good monsoon prospects. Further, swift remonetisation (stock of CIC is now at 83%of its pre demonetised levels) along with allowances outgo under 7th Pay

43

Jul - Sep 2017 International Finance

OPINION: Markets OPINION

For FY18, we expect GDP growth at 7.3-7.5% led by consumption, some revival in public sector capex and external demand improvement

Commission award will continue to support urban consumption. For FY18, we expect GDP growth at 7.37.5% led by consumption, some revival in public sector capex and external demand improvement.

The question is whether the markets would continue to soar or would the gains taper off to reflect the state of the economy. We believe that it would be

44

International Finance Jul - Sep 2017

the former on the back of continued improvement in the economy. High frequency indicators have shown that things are improving. The government has put in place quite a few reforms the benefits of which have finally started to percolate down to the ground level. Continued reforms to improve ease of doing business, introduction and rollout of GST, FDI

liberalisation would help in boosting economic activity further. On the investment side, there has been an uptick in public capex led with higher expenditure at Centre and State level. We have seen an uptick in order activity as well as in project clearance.

Going forward, the macro story for India still continues to remain strong on account of (i)

Economy on an upward trajectory (ii) pro reform focus of the government (iii) Government’s continued emphasis on reviving manufacturing sector through structural steps (iv) benign interest rates (iv) revival in rural consumption on the back of good monsoons (v) improvement in real urban wages helped by easing inflation and (vi) 7th Pay Commission hike

OPINION: Markets OPINION

to give a further fillip to consumption led growth.

The improvement on the economic front will consequently support growth in earnings as well. We expect earnings to gain strength over the next 2 to 3 years. This growth would be supported by the macroeconomic improvement and growth which in turn is based on 4 pillars – revival and growth in rural and urban demand; public sector led capex with higher expenditure at Centre and State levels; stability in commodity prices and continued reforms in the economy.

All of these factors should help in stimulating demand and consequently lead to a growth in the topline for India Inc. Higher growth would help in boosting margins further and would

complement the stable commodity prices and improved operational efficiencies that most companies have already put in place. Add to this the benefit of lower interest rates which would lead to a growth at the bottom line level as well.

This makes India an attractive investment destination not just for domestic investors but also for foreign institutions, and the funds thereof would further support the upward journey of the Indian stock markets. IFM

The much awaited GDP growth for FY17, came in at

7.1% YOY

unchanged from the advance estimate of

7.1%

(announced in Feb-17)

editor@ifinancemag.com

Prasanth Prabhakaran is Senior President and CEO, YES Securities India Ltd

Jul - Sep 2017 International Finance

45

insurance

Bupa Arabia

optimistic about support in vision 2030

CEO of Bupa Arabia shares his views after the fourth health insurance symposium in Riyadh 46

B

upa Arabia for Cooperative Insurance participated in the Saudi Insurance symposium in its fourth edition on April 30-May 1. The event was organised by the General Insurance Committee at the King Fahad Cultural Center in Riyadh under the patronage of Dr. Ahmed Abdulkarim Alkholifey, Governor of the Saudi Arabian Monetary Authority, and a number of local and international experts in the insurance sector.

Tal Nazer, Chief Executive Officer at Bupa Arabia, stated: “We are very optimistic towards the support that the insurance sector will be getting from the Kingdom’s Vision 2030. The vision sees the insurance sector as a catalyst for many sectors that diversify the sources of national income, therefore driving the Saudi economy forward & creating more promising career opportunities for the sons and daughters of our beloved country.”

“The insurance sector has seen

International Finance Jul - Sep 2017

enormous growth in the past 15 years through the development of organised committees & regulations. There has also been an increase in awareness on the role of insurance companies & the plethora of services & products they provide for the community.”

Tal Nazer’s participation in the fourth Saudi Insurance Symposium with the attendance of Ali Sheneamer, Chief Commercial Officer of Bupa Arabia, emphasises the distinguished efforts that Bupa Arabia provides to the insurance sector in cooperation with several private & governmental entities. These efforts to elevate health insurance in the Kingdom come hand in hand with the Kingdom’s Vision 2030 to ensure the best healthcare is provided from all members of the community. IFM editor@ifinancemag.com

insurance

47

Âť

Tal Nazer, Chief Executive Officer at Bupa Arabia

Jul - Sep 2017 International Finance

48

‘Change management poses greatest risk’

Banana Skins survey reveals that technological change and cyber risk have overtaken regulation as top risks for insurers

International Finance Jul - Sep 2017

insurance

T

he global insurance industry’s ability to confront structural and technological changes is now the greatest risk, according to a new survey of insurers and close observers of the sector.

The CSFI’s latest Insurance Banana Skins 2017 survey, conducted with support from PwC, surveyed 836 insurance practitioners and industry observers in 52 countries to find out where they saw the greatest risks over the next 2-3 years.

Change management is at the head of a cluster of operating risks, which have jumped to the top of the rankings. The report raises concerns about the industry’s ability to

address the formidable agenda of digitisation, new competition, consolidation and cost reduction, especially because of rapidly emerging technologies, such as driverless cars, the Internet of Things and artificial intelligence, which could transform insurance markets.

Cyber risk comes second with anxiety rising about attacks on insurers themselves as well as the cost of underwriting cybercrime. Other major concerns include the adequacy of an insurer’s internal technology systems and new competition, particularly from the ‘InsurTech’ sector.

The next cluster of high-ranking risks — interest rates, investment

performance and macroeconomic risk — shows that concern about economic instability remains high.

Although respondents acknowledged signs of growth, confidence in the recovery is not strong for reasons as widely dispersed as the slowdown in China, the risk of Trump-era protectionism and populism in Europe. The risk of political interference was seen to have risen sharply.

However, Britain’s exit from the EU was seen to be a minimal source of risk for insurers, particularly those without operations in the UK. Regulatory risk, which has topped the last three editions of this survey, has fallen out of the top five this

year. This is largely because recent regulatory changes are settling in to business as usual (e.g. Solvency 2), though the cost and complication of regulation continue to be a concern.

The report shows that the industry’s ability to attract and retain human talent is a fast-rising concern, particularly to handle the digital challenge. Conversely, an area of declining risk is the governance and management of insurance companies. These were seen as high-level risks during the financial crisis but have fallen sharply since, because of both initiatives from the industry itself and regulatory pressure.

Overall, the climate for

49

Jul - Sep 2017 International Finance

insurance

insurers is becoming more challenging, according to respondents.

The 2017 Banana Skins Index, which measures the level of anxiety in the industry, is at a record high while the industry’s preparedness to handle these risks has fallen from 2015.

David Lascelles, survey editor, said: “For the first time in six editions of this

survey, operating risks pose the greatest threat to insurers. Structural and technological changes to the industry could upend traditional business models.

At the same time, insurers are grappling with a very difficult economic climate, which helps explain why anxiety is at an all-time high.”

Mark Train, PwC Global Insurance Risk

Leader, comments: “Both the challenges and opportunities presented by change underline the vital importance of being clear about where you’re best able to add value, and then being ruthless in targeting investment and management time at these priorities. A key part of this ‘fit for growth’ strategy is differentiating the capabilities needed to fuel

growth, ‘good costs’ targeted for investment, from lowperforming business and inefficient operations, ‘bad costs’ targeted for overhaul or elimination.” IFM editor@ifinancemag.com

Insurance Banana Skins 2017 RANK

50

2015 RANK

1

Change management

6

2

Cyber risk

4

3

Technology

-

4

Interest rates

3

5

Investment performance

5

6

Regulation

1

7

Macro-economy

2

8

Competition

-

9

Human talent

15

10

Guaranteed products

7

11

Political interference

16

12

Business practices

11

International Finance Jul - Sep 2017

insurance

13

Cost reduction

-

14

Quality of management

12

15

Quality of risk management

10

16

Social change

20

17

Reputation

18

18

Product development

17

19

Corporate governance

21

20

Capital availability

22

21

Complex instruments

25

22

Brexit

-

Note The Insurance Banana Skins 2017 survey was conducted in January and February 2017, and is based on 836 responses from 52 countries. The breakdown by type of respondent was: Category Non-life Life insurance Composite Reinsurance Brokers Other

% 29 27 17 7 4 16

Jul - Sep 2017 International Finance

51

COVER STORY

52

COVER STORY

Kuwait Telecommunication Company (VIVA) CEO Eng. Salman Bin Abdulaziz Al-Badran

Communicating achievements International Finance Jul - Sep 2017

COVER STORY

Kuwait Telecommunication Company (VIVA) has shown continued growth in operating revenues since its launch in 2008

T

he journey of Kuwait Telecommunication Company (VIVA) began in 2008 with an Amiri decree facilitating the formation of a company to manage and operate a mobile phone network in Kuwait.

The company was founded with a capital of KD 50 million (500 million shares with a nominal value of 100 fils per share), where the company offered 250 million shares (50%) to the Kuwaiti people while 120 million shares (24%) were earmarked for various government funds (General Authority for Investment, General Organization for Social Insurance, Zakat House, Kuwait Awqaf Public Foundation, the General Authority for Minors Affairs). 130 million shares (26%) were earmarked for a strategic investor through public bidding. Saudi Telecommunications Company (STC) won the bid with an offer of KD 247 million.

On August 24, 2008, the initial public offering (IPO) of 250 million shares took place (half of the company’s capital) only to Kuwaiti citizens at a price of 100 fils per share

T

and subscription ended on September 18, 2008. The IPO was one of the largest to be held in Kuwait. The response exceeded expectations; the number of subscribers was close to 920 thousand. The company was listed on the Kuwait Stock Exchange on December 14, 2014.

VIVA launched operations in December 2008. Since its launch, VIVA has invested KD 247 million in its infrastructure and has created the most advanced mobile telecommunication network in the Middle East.

It covers more than 99% of Kuwait’s residential areas and other geographically equipped areas.

By 2014, its market share had grown to 32%. The company has 72 branches across Kuwait. It has launched numerous new services and promotions at competitive prices. The result is a customer base of 2.5 million.

Today, it is the second largest operator in Kuwait.

Since the beginning, VIVA has encouraged local talent. Its current workforce is 66% Kuwaiti.

VIVA’s achievements

The continued growth in operating revenues and efforts to strengthen its leadership in the telecom market has brought in numerous awards. VIVA has won awards from INSIGHTS Middle East for ‘Best Contact Centre Experience’ and ‘Best Network Experience’. The company was recently named the ‘Leading Corporate for Investor Relations in Kuwait’ due to the hard work and the dedication of the management and employees, and excellent recruitment process to hire experts and professionals, in addition to the highest professional standards in the process of communicating with its shareholders and the investment community.

Vision of the company

he company aims to provide unique services and products that satisfy the aspirations of its clients and accommodate their needs, and in turn earn their trust. The company aims to offer customers

numerous telecommunications opportunities with the goal of boosting relationships with them and giving them the best experience round the clock.

‘Our vision is embodied in a fundamental and detailed understanding of the Kuwait market and focusing on

the needs of customers in everything we say and do. We have pledged to work to enrich the lives of our customers through telecommunications, entertainment and information, and data transfer services’. IFM editor@ifinancemag.com

Jul - Sep 2017 International Finance

53

Business Leaders COVER STORY

Key milestones

2008

2009 • Introduces high speed Mobile Broadband in Kuwait • Launches innovative prepaid offerings and acquires 500K customers in one year

• The company has been launched commercially under the brand name VIVA • VIVA abolishes fees for incoming calls; other operators follow, bringing change in the market

2010

54

2011 • First to introduce Apple iPhone • Strategic partnership with Manchester United • First to introduce newest HSPA+ (42.2 Mbps) Broadband network

• Expand retail network and launch joint promotions with retailers • Wins CommsMEA Best Telecom Finance Deal

2012 • Launches Elite Program for loyal, VIP and high value customers • Turns into profitability during the fourth year of operation • Starts deployment of 4G LTE network

International Finance Jul - Sep 2017

Business Leaders COVER STORY

2013 • Complete nationwide 4G LTE coverage • Awarded Best LTE Deployment in the Middle East • Launch of number portability • Acquires majority of ported numbers between operators

2014 • Strategic partnership with Real Madrid • Listing on KSE • Retained earnings turned to be positive • Ranked 2nd in terms of revenue and subscriber market share

55

2015 • The first in Kuwait to introduce the all-new VoLTE technology • Branch network reaches 70 across Kuwait • First to introduce the LTE Advanced

2016 • Recognised as Best Telecom Company by Arabian Business • Becomes a member of International Telecommunication Union (ITU) • Leading corporate for IR in Kuwait

Jul - Sep 2017 International Finance

Appointments

celebrating excellence

International Finance

AWARDS 2017

The International Finance awards recognise and honour individuals and organisations that make a significant contribution to the global finance sector through groundbreaking products or services, gain or maintain leadership in their sector, and share the fruits of their labour with society through CSR activities

Banking Insurance Oil and gas

Investment Management Real Estate Energy

Leadership

Financial Telecom

Brokerage Utility

Technology

To nominate yourself or your company, write to: awards@ifinancemag.com For passes to the presentation ceremony, write to: mmiller@ifinancemag.com

International Finance

AWARDS 2017

Submit

YOUR NOMINATION

Write to awards@ifinancemag.com Call +44 208 123 0715

Business Leaders

London is home to the most millionaire CEOs in the world Emily Wadsworth

58

International Finance Jul - Sep 2017

Business Leaders

However, America is actually the country with the most millionaire CEOs

E

ver wondered where the world’s millionaire CEOs are hiding? New research

by Compelo has found that London is actually the city with the most millionaire CEOs.

However, although London is the city with the most millionaire CEOs, America is actually the country with the most, reveals research conducted

by Compelo and Wealth Insight.

Nearly half ― 48% ― of all millionaire CEOs reside in the US. This is followed by the UK and France, with 8% and 4% respectively. When broken down by city, however, London followed by San Francisco and New

York, are home to the largest number of millionaire CEOs. Who is a typical millionaire CEO? The average millionaire CEO is a 58-year-old male with a wealth ranging between $5m and $30m.

Surprisingly though, 50% of millionaire CEOs are self-made, meaning that they created their own business of which they now hold the post of CEO. Only 38% of millionaire CEOs made their wealth from a salaried position. A small 7% acquired their wealth through family money.

The most shocking find is that only 5% acquired their wealth from inheritance.

59

Jul - Sep 2017 International Finance

Business Leaders

60

• London is home to the largest number of millionaire CEOs. However, nearly half of all millionaire CEOs reside in the US • Half of all millionaire CEOs are self-made. Only 5% owe their wealth to inheritance • The average millionaire CEO is 58 years old and their net worth is between $5m and $30m What industries do these CEOs work in?

Despite employing the highest volume of millionaire CEOs, tech and telecoms are actually the worst industries for their wealth. CEOs working in tech and telecoms have an average wealth between $1m and $5m, despite the sector seeing explosive growth globally.

The industry that has the least CEOs at 2% but has the wealthiest is ‘diversified’. These are companies that are active in multiple sectors such as Koch Industries, run the billionaire CEO Charles Koch, or Virgin whose former CEO Richard Branson is worth an estimated $5.5 billion. IFM editor@ifinancemag.com

The average millionaire CEO is a 58-year-old male with a wealth ranging between

$5m and $30m

International Finance Jul - Sep 2017

Methodology WealthInsight maintains a proprietary database of over 100,000 HNWIs globally.

With the database as the foundation for research and analysis, WealthInsight has been able to obtain an unsurpassed level of granularity on which cities HNWIs live around the world.

Definitions ‘Millionaires’ otherwise known as ‘high net worth individuals’ or ‘HNWIs’ refer to individuals with net assets of $1 million or more excluding their primary residences.

Business Leaders

Ranking of cities with the most Millionaire CEOs Rank

City

Percentage of total

1

London

2.9%

2

San Francisco

2.6%

3

New York

2.1%

4

Singapore

1.0%

5

Los Angeles

0.8%

6

Houston

0.8%

7

Boston

0.8%

8

Paris

0.7%

9

Chicago

0.7%

10

Washington

0.5%

Ranking of Industries with the wealthiest CEOs Industry

Percentage of Millionaire CEOs

1

Tech & Telecoms

18%

2

Financial Services & Investments

15%

3

Retail, Fashion & Luxury Goods

8%

4

Healthcare

8%

5

Manufacturing

6%

6

Media

5%

7

Basic Materials

5%

8

Energy & Utilities

5%

9

Real Estate

4%

10

Transport & Logistics

4%

11

FMCG

4%

12

Hotels, Restaurants & Leisure

3%

13

Construction & Engineering

3%

14

Diversified

2% Jul - Sep 2017 International Finance

61

Business Leaders

62

More CEOs being ousted for ethical lapses International Finance Jul - Sep 2017

Business Leaders

Global study by PwC’s Strategy& revealed that forced turnovers due to ethical lapses rose from 3.9 percent of all successions in 2007-11 to 5.3 percent in 2012-16

T

he share of CEOs forced out of office for ethical lapses has been on the rise, according to the 2016 CEO Success study by Strategy&, PwC’s strategy consulting business.

The study, which analysed CEO successions at the world’s largest 2,500 public companies over the past 10 years, reports that forced turnovers due to ethical lapses rose from 3.9 percent of all successions in 2007-11 to 5.3 percent in 2012-16 — a 36 percent increase, due in large part to increased

public scrutiny and accountability of executives.

The increase was more dramatic at companies in the US and Canada.

Forced turnovers for ethical lapses at these companies increased from 1.6 percent of all successions in 2007-11 to 3.3 percent in 2012-16 — a 102 percent increase. In Western Europe, the share of CEOs forced out for ethical lapses increased to 5.9 percent from 4.2 percent, and in the BRIC countries, to 8.8 percent from 3.6 percent.

“Our data cannot show — and

perhaps no data could — whether there’s more wrongdoing at large corporations today than in the past.

However, we doubt that’s the case, based on our own experience working with hundreds of companies over many years,” says Per-Ola Karlsson, partner and leader of Strategy&’s organisation and leadership practice for PwC Middle East. “Over the last 15 years, five trends have resulted in boards of directors, investors, governments, customers, and the media holding CEOs to a far higher level of accountability for ethical lapses than in the past.”

Incidence of dismissal Despite the global increase in forced turnovers for ethical lapses, companies in the US and Canada have the lowest incidence of such dismissals — 3.3 percent in 2012-16 compared to 5.9 percent in Western Europe and 8.8 percent in the BRIC countries. More stringent governance regulation is one likely reason. Both the legislative requirements for codes of conduct and anti-bribery statutes have been tightened significantly in the United States.

Bigger company, bigger target The study also found that at the largest companies (those in the top quartile by market capitalisation) in the US and Canada and Western Europe, the overall share of CEOs forced out of office was significantly greater than the share forced out in the other market-cap quartiles.

“The fact that forced turnovers

Jul - Sep 2017 International Finance

63

Business Leaders

for ethical lapses were even higher at companies in the top quartile by market capitalisation in these regions supports our hypothesis, since the largest companies are the most affected by the five trends and are subject to the greatest scrutiny,” says Kristin Rivera, partner and global forensics clients and markets leader

64

5

with PwC US. “The increasing incidence of CEOs being forced out of office for ethical lapses may have a positive effect on public opinion over time by demonstrating that bad behaviour is in fact being detected and punished,” says DeAnne Aguirre, global leader of Strategy&’s Katzenbach Center

of Innovation for Culture and Leadership, principal with PwC US. “In the meantime, CEOs need to lead by example on a personal and organisational level and strive to build and maintain a true culture of integrity.” IFM editor@ifinancemag.com

Trends Shaping CEO Accountability

Public opinion

Since the financial crisis of 2007-08 and the Great Recession that it ignited, confidence and trust in large corporations and CEOs are on the decline; the public has become more suspicious, more critical and less forgiving of corporate misbehaviour.

Governance and regulations

The rise of public criticism of executives and corporations has translated directly into regulatory and legislative action, and companies in the US and many other countries have moved to a zero-tolerance approach toward bad behaviour in the C-suite.

International Finance Jul - Sep 2017

Business Leaders

Business operating environment

Companies increasingly are (1) pursuing growth in emerging markets where ethical risks, such as the possibility of bribery and corruption, are heightened, and (2) relying on extended global supply chains that increase counterparty risks.

Digital communications

The use of email, text messaging, and social media has created new risks for ethical lapses. A company’s digital communications can provide irrefutable evidence of misconduct, and their existence increases the likelihood that a CEO will be held accountable.

The 24/7 news cycle

Unlike in the mid- to late 20th century, when most executives and companies could maintain a low public profile, today the lightning-fast flow of web-based financial news and data ensures that negative information travels quickly and widely.

More from the 2016 CEO Success study • CEO turnover: CEO turnover at the world’s largest 2,500 companies decreased from its record high of 16.6 percent in 2015 to 14.9 percent in 2016, due largely to the drop in merger and acquisition activity. CEO turnover was highest in Brazil, Russia and India at 17.2 percent, followed by Japan (15.5 percent) and Western Europe (15.3 percent) and China (15.2 percent). CEO turnover fell in every region we studied except for the US and Canada.

• Women CEOs: There were 12 women globally appointed to the role of CEOs in 2016 — 3.6 percent of the incoming class. This marks a return of the slow trend toward greater diversity that had been in place over the last several years, and a recovery from the previous year’s low point of 2.8 percent. The share of incoming female CEOs was highest in the US and Canada, rebounding to 5.7 percent after falling for the previous three years. Five industries — healthcare, industrials, information technology, consumer staples and telecom services — did not have a single incoming female CEO in 2016.

Jul - Sep 2017 International Finance

65

Sector Insight

66

r o f e r t u n t e u f m t t s h e g i Br hip by inv s n e z i t i c Mich

International Finance Jul - Sep 2017

tt

mme

eE a Ros

Sector Insight

In today’s volatile global environment, the value of certainty and security cannot be underestimated

A

s Britain begins formal exit procedures to leave the European Union, many are concerned about what possible consequences may arise for travel – and the concern is not just raised by Britons or other Europeans.

Non-EU nationals who currently enjoy visafree travel to the United Kingdom and mainland Europe are worried that Brexit may alter or abolish their rights to visit the United Kingdom. What few realise however, is that the United Kingdom already has an immigration regime that is independent of other EU member states.

The regulation of non-EU migration and travel to

Britain will thus continue to be subject to these existing immigration arrangements.

Every year, more than a billion people cross borders and there are approximately 250 million expats living in countries that they have relocated to. These numbers are rapidly increasing; socio-political uncertainty and domestic turbulence have driven many to explore their relocation options, especially through the avenue of dual citizenship.

To put it into perspective, the number of Americans applying for New Zealand citizenship increased by 70 percent within three months of the new president being elected, and, since the shock Brexit vote, there has been a 42 percent increase in

Britons applying for an Irish passport. France too saw a surge in applications from Britons, with a 50 percent increase in applications for French citizenship recorded during the first quarter of 2017 as compared to the entirety of 2016.

But truth be told, there is a small elite, primarily composed of businesspersons and high net worth individuals, that has long been exploring dual citizenship, and in particular citizenship by investment.

A branch of ‘investment immigration’, citizenship by investment has been in place since 1984 when the first Citizenship by Investment Programme was established by

the Federation of St Christopher (St Kitts) and Nevis, a twin-island nation in the Caribbean Sea. The Programme was pioneering, and citizenship by investment is now offered by several countries, including a number within the European Union.

Citizenship by investment provides impressive economic contributions to host nations; Cyprus’ budget for 2016 revealed that the island’s Programme had yielded €2.5 billion in revenue for the government since 2013.

While EU countries Cyprus and Malta are popular destinations for those wanting to explore a second citizenship, it’s the Caribbean that lead the

Jul - Sep 2017 International Finance

67

Sector Insight

The number of Americans applying for New Zealand citizenship increased by 70 percent within three months of the new president being elected, and, since the shock Brexit vote, there has been a 42 percent increase in Britons applying for an Irish passport

require investment in pre-approved real estate, including residential and hotel projects. Of course, the building of real estate creates a number of construction jobs for residents. In addition, where commercial real estate is developed, often in the form of hotels and resorts, long-term roles and relationships are established, such as employment in the tourism services sector and demand for local agricultural produce – allowing many to flourish.

Micha Rose Emmett is CEO at CS Global Partners

Âť

68

citizenship by investment industry. Countries like St Kitts and Nevis, Grenada, and Dominica offer regulated, efficient, and financially attractive programmes, and are consequently benefiting from high application numbers. This, in turn, stimulates economic growth, both through direct contributions from applicants and through the indirect effect of investment in key industries such as tourism.

Many citizenship by investment programmes

International Finance Jul - Sep 2017

The real estate market in the Caribbean is a sector that is seeing growth. A report by Century 21 has revealed that property sales in Grenada continued to rise in 2016 after having already increased by 71 percent in 2015. The total sales over the two years amounted to almost $100 million. Grenada is also experiencing steady growth in its tourism industry, with figures showing a 10.3 percent increase in the first half of 2016. This growth is causing a further demand for tourist facilities and accommodation, and the arrival of luxury resorts is cited as a major factor for the influx of tourists.

The other most common citizenship by investment route is a contribution to a national fund, which in turn sponsors initiatives for the development of existing businesses, supports future-oriented industries, stimulates job creation, and encourages strategic growth.

An example of this is the Economic Diversification Fund (EDF) in Dominica, an entity launched to invigorate the economy and to sponsor education, infrastructure development, and agriculture. Another example is the Sugar Industry Diversification

Foundation (SIDF) found in St Kitts and Nevis.

Established in 2006, the Foundation assisted the nation in its transition from sugar growth to economic diversification. Projects included promoting clean energy sources, supporting new businesses, and rebuilding infrastructure.

Earlier this month, the Social Security Board of St Kitts and Nevis reported a dramatic increase in job creation and employment earnings across the nation: the highest in the country’s history. The total earnings for 2016 has been recorded at EC$995 million.

As well as providing a number of benefits for the residents and governments of countries offering citizenship by investment, aspiring citizens are also reaping several benefits.

Obtaining dual citizenship often means that investors and their families become more mobile, more secure in their physical and financial safety, and more likely to live the healthy lifestyle they crave.

The ability to travel the world without the need for lengthy visa applications or without being impeded by other bureaucratic restrictions is particularly prized by those currently

Sector Insight

Citizenship by investment provides impressive economic contributions to host nations; Cyprus’ budget for 2016 revealed that the island’s Programme had yielded €2.5 billion in revenue for the government since 2013 holding a passport or other travel document that entitle them to visa-free travel to only a handful of destinations. Grenadian citizenship, for example, enables visa-free travel to the People’s Republic of China, a key jurisdiction for business and trade.

Furthermore, as political uncertainty leaves many questions on travel between nations unanswered, citizenship by investment is providing peace of mind for those who travel widely for both business and pleasure.

Another reason why ‘future-thinking’ high net worth individuals are drawn to these investments, is

the security blanket that they offer their families.

By obtaining a second citizenship, parents can educate their children in some of the world’s most prestigious institutions, and in countries where the official language is English.

Of course, financial and wealth security is of utmost importance in today’s economic panorama.

Investing in dual citizenship enables families to create connections with countries that provide an abundance of business opportunities.

Moreover, certain jurisdictions do not over-tax citizens, freeing them from taxes on worldwide income,

inheritance, and gifts.

Although someone may have sufficient funds to invest in a citizenship by investment programme, this does not mean that he or she will be automatically awarded citizenship; there are strict personal and background checks carried out on all applicants that ensure only quality candidates ultimately receive citizenship.

The nations that offer citizenship by investment are not willing to forgo their international reputation, foreign relations, and visa waiver agreements and their due diligence and vetting procedures

are a clear demonstration of their commitment to transparency and integrity.

Not surprisingly, they require all individuals to have a ‘good reputation’, provide evidence of their source of funds, and demonstrate a clean criminal background.

In today’s volatile global environment, the value of certainty and security cannot be underestimated – and this is why citizenship by investment programmes are appealing options for those wishing to protect all elements of their lives.

For host countries, they are an effective means of encouraging growth and prosperity through foreign investment. IFM editor@ifinancemag.com

Micha Rose Emmett is CEO at CS Global Partners, a legal consultancy firm that specialises in residency and citizenship

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Sector Insight

70

Why bank branches and human contact are not going away any time soon?

International Finance Jul - Sep 2017

Sector Insight

UK banking consumer survey confirms that there’s still plenty of life in the bank branch Peter Kirk

F

or years, we’ve heard people proclaiming the demise of the bricks-and-mortar bank branch, supposedly swept away by customers’ massmigration to online and — increasingly — mobile alternatives. But as our UK banking consumer survey — Beyond Banking — confirms, there’s still plenty of life in the bank branch.

Put simply, customers still want to be able to visit branches and experience the face-to-face contact they enable.

In fact, a major theme of our findings is how highly customers still value human interaction, and how much they want to have a conversation with a real live person about their major financial decisions.

What’s more, this desire isn’t limited to older people.

Quite the reverse: As our research demonstrates, the younger you are, the more likely you are to be a regular user of a branch.

Given that this trend is coinciding with an ongoing shift by younger consumers towards more innovative

channels — the likes of wearables, social media and instant messaging — it’s possible that the continued strong usage of branches is a transitory effect. But our study gives no indication of that. And the findings will certainly give banks pause for thought as they plan out future strategies for their physical branch networks.

So, what does the research tell us? As Figure 1 shows, while use of mobile banking services is surging, branch usage by all customers remains remarkably consistent year

on year — and indeed in 2016 edged up to its highest level since this research began in 2010.

A breakdown of the 2016 findings by age (see Figure 2) reveals what many might regard as a surprising outcome — with millennials being by far the heaviest users of branches, tapering down to OAPs as the lightest. While this age profile is probably affected by factors such as millennials’ higher numbers of financial transactions and the fact that it’s easier for them to physically get

Figure 1: How often do you use the following? (% Regular use) 79% 79% 77% 79%

74%

81%

Daily

47%

52% 51% 53% 43%

Weekly

Monthly

47%

45% 34% 27%

25%

21% 8%

2010 2011 2012 2014 2015 2016

INTERNET

14%

10%

2010 2011 2012 2014 2015 2016 2010 2011 2012 2014 2015 2016

BRANCH

MOBILE

11%

12% 11%

16%

2010 2011 2012 2014 2015 2016

TELEPHONE

Jul - Sep 2017 International Finance

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Sector Insight

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to branches, the correlation between youth and higher branch usage is clear and undeniable.

And what are customers using branches for? The answer — as Figure 3 shows — is activities like seeking advice, accessing services and fixing issues. Indeed, branches far outstrip all other channels for advice and service access.

What’s more, the use of branches for research and advice is becoming more

frequent, with a significant step-up since last year in monthly interactions for these activities (Figure 4).

And a comparison with historic data from previous years shows that self-service initiatives in branches are gaining traction, underlining their evolving role as service hubs.

All of this leads us to the million-dollar question: What kind of banking model do customers actually want?

The answer, as Figure 5

shows, is a blend of physical and digital channels — a proposition they find much more attractive than a pure digital bank with no branches.

The message is clear: Banks should create strategies that accept and optimise branches’ ongoing future role, while also looking to harness ongoing digital innovation to deliver better service experiences at lower cost. But the shift towards computer-

generated services for customers cannot be at the expense of access to human services at their local branch. IFM editor@ifinancemag.com

This article was originally written

by Peter Kirk and published on Accenture’s Banking Blog

Given that this trend is coinciding with an ongoing shift by younger consumers towards more innovative channels — the likes of wearables, social media and instant messaging — it’s possible that the continued strong usage of branches is a transitory effect

International Finance Jul - Sep 2017

Sector Insight

Figure 2: How often do you use the following? (% Regular use) 84% 80% 76%

75%

75%

Millennial

Generation X

Baby Boomers

OAPs

73% 61% 58%

61% 57%

56% 49% 44% 40%

39%

36%

35%

31%

31%

20%

19%

20%

18% 14%

8%

Internet Banking

Mobile/Tablet Banking

Cash Machine/ATM

7% 5%

Telephone Call

Visit Branch

5%

4%

4%

2%

Social Media

Instant Messaging/ Video Chat

1%

Wearable Device

73

Figure 3: How often do you use the following for each type of service? (% Regular use) Research Internet Banking

82%

Cash Machine

65%

Mobile/ Tablet

54%

Telephone Call

Social Media Wearable Device

23% 19%

61%

37% 59%

26%

53% 29%

46%

44%

Fixing Issues

71%

31%

44% 26%

Accessing Services

51%

61%

Branch

Instant/ Video Chat

Advice

35% 85%

53%

37% 25%

23%

23%

20%

20%

45% 24% 23% 19%

Jul - Sep 2017 International Finance

Sector Insight

Figure 4: How often do you use the following for each type of service? (% Regular use) Monthly 68%

Internet Banking

17%

31%

20%

29%

14% 45%

Mobile/ Tablet

27%

29%

18%

2015

55%

22%

55%

23%

42%

18%

44%

21% 23%

23%

17%

13%

18%

8%

Research

Quarterly

36%

11%

11%

2016

Monthly

27%

64%

Branch

Telephone

Monthly

16%

12%

Advice

16%

Accessing Services

Fixing Issues

74

Figure 5: Would you be interested in using the following banking models?

A bank that engages with me through social media

62%

8% 32%

A mix of services to help me optimise my spending

A pure digital 24/7 bank with no branches

Provides relevant deals tailored to my needs

45%

18% 29%

18% 15%

Blends physical and digital channels Heck no!

International Finance Jul - Sep 2017

18%

Heck yeah!

41%

Appointments

Stanhope Capital ropes in Mexico’s former finance minister Renowned economist Dr Pedro Aspe joins advisory board

S

tanhope Capital, the global investment firm, has appointed Mexico’s former finance minister and renowned economist Dr Pedro Aspe to its Advisory Board. He will sit alongside other industry and finance doyens, including Lord Browne, the former BP Chief Executive and Sir Martin Sorrell, Chief Executive of WPP. A major public figure, Dr Aspe will be instrumental in Stanhope Capital’s continued expansion of its client base in Latin America.

Joining Stanhope Capital’s Advisory

Board is the latest step in Dr Aspe’s long and illustrious career which spans four decades in the areas of academia, federal government, and domestic and international private sectors.

Dr Aspe was Secretary of the Treasury in Mexico between 1988 and 1994.

Upon leaving the government in 1994, he proceeded to found Protego, one of the first Mexican investment banks in 1996. Protego joined forces with Evercore Partners, a leading US investment bank in 2006, and the combined business successfully listed

on the New York Stock Exchange in the same year. Dr. Aspe held the position of Co-Chairman of Evercore Partners from 2006 until his retirement in February 2017.

Daniel Pinto, Founding Partner and Chief Executive of Stanhope Capital, said: “We are delighted to welcome someone of Pedro Aspe’s calibre to Stanhope Capital. His track record speaks for itself. His wealth of experience in government, economics, trade and investment will bring a unique and invaluable perspective to our business as we continue to expand our reach in Latin America.”

Dr Aspe said: “I am delighted to accept the invitation to join Stanhope Capital’s Advisory Board. I have known the firm for a long time, and it will be an honour to be associated with such a revered business, and to assist with its future growth in Latin America.” IFM editor@ifinancemag.com

Enstar announces CFO succession plan

E

nstar Group Limited (Nasdaq:ESGR) announced its succession plan for Chief Financial Officer, Mark Smith who has served as Enstar’s CFO since August 2015 and will step down on December 31, 2017. He will move to a consulting role for Enstar beginning January 1, 2018.

Guy Bowker, Chief Accounting Officer and Deputy CFO, will assume the role of Chief Financial Officer on January 1, 2018. Bowker joined Enstar in September 2015. Previously, he served as Senior Vice President Controller of Platinum Underwriters Holdings, Ltd. and as Director of Finance for AIG in Bermuda. He began his career at Deloitte in its insurance

practice.

Dominic Silvester, Chief Executive Officer, said, “Mark has played an essential role during an important period in Enstar’s growth, and I am grateful for his contributions. When he joined us in 2015, his key objectives were to strengthen the Group Finance function and to develop a successor, which he has now accomplished. In Guy Bowker, we have identified a talented professional whose expertise and dedication make him an excellent successor to Mark. I am confident that as CFO and a member of the executive leadership team, Guy will be able to make an even more significant contribution to Enstar. Mark and Guy will prepare for the transition

throughout the year, and Mark will continue his work with Enstar as a senior advisor after January 1, 2018.”

Enstar is a multi-faceted insurance group that offers innovative capital release solutions and specialty underwriting capabilities through its network of group companies in Bermuda, the United States, the United Kingdom, Continental Europe, Australia, and other international locations. IFM editor@ifinancemag.com

Jul - Sep 2017 International Finance

OPINION Opinion: Sector Insight

OPINION

Richard Hudson

76

Ready or not, new cyber security standards take effect in the US NYDFS rules apply to all firms with operations in New York, no matter the scope

International Finance Jul - Sep 2017

OPINION Opinion: Sector Insight

O

n March 1, 2017 the New York State Department of Financial Services (NYDFS) Cybersecurity Requirements for Financial Services Companies went into effect. Annually (beginning February 15, 2018) either the chairperson of the Board of Directors or a senior officer will be required to sign a statement that they have reviewed all applicable documents about their firm (including vendors) that are necessary to certify that the covered entity complied with the rules during the prior year.

The rationale for the new requirements is to bring better and more uniform technological standards to the financial industry, where highly sensitive data changes hands regularly.

While national authorities, such as the SEC, are still articulating their stance, the NYDFS has found itself in

a unique position to bring change to the industry since New York is one of the world’s largest banking and financial centres.

What follows is a short description of the new rules and what the implications are for those who do any sort of business in New York.

Who is impacted?

The requirements impact a large number of businesses directly supervised by the NYDFS, including their third party service providers and vendors. Whether or not the business headquarters is in New York State, the requirements will apply to the NY entities of the firm (e.g. NY branches of foreign banks). Some NY entities are exempt from parts of the requirements and other NY entities that are subject to other New York regulations may be exempt from the requirements entirely.

The requirements will not apply to national banks and federal branches of foreign banks, but will apply to New York-licensed branches of foreign banks.

C-level reception Chief Information Officers (CIOs), Chief Information Security Officers (CISOs) and Chief Risk Officers (CROs) in particular are the main c-level personnel to pay close attention to the requirements. The CISO should not be reporting to the CIOs, but instead at least to the CROs. Most CIOs may feel that they lose control over the security management within the firm and this is true. From a logistical and independence point of view from the NY regulators, the reporting of the CISO to the CRO is a much better risk based alignment to ensure accountability of the CIO who tends to have more of the tasks to execute

to become and remain compliant.

Implications for non-US banks with offices in NY Many foreign banks in NY are very concerned regarding the requirements.

It will require an adjustment in the organisational philosophy whereby although there may be a CISO globally that does not sit in NY, the US regulators are expecting that someone wear that hat in NY to be accountable for the NY operations and also sign off on the Certificate of Compliance. Alternatively, covered entities may seek to fill this void by using firms that offer a “virtual CISO” or “CISO as a Service” option.

This option is beneficial and cost-effective, saving smaller firms from spending salary dollars for this role while gaining immediate cyber security expertise.

Covered entities already should be aware that the NYDFS superintendent has the authority to take remedial action against any covered entity not complying with the requirements. If little to no action has been taken to comply, covered entities, especially foreign banks in NY, should take action sooner rather than later and/or seek third party assistance. IFM editor@ifinancemag.com

Richard Hudson is Vice President of Cyber Security and Data Protection Services at Cordium

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OPINION Opinion: Sector Insight

Overview Section

General Mandate

Deadline1

500.02

Establish cyber security program

28 August 2017

500.03

Establish cyber security policy.

28 August 2017

500.04

(a) Designate a Chief Information Security Officer (CISO) or third- party with oversight from firm management

(a) 28 August 2017

(b) The CISO of each Covered Entity shall report in writing at least annually to the Covered Entity’s board of directors or equivalent governing body.

(b) 1 March 2018

500.05

Conduct penetration testing (annually) and vulnerability assessments (bi-annual)

1 March 2018

500.06

Have an audit trail for tracking and maintaining data for at least 6 years.

1 September 2018

500.07

Review and assign of access privileges.

28 August 2017

500.08

Implement Application Security Policies and Procedures for secure development practices

1 September 2018

500.09

Perform an annual Risk Assessment

1 March 2018

500.10

Ensure sufficient cyber security personnel are in place and have adequate training.

28 August 2017

78

1

http://www.dfs.ny.gov/legal/regulations/adoptions/rf23-nycrr-500_cybersecurity.pdf

International Finance Jul - Sep 2017

OPINION Opinion: Sector Insight

500.11

Establish a third-party Information Security Policy which includes annual review of third-parties.

1 March 2019

500.12

Enact Multi-Factor Authentication for external access to internal systems

1 March 2018

500.13

Document process for timely destruction of non-public information (limitations on data retention) in policies and procedures

1 September 2018

500.14

(a) implement risk-based policies, procedures and controls designed to monitor the activity of Authorised Users and detect unauthorized access or use of, or tampering with, Nonpublic Information by such Authorized

(a) 1 September 2018

Users; (b) Conduct security awareness training and monitoring for all staff.

(b) 1 March 2018

500.15

Encrypt all nonpublic Information in transit and at rest.

1 September 2018

500.16

Establish a Written Incident Response Plan

28 August 2017

500.17

Begin notifying Cybersecurity Events to the Superintendent.

Covered Entities must start notifying the NYDFS no later than 72 hours after it determines an act or attempt, successful or unsuccessful, was made to gain unauthorized access to, disrupt or misuse a system or the information stored on it, if the event

28 August 2017

79

(a) requires notice to a government body, self-regulatory agency or any other supervisory body, or (b) has a "reasonable likelihood of materially harming any material part of the normal operation" of the Covered Entity

Jul - Sep 2017 International Finance

Litigation funding is a fast-growing industry According to industry forecasts, 2017 is set to be a record-breaking year for funded commercial disputes Georgina Squire

International Finance Jul - Sep 2017

Sector Insight

T

he volume litigation in the UK is set to expand at a significant pace due to the growing range of options to fund cases.

Since the demise of government funding, claims have only been pursued by claimants with very substantial financial resources or where their lawyer agreed to a no-winno-fee arrangement, known as a CFA (Conditional Fee Agreement).

That is now changing by the day given the increase of funding options such as litigation insurance, third party funding and companies specialising in ‘buying’ litigation and which fund and pursue claims themselves.

According to industry forecasts, 2017 is set to be a record-breaking year for funded commercial disputes. Since its arrival in

the UK from 2011 onwards, third party litigation funding has gradually become recognised as a key tool for many litigants pursuing often substantial damages claims.

Robert Hanna, Managing Director at Augusta Ventures, which specialises in finance for litigation, put it quite simply. In what we would regard as ‘David v Goliath’ cases, in particular, litigation is now ‘levelling the playing’ field and enabling companies and organisations to pursue cases they would not have been in a position to pursue previously.

His comments were echoed by Michael Lent of Lakehouse Risk Services who described the ‘huge potential’ that litigation insurance and funding now provided. He also highlighted how After the Event Insurance (ATE) was increasingly becoming

‘tactically useful’ for lawyers pursuing a claim to send a message of strength to the opponent.

While these two funding options are perhaps better known to lawyers, a third ‘shot in the locker’ is the emergence of companies specialising in buying litigation as a package which it will then pursue.

Gwilym Jones of Henderson & Jones, a specialist firm which purchases existing litigation either for a price or a share of recoveries, mainly from insolvency practitioners, said they assume full control of litigation they buy. Whilst the roots of this concept go back hundreds of years, it is increasingly being understood and utilised by claimants and investors.

More flexible fee arrangement for lawyers will also enable more claims to be run. The current regime, whilst going some

way to giving greater flexibility in laywers’ fee retainers, could benefit from further relaxation.

There are significant issues for lawyers to consider. For example, when is the best time to seek funding or insurance?

Who is in control of the case, the funder or the lay client? However it is funded, a sound legal foundation will need to be in place for a successful claim.

We are moving into a new era. More cases are going to be pursued and legal remedies are not going to be solely the preserve of those with very deep pockets. As one expert said, litigation is a risk and reward calculation. The toolkit for claimants has become more flexible and forceful.

That will certainly send a strong message to those who believe that protracting disputes and ‘toughing it out’ will win the day. IFM editor@ifinancemag.com

Georgina Squire is head of dispute resolution at UK-based law firm Rosling King

Jul - Sep 2017 International Finance

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Sector Insight

82

Decoding the Indian luxury housing story Buyers tend to be professionally active, which is why demand is closely tied to the country’s economic performance Anuj Puri

International Finance Jul - Sep 2017

Sector Insight

L

uxury housing in India is the proverbial sitting duck for target practice in the shooting gallery that is the Indian residential property sector.

Market pundits and the media never get tired of taking potshots at it and claiming that this segment has got run out even though Indian luxury housing is actually something of a newbie on the pitch and still has very long innings ahead.

Maybe the fact that there are a lot of wealthy people in a country with so much poverty strikes some as an aberration, rather than a reason for pride.

Nevertheless, it is a hard fact that within the Asia Pacific region, India has the fourth-largest population of millionaires with around 2.36 lakh individuals who fall firmly in the high net worth category. In the Forbes list of the ‘World’s Billionaires’ for 2017, India accounts for an impressive 101.

Super luxury – In a class of its own These are the people who buy or build homes which fall squarely in the superluxury category of housing.

Their homes can be found in every major city’s ritziest locations, towering over the rooftops of older buildings in the priciest areas of landstarved cities like Mumbai, or in serene estates sprawled across generous acres of prime land in cities like Delhi, Pune and Bengaluru.

What bears noting here is that these homes are not even counted in any census of luxury housing units in the country — they are clearly in a class of their own, and not part of any inventory that will ever hit the market and be up for grabs.

Luxury housing – Where the real action is Taking a broader market perspective, luxury housing in India refers to the category of homes which

are bought by people who do not necessarily come from ‘old wealth’ but have often managed to rise above the ‘middle class’ median by dint of entrepreneurial success, savvy investments, sheer hard work — or, in some cases, financial windfalls. They represent the nouveau riche category of Indians who are on the lookout for housing which gives them a great lifestyle and also reflects their success in life.

In India, luxury or premium housing — as opposed to super-luxury housing — is the category of homes which caters to this demand.

The buyers of such housing are often in their late 40s or early 50s and still quite active professionally. Often having earned their money the hard way, they may not be willing to cough up massive premiums for snob-value addresses. They prefer locations which offer quick connectivity to their places

of work.

An illustration of ‘location value’ in this context is in order here.

The IT-fueled luxury homes genre When India witnessed its IT boom, it quickly became evident that software companies see sense in setting up shop in areas with lower land rates or lease rentals, as their operations do not depend on proximity to CBDs or even SBDs. Nevertheless, the pay packages they offered to appropriately trained personnel were unheard-of in India, and suddenly there were a lot of very wealthy young people at large.

They worked odd hours, which were usually aligned to US time zones, and were on the market for high-end homes which provided fast access to their workplaces as well as a relaxed, modern lifestyle for them and their families.

Developers were quick to identify this opportunity and began churning out premium housing projects around such hubs, giving rise to an entirely new crop of luxury locations, which derived their value from performance rather than from snob value.

A view of the future Today, luxury housing in India is still very much a work in progress, but the segment has made giant strides in transforming and keeping pace with the rising expectations of the wellheeled and well-travelled in terms of global standards of luxury and comfort. Also,

Jul - Sep 2017 International Finance

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Sector Insight

84

with every passing year, more Indians are joining the ranks of the wealthy and are automatically on the market for luxury homes.

If we go by the absorption rates of luxury housing over the last three years, we can see that while the uptake of such units is not spectacular by any yardstick, it remains steady.

And, despite the ominous warnings, it remains steady as ever, even showing signs of definite growth.

The luxury housing sector took a big hit with Modi’s unexpected move to demonetise highdenomination currency because a not-insignificant

number of transactions in this category had large cash components. Nevertheless, such transactions were largely by speculators and people hoping to hide their unaccounted wealth in real estate — not genuine end users.

The real estate market has now recovered from the demonetisation shock and, in fact, looks primed for a rebound on the back of the transparency and regulated market practices that RERA is likely to bring in its wake.

In fact, all housing segments are geared for recovery with RERA eliminating fly-bynight developers, raising the bar on developer’s

High-End Sales Data

Units sold (2014)

India (Mumbai/Delhi- 10,200 NCR/Bengaluru)

International Finance Jul - Sep 2017

accountability and enforcing strict financial and completion timeline protocols.

It may appear that Indian luxury housing developers have over-estimated the demand for their offerings.

However, it must be understood that most of these builders are seasoned long-term players with their sights trained not only on current but also future demand. As already stated, the buyers for modern luxury homes tend to be professionally active, which is why the demand for luxury housing in India is closely tied to the country’s economic performance.

Units sold (2015) 10,100

On that front, things have been looking up for some time now. The International Monetary Fund (IMF) had cut India’s GDP growth forecast to 6.6% in January 2017, immediately after the demonetisation move. In April, it revised its outlook for 2017-18 to 7.2%. With RERA in place, GST holding the promise of a unified taxation regime and various other policy measures by the incumbent government bearing visible fruit, there is indeed every reason to expect the Indian economy to floor the accelerator over the next few years. This means that demand for luxury housing will grow. IFM editor@ifinancemag.com

Anuj Puri is Chairman of JLLR (JLL Residential)

Units sold (2016) 11,000

Appointments

Redwood Bank appoints two senior directors to its board

R

edwood Bank, a new UK SME business bank that has recently secured its banking licence, has made two senior appointments to its board as part of its ‘Mobilisation’ prior to expected launch in 2017.

David Buckley has been appointed Chairman and is a Non-Executive Director, and Nigel Boothroyd will join as a Non-Executive Director.

David holds a number of non-executive and advisory board positions and is currently Independent Non-Executive Director and Chair of the Audit Committee for CIBC World Markets plc.

He was previously the lead Independent NonExecutive Director for Fullerton Health pte in Singapore. Prior to this, he was European CFO for Morgan Stanley, Chief Executive of Morgan Stanley Bank International and a member of its European Management Committee. Before joining Morgan Stanley, David was International Treasurer and European head of the Global Banking Group for Goldman Sachs.

Nigel possesses significant executive-level experience within financial services, having spent some 38 years at HSBC Group. He has held a number of senior roles in the UK, Europe and North America within corporate and commercial banking, credit risk, operational risk, retail banking and wealth management.

Between 2012 and 2015, he was the National Head of Corporate Banking for HSBC Canada. Nigel’s appointment as NonExecutive Director and intended Chairman of the Bank’s Risk Committee will be subject to obtaining regulatory approval.

Jonathan Rowland, CoFounder and Non-Executive Director of Redwood Bank, said: “We are delighted to have both David and Nigel on our board. They have a wealth of relevant experience and have much to offer us as we look to launch and grow the bank.”

Gary Wilkinson, CoFounder and Chief Executive of Redwood Bank, added: “David and Nigel are very welcome additions to our experienced team, and will both have key roles to play in helping us reach our goals.”

David Buckley said: “I’m delighted to become Chairman of Redwood Bank. There is huge change taking place in the UK SME banking sector, and now is exactly the right time to be launching a new proposition. With no legacy systems and the ability to develop competitive products, I am excited about our future.”

Nigel Boothroyd said: “The bank has ambitious plans and a strong team in place to deliver on these.

I’m excited to be part of this and confident that we can bring a fresh, and more customer focused and efficient approach to SME banking.”

Redwood Bank is wholly owned by Redwood Financial Partners Ltd (“RFP”), a company controlled by Jonathan and David Rowland. Warrington Borough Council (“the council”) has acquired a 33% stake in RFP, the first time a borough council has made an investment of this type. The council’s executive board has approved an investment of £30m in Redwood as part of Redwood’s capital funding.

Redwood Bank (www. redwoodbank.co.uk) will

offer secured SME lending products to owner occupied businesses, as well as to experienced commercial and residential property investors. It will also provide business deposit accounts.

Redwood’s headquarters is in Letchworth, from which a team of business development managers will provide a highly personalised, relationshipdriven service, focusing on SMEs throughout its southern and eastern Heartland regions of Hertfordshire, Bedfordshire and Buckinghamshire.

Prior to launch, Redwood Bank will open a northern regional office in Warrington, which will spearhead the bank’s lending to SMEs in the town as well as the bank’s Heartland region of the North West. IFM editor@ifinancemag.com

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OPINION Sector Insight

OPINION

Jonathan Sharp

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Sector OPINION Insight

MiFID II – Opportunity for

digital transformation

The new regulation will overhaul Europe’s trading landscape

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017 is the year that many organisations will be preparing for MiFID II that is scheduled to become legal on January 3, 2018. The legislation is one of the most radical changes to financial market regulation that the industry has ever seen; with the deadline rapidly approaching companies need to be get ‘compliance ready’ but should view it as an opportunity and not a hindrance.

The new regulation will overhaul Europe’s trading landscape with compliance costs predicted to be between €512 million - €732 million and ongoing costs of between €312 million – €586 million (HM treasury).

The legislation will tighten the organisational requirements of investment firms and trading venues and will affect almost all firms dealing in or processing financial instruments, including those that were previously exempt across Europe.

The regulation aims to promote increased transparency, competitiveness and

financial stability by introducing extensive changes to reporting around transactions beyond solely focusing on equities and changing the nature of reporting for those previously covered.

Companies should not see the forthcoming culture of compliance as a burden upon its business but should view it as an opportunity to propel the business into the future and embark on a digital transformation.

Getting ready for digital transformation The legislation requires companies to conduct stringent recording and store all telephone conversations and electronic communications to provide accurate evidence of what was said (or not said) during conversations between buyers, sellers and investment intermediaries.

To achieve compliance, companies will need to invest in a comprehensive call recording solution or upgrade their existing call recording solution to record and capture all transactions.

With the advancement of technology and the

different methods used to communicate today, MiFID II has extended the remit of recording, forcing companies to capture all voice calls and data communications of all types on all devices and store them for a minimum of five years. Including not only desk and mobile phones but social media to communicate with clients such as Facebook, WhatsApp or LinkedIn. Companies will require a robust and reliant infrastructure to host the recording solution and to store the data. IT teams will also have to look at mobile device management strategy and prevent employees from ‘shadow IT’; stopping access to social networking communications and sites for client interactions.

In a market saturated with technology, deciding what recording solution you require can be quite a challenge. You need to decide whether you want an ‘out of the box’ solution that you can just plug and play, or whether you want to take this opportunity to invest in a solution that will grow with your business and help

you to differentiate yourself in the market.

A solutions provider will take the time to understand your business by working closely with you, and not only strive to meet the compliance regulations but also to discover what your strategic objectives are and how technology can help you achieve them.

A managed services cloud solution is better because the storage available on premises is often restricted and insufficient. A cloud solution will enable companies to accommodate the growing volume of data that MiFID II requires to be stored. A highly robust and resilient call recording solution is critical, one that will encrypt data in transit, organise it and store it in an impenetrable online vault so there is no room for downtime or margin for error.

It is imperative to work with a trusted solutions provider who has a heritage in call recording solutions and managed services and can deliver systems integration expertise combined with superior technical support.

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A high-quality solution combined with expert endto-end services across the communications platform will ensure compliance for financial services companies.

The start of the race and not the end!

The objective naturally is to be MiFID II compliant but it is crucial to recognise that this should not be the end goal. It is in fact the start of the race and not the end; the first step of a digital transformation journey that could improve business processes, services and customer satisfaction.

Data is knowledge The regulation is proposing that all data captured from recordings and transactions must be stored for a minimum of five years. This is a good opportunity to look at increasing your storage capability further to take advantage of the

International Finance Jul - Sep 2017

commercial gain from mining big data.

Harvesting customer interaction data is a priceless commodity for organisations. Such data is a valuable currency that can be used to understand more about your customers and be analysed in depth for business intelligence.

Newly gleaned insights will enable you to tailor existing services and offer new ones.

As the data is collected across several different devices and spans across the omnichannel, this will provide a comprehensive view of all conversations.

However, it is of course crucial to remember that the data is not valuable if it is just collected and analysed, it should also be acted upon to deliver the required outcomes.

A paradigm shift The MiFID II regulation will evoke a paradigm shift for the financial industry

with companies having to make significant changes to their IT infrastructure, business processes and data quality. Alongside the new levels of transparency and access to big data, companies will need to understand how to harness the power of their data to improve and offer new services. This, in turn, will create a new culture of knocking down the silos between departments where data must flow freely and people must work more openly and collaboratively.

Companies that embark on a digital transformation strategy will need to move away from traditional ways of working in a hierarchical structure and learn to be more open and flexible to create a culture of collaboration where employees can work together without the limitations of the hierarchy and tradition. This is the way that millennials and the

next generation work and businesses need to adhere to these changes to create a more transparent and open environment.

Along with the MiFID II regulation, new technology and new ways of working, the industry will ultimately become more transparent than ever before, and that can only be a good thing for both businesses and clients. IFM editor@ifinancemag.com

Jonathan Sharp is Director, Britannic Technologies

Appointments

Carolyn Sweeney to join The Chargeback Company Has spent 20 years mastering end-to-end chargeback management, dispute resolution, and associated consumer legislation

T

he Chargeback Company™, known as Chargebacks911® in the United States, announced a significant new hire, appointing Carolyn Sweeney as Director of Global Business Development for the internationally-renowned chargeback and dispute resolution and remediation company.

A renowned subject matter expert in chargeback management, Sweeney was formerly Vice President of Global Chargeback Operations for Mastercard, where she joined from

Lloyds Bank, and has spent 20 years mastering end-to-end chargeback management, dispute resolution, and associated consumer legislation, speaking regularly at Mastercard events.

Her industry-leading career has seen her at the forefront of the fight against chargebacks, including managing large chargeback and fraud recovery operations, as well as overseeing cardholder and merchant relationships for credit and debit disputerelated operations.

Sweeney is known and respected by merchants

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around the globe as the go-to fountain of knowledge for solving chargeback and compliance related problems, built on a hugely successful career in developing payment solutions.

Monica Eaton-Cardone, Managing Director of The Chargeback Company, said, “We’re absolutely thrilled to have Carolyn onboard. Not only is she a decorated Thought Leader in payments, she is one of the most talented and brilliant minds in this space! Her passion for simple application methods and her reputation as the

worldwide ‘Go-To Problem Solver’ when it comes to chargebacks fits our culture like a glove. Her experience and reputation in this sector is unmatched! Carolyn is both an industry veteran and a pioneer.”

Carolyn Sweeney said, “It’s fantastic to be in a place where the entire focus is on addressing the pain of disputes and chargebacks on the marketplace—for all the parties involved—and where total expertise exists.

This is a unique offering and I’m delighted to be here.” IFM editor@ifinancemag.com

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Jul - Sep 2017 International Finance

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A new way to invest in fine art International Finance Jul - Sep 2017

Just about every sector has been disrupted by technology – now it’s time for art investors to reap the benefits Miguel Neumann

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n uncertain times, the fine art market offers a reassuring investment opportunity. Largely immune to political change, it is less volatile than currencies or capital markets.

The global market was worth more than $45billion last year, a 1.7% annual increase, according to the European Fine Art Foundation Report 2017. Prices have fallen back a little from the peak of July 2015, but are around 15% higher than in the market trough of November 2012 and the market is ‘stable and robust’. The outlook is optimistic.

Wealth managers are looking beyond traditional investment products and there is a strong demand from investors – 88% of private offices and 75% of High Net Worth and Ultra High Net Worth individuals want art in their portfolios, according to the 2016 Deloitte Art and

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Sector Insight

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Miguel Neumann

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Finance report.

However, the market can be daunting to newcomers.

It has a reputation for being opaque and the major auction houses charge fees of up to 30%. Global auction house sales fell last year by 18.8% while sales by

International Finance Jul - Sep 2017

dealers increased by 20% to $27.9billion; looking more closely at the figures, it turns out the big auction houses conducted more of their business privately, which does nothing for transparency in the market.

Most investors are not

in the art market purely for sentimental reasons – the emotional benefit of collecting is a pull, but Deloitte Touche found that strong returns were more important to 64% of investors. They see art as a tax-efficient asset with the upside of capital appreciation and want as diverse a portfolio as possible.

Art funds can offer that, combining ‘defensive’ pieces by established artists with some rising stars and a few emerging faces. A balanced portfolio might look like this: 50% spread across Old Masters, such as Botticelli and Raphael, combined with an Impressionist, perhaps a Monet, and a 20th century name like Modigliani; 25% allocated to post-war or Modern greats, such as Liechtenstein, Bacon, Dalí; and the remaining 25% in high risk categories, such as emerging Latin or Indian art and British contemporary.

That is a good way of managing risk, but art funds are not liquid, and tend to have a long lock-in period.

With minimum unit sizes normally upwards of $250k, it can also be difficult for new art investors to join.

And short-term investors should be aware that even the ‘blue chip’ names can have a bad patch – last year, there was a 68% drop in the auction sales volume of Andy Warhol paintings, a 50% fall in Picassos and fall of more than 60% in Modigliani and Francis Bacon.

Meanwhile, betting too heavily on an emerging artist is as risky as backing a promising start-up.

Several graffiti artists have attempted to move on to gallery work – Banksy managed to do it and one of his drawings from 10 or 15 years ago, which was then worth a paltry £2,500, can now reach 100 times that amount, but thousands more like him have disappeared without a trace.

‘The building blocks of the art market depend fundamentally on quality and trust,’ concludes the European Fine Art Foundation report. ‘Key to this are maintaining reputation and credibility to ensure longevity, stability and resilience’.

But for investors, two of the fundamental problems in the market are a lack of transparency and a lack of liquidity. Now, a new art investment platform is promising a unique solution by creating an online marketplace where owners, collectors and investors can meet without intermediaries

Sector Insight

The global market was worth more than $45 billion last year, a 1.7% annual increase, according to the European Fine Art Foundation Report 2017 to trade in real time. It is taking the idea of art funds, where art pieces are evaluated in financial terms, to a new level by giving investors the opportunity to have fractional ownership in artworks.

Bringing in blockchain technology Maecenas will use blockchain technology to tokenise and digitally allocate single pieces, or portfolios, to several coinvestors who can trade with other parties though

an art exchange. While the owner retains 51% of the piece’s value, the remaining 49% can be traded, transforming the dynamics of the market and bringing much greater granularity to art investing. Prices will be market driven and faster digital transactions will create more data points than ever before, allowing investors to monitor the evolution of pieces in a way that has never been possible.

This will democratise the fine art market, creating

a secure, open global platform. Blockchain technology has been used to bring greater transparency to the provenance of artworks; last spring, at the ICT summit in Luxembourg, Deloitte Touche unveiled its ArtTracktive proof of concept, which provides a distributed ledger for tracking the provenance and whereabouts of fine art works. But this is the first time blockchain is being used to make art investment an easier, more transparent proposition. Lowering the

barriers to entry will widen access to the market.

At the Affordable Art Fair in London, works by more than 1,000 artists are on display, ranging in price from £100-£6,000. Getting investors involved at the bottom end of the market is important, but creating the first real-time trading market for fine art is a more ambitious vision, opening up all sectors of the market and allowing anyone to own a share of a masterpiece.

That could be a catalyst for change in a market that has remained largely unaltered for 300 years.

Just about every sector you care to mention has been disrupted by technology – now it’s time for art investors to reap the benefits. IFM editor@ifinancemag.com

Miguel Neumann is Founding Partner at Maecenas and Chief Operating Officer at DX Markets

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technology

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Trouble at the

top

iPass finds CEOs to be greatest risk to enterprise security

International Finance Jul - Sep 2017

technology

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esults of the iPass Mobile Security Report 2017 reveal that 40 percent of organisations believe that C-level executives, including CEOs, are most at risk of being hacked when working outside the office. Cafés and coffee shops were ranked the number one high-risk venue by 42 percent of respondents, from a list that included airports (30 percent), hotels (16 percent), exhibition centres (7 percent) and airplanes (4 percent).

Compiling the responses of 500 organisations from the US, UK, Germany and France, the annual report* provides an overview of how companies are dealing with the trade-off between security and the need to enable a mobile workforce.

Indeed, the vast majority (93 percent) of respondents said they were concerned about the security challenges posed by a growing mobile workforce. Almost half (47 percent) said they were ‘very’ concerned, up from 36

percent in 2016.

Furthermore, more than two thirds of organisations (68 percent) have chosen to ban employee use of free public Wi-Fi hotspots to some degree (compared to 62 percent in 2016), while 33 percent of organisations ban employee use at all times, up from 22 percent in 2016.

“The grim reality is that C-level executives are by far at the greatest risk of being hacked outside of the office. They are not your typical 9-5 office worker.

They often work long hours, are rarely confined to the office, and have unrestricted access to the most sensitive company data imaginable.

They represent a dangerous combination of being both highly valuable and highly available, therefore a prime target for any hacker,” said Raghu Konka, vice president of engineering at iPass.

“Cafés and coffee shops are everywhere and offer both convenience and comfort for mobile workers, who flock to these venues for the free high speed internet as much as for the coffee. However,

cafés invariably have lax security standards, meaning that anyone using these networks will be potentially vulnerable.”

Man-in-the-middle attacks, whereby an attacker can secretly relay and even alter communications without the mobile user knowing, were identified by 69 percent of organisations as being of concern when their employees use public Wi-Fi. However, more than half of respondents also chose a lack of encryption (63 percent), unpatched operating systems (55 percent), and hotspot spoofing (58 percent) as chief concerns.

“Organisations are more aware of the mobile security threat than ever, but they still struggle to find the balance between security and productivity,” continued Konka. “While businesses understand that free public Wi-Fi hotspots can empower employees to do their job and be more productive, they are also fearful of the potential security threat. Man-inthe-middle attacks were

identified as the primary threat, but the entire mobile attack surface is getting larger. Organisations must recognize this fact and do their best to ensure that their mobile workers are securely connected.”

“Sadly, in response to this growing threat, the majority of organisations are choosing to ban first and think later. They ignore the fact that, in an increasingly mobile world, there are actually far more opportunities than threats.

Rather than give in to security threats and enforce bans that can be detrimental or even unenforceable, businesses must instead ensure that their mobile workers have the tools to get online and work securely at all times.” IFM editor@ifinancemag.com *The research was carried out by independent market research company, Vanson Bourne, during March 2017.

The sample comprised 500 CIO and IT decision makers from the US (200), UK (100), Germany (100) and France (100).

Highlights from the report and regional trends include: • •

•

•

The US (98 percent) is most concerned by the increasing number of mobile security challenges compared to France (88 percent), Germany (89 percent) and the UK (92 percent) Nearly one in 10 UK organisations (8 percent) said that they have no security concerns when employees use public Wi-Fi hotspots. In contrast, this figure is one percent in the US and Germany, and two percent in France Similarly, UK organisations are the least likely to ban the use of public Wi-Fi. Forty-four percent said that they have no plans to do so, as opposed to eight percent in Germany, 10 percent in the US and 15 percent in France Worldwide, 75 percent of enterprises still allow or encourage the use of MiFi devices. In France, however, 29 percent of businesses have banned them due to security concerns

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technology

Be pro-active on risk management Digitisation can turn risk management into competitive advantage Eric Berdeaux

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any areas of modern business have been transformed by digital technology. The way we communicate, collaborate, share information has been fully digitised in many cases, and a whole host of other business processes are digitally advanced. Yet some areas of business remain curiously untouched by digitisation – these include risk management and compliance.

Most major organisations have a compliance officer or director, but many of these still have to rely on analogue tools such as Excel to monitor compliance requirements and manage risk. Given the sheer

volume of compliance and regulation requirements in modern business, and the penalties for failing to adhere to such regulations – in the US alone in 2016, 30 companies were fined a total of $2.4bn for non-compliance under the country’s Foreign Corrupt Practices Act – it is surprising that beleaguered compliance and risk management officers aren’t given more technology assistance.

What’s the reasoning behind this, and how can organisations use the on-going risk management that only comes from digitisation to gain critical competitive advantage?

Complex regulatory environment Few would doubt the challenges

Jul - Sep 2017 International Finance

technology

New regulations such as MiFID II and MAR increase the regulatory requirements for FS firms and initiatives yet to take effect, such GDPR, will also impact what is required to remain compliant

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of ensuring compliance in the finance services (FS) sector. It’s an industry that has always been heavily regulated, but is set to become even more so in the years to come. New regulations such as MiFID II and MAR increase the regulatory requirements for FS firms and initiatives yet to take effect, such GDPR, will also impact what is required to remain compliant.

There is also Brexit to consider. When the UK leaves the EU, UK, FS firms will no longer be able to passport their services across the EU under the

International Finance Jul - Sep 2017

Single Market Directives as they do currently. Without this, a UK bank must have state-level authorisation to perform regulated activities in the EU. This is no small undertaking, particularly if multi-state authorisation is needed.

More risk to manage Compliance is just one of the risks that a modern FS firm has to manage.

They must also factor in the highly uncertain times that we live in and one could argue that there is more risk to manage than at any other time in history.

Even if we ignore

Brexit for one moment, politics in 2017 is highly unpredictable. While much of President Trump’s campaign rhetoric is yet to fully materialise, secondguessing what he might do next is difficult and it is easy to see an impact on worldwide currency and the operations of FS firms all over the world.

Then is the on-going and growing risk of cyber attack.

The WannaCry worm made its way to around 150 countries, and the sophistication and expertise of cyber criminals make it increasingly tough for businesses to cope with this

threat.

Pro-active risk management For any FS firm, risk management is both increasingly important and increasingly challenging.

Staying on top of the myriad risks to an organisation is becoming one of the number business priorities for management teams all over the world.

But traditionally, risk management has been perceived as a defensive discipline in business.

Most organisations have approached it thus: have a function that owns and manages risk, another that looks at compliance and risk management monitoring and a third that offers independent risk assurance.

This approach however, is not suited to the type and volume of risks in modern business. Adopting a more pro-active approach to risk management is not only more effective when it comes to warding off risk, but it also allows FS firms to turn that into competitive advantage.

A major part of this is tied up in automation. Many previous risk management and compliance projects had a beginning and an end,

technology

The US alone in 2016, 30 companies were fined a total of $2.4bn for non-compliance under the country’s Foreign Corrupt Practices Act – it is surprising that beleaguered compliance and risk management officers aren’t given more technology assistance

but the on-going and varied risks in 2017 mean that risk management must be an ongoing process too. And this means digitisation.

Goodbye to analogue risk management Using Excel to manage risk in such an environment is simply fit for purpose, and leave organisations highly vulnerable to a variety of different risks.

A modern approach to risk management in FS combines automation with input from industry experts

and thought leaders that can help map the risks faced by an organisation, across territories, sectors and a range of other areas.

Given that most companies face similar challenges and risks to their competitors, knowing more about those risks, when they might occur and the consequences of failing to manage them effectively, will enable that firm to steal a march on those competitors. They can consider each risk on the horizon and assess each

one as to their probability of occurrence. The magnitude and impact of each risk is also assessed, before the adoption of a new strategy and/or tactic to deal with it, whether that’s warding off a fresh cyber attack or spotting a compliance change in a new market.

This enables the creation of an advantage over organisations that do not manage risk in this way and the value to any FS business cannot be underestimated. The right tools can assist any company

in risk management by providing control and compliance, monitoring technology, market research and analysis, and furthermore can be used proactively. Instead of using risk management to tell people what they can’t do – a defensive measure – a continuous and digitised approach instead allows an organisation to exploit opportunities and provide it with competitive advantage. IFM editor@ifinancemag.com

Eric Berdeaux is CEO of OXIAL, the new generation GRC solutions provider

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smart tips

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Why should

i hire you?

Revealed: Curveball questions modern employers use to throw off candidates

International Finance Jul - Sep 2017

smart tips

I

s it ok to snitch on a co-worker? What tree do you resemble most? If you could have dinner with anyone in the world, who would it be, and why? These are the curveball questions modern employers are using to throw off candidates, according to new research.

A new study by GoDaddy polled 1,000 recent graduates and 250 hiring managers and found more than half (53 percent) of the hiring managers polled will deliberately ask a thought-provoking ‘curveball’ question during an interview to throw off those they’re talking to.

Other ‘curveballs’ include the classics ‘what animal do you resemble most?’ or ‘why should I hire you?’, while

another interviewer asked his candidate to estimate the number of computers there are in Manhattan.

GoDaddy commissioned the research to mark the launch of GoCentral, which enables people to build a professional website for their resumes and portfolios in less than an hour.

And those heading to a job interview don’t have long to make a good impression — the average time cited for a hiring manager to form a hard-tochange impression was just 4 minutes.

More than half of the interviewers polled build a first impression based on the quality of the handshake, while two-thirds said the ability to simply show up on time screams

volumes.

But the assessments are made online as much as off, and the study by GoDaddy found many candidates are surprisingly still being undone by their online presences.

In fact, even though as many as three-quarters of bosses now regularly check a candidate’s social media and online presence, just half of grads actually bother to ensure theirs is up to scratch before an interview.

That might be why more than half of the industrywide hiring managers polled have rejected a candidate purely based on their social media and online presence.

This is especially true for Millennial hiring managers, with over 60% saying having a website or online

“

These findings show today’s employers are looking for more from candidates – they’re looking for the full person, for authenticity that matches the values of the culture and the connection to the mission Auguste Goldman, Chief People Officer for GoDaddy

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smart tips

While 70 percent of recent grads think employers typically look for an online portfolio when considering a new hire, only about a third (32 percent) actually have an online portfolio to display their work

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portfolio is important.

While 70 percent of recent grads think employers typically look for an online portfolio when considering a new hire, only about a third (32 percent) actually have an online portfolio to display their work.

Checking there are no discriminatory comments around race, religion or gender understandably tops the things bosses are keeping an eye out for — an overall professional demeanour is the next most important element to present.

While burning bridges is never wise and ensuring

there are no negative or disrespectful comments towards current or previous employers or colleagues also made the top 5 things managers look out for in assessing online presences.

And even the obvious things are still frequently overlooked – one in 10 managers polled has had to reject a candidate purely because they had an inappropriate email address.

Auguste Goldman, Chief People Officer for GoDaddy, said: “These findings show today’s employers are looking for more from candidates – they’re looking for the full person, for

authenticity that matches the values of the culture and the connection to the mission.”

Soon-to-be-graduates believe a sense of authenticity and fun helps.

Six in 10 grads think it’s very important to display a sense of humor during a job interview – and 57% of hiring managers agree.

But rather than working on jokes or anecdotes, candidates would be best off focusing on preparation – 80 percent of hiring managers surveyed say they frequently encounter a candidate that is totally unprepared for an interview.

Likewise, a massive 72 percent of recent grads say they have attended interviews without being fully prepared – and nearly half (45 percent) have applied to jobs without fully reading the requirements for the position.

Auguste Goldman from GoDaddy added: “Simply mailing out resumes and showing up to your interview on time isn’t enough to get you in the door anymore. Today’s graduate job seekers need to think about what makes them stand out from the crowd – including how they’re being presented in the digital world. Having your own website is a great place to start.” IFM editor@ifinancemag.com

International Finance Jul - Sep 2017

smart tips

Five ‘curveball’ questions hiring managers like to ask 1. If you could have dinner with anyone in the world, who would it be, and why?

2. If you were an animal, which would it be, and why?

3. Tell me about a time when something in your life didn’t go as you wanted or expected and you turned it into something positive. What was it and how did you handle it?

4. If you were a tree, what kind of tree would you be, and why?

5. Why should I hire you? Why should I not hire you?

Top 10 interview questions grads find hardest to answer 1. What are your weaknesses?

2. Describe yourself in three words 3. Describe a time when you have failed 4. Where do you see yourself in five years?

5. Why should we choose you for this role?

6. What has been your greatest achievement?

7. What are your strengths?

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8. Why did you apply for this job?

9. How will you contribute to the team?

10. What attracted you to this company?

Top 5 things recruiters look for when reviewing a candidate’s online presence 1. Discriminatory comments related to race, religion, gender, etc 2. Professionalism 3. Negative comments about a previous employer or co-worker 4. Inappropriate photos or videos 5. Drug use

Top 5 common mistakes made in interviews 1. Responses to questions are vague or unclear 2. Complaining or talking negatively about former employers/colleagues 3. Lack of knowledge about the position or company 4. Showing up late 5. Using ‘buzzwords’ that don’t mean anything Jul - Sep 2017 International Finance

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Jul - Sep 2017 International Finance

MARK YOUR

Calendar

CALENDAR INTERVIEW

18 -19 September 2017

108

3rd Edition Risk Audit in Banking London, United Kingdom

21 September -01 October 2017 North Georgia State Fair (Agriculture and Forestry, Industrial Products)

29 September -01 October 2017 The Global Ethical01 November Finance Construction Energy Netherlands Institutional Investor Forum Forum Services (GEFF)-2017 September 13-14, 2017 (Power and Energy) (Business On Investors’ RBS Conference Centre, Saint Polten, Austria

Edinburgh, Scotland Amsterdam, Netherlands

Hawaii Convention (Business Services) Honolulu, USA

01 November

30 September -01 October 2017 Bio terra-Fair Bamberg (BlOterra Fair) (Bio-technology) Bamberg, Germany

Calgary Tech-Security Conference (Computer Hardware and Software) Calgary, Canada

01 November

30 September -01 October 2017 Lucas Oil Off-Road Expo (Automotive) Pomona, USA

Mergers and Acquisitions in Technology Industries (Business Services) Seattle, USA

30 September -01 October 2017 28 November -01 December 2017 Mozambique Gas Summit Hong Kong Conference on Interdisciplinary Business and Economics (Power and Renewable Energy) Maputo, Mozambique (Business Services - Economics, Accounting, Finance, Marketing, Management and Business Ethics) Hong Kong

29 October -01 November 2017 29 November -01 December 2017 China Public Security Expo (Industrial Products) Shenzhen, China

Natexpo Moscow (Business Services; Media and Advertising ) Moscow, Russia

Marietta, USA

28 September -01 October 2017

valuations and Opportunities)

31 October -01 November 2017 Total Telecom Congress (Telecom Products and Equipment) London, UK

29 November -01 December 2017 Ieoe China (Beijing) International Edible Oil Industry Expo (Oil) (Petroleum, Oil and Gas) Beijing, China

29 September -01 October 2017 Finance Credit Insurance & Audit Expo (Banking Insurance and Finance) Yerevan, Armenia

31 October -01 November 2017 30 November -01 December 2017 Ehi Live - (IT healthcare solutions) (Medical and pharmaceutical) Marston Green, UK

Wisconsin Digital Government Summit (Business Services; Security and Defense) Madison, USA

International Finance Jul - Sep 2017

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‘I would be very happy to run a small hotel’ But gastronomy and wine tasting are just two of the hobbies of Ferenc Kementzey, Deputy CEO Head of Corporate, Markets and Investment Banking at Raiffeisen Bank Zrt How do you juggle between your hectic work schedule and personal life?

I rarely work on weekends. I always take an annual holiday. That time is for family, friends and hobbies. I try to find two days a week to go out in the evening with my wife, friends or children.

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Have you missed any important family event?

No. I would never miss Christmas or birthdays unless something major happens.

What are your hobbies?

Gastronomy and wine tasting; and to counterbalance sports tennis, skiing, sailing, bicycle riding. I am also interested in literature, history, economics and politics. And my work is also my hobby. That’s a lucky thing.

Given an option to pursue any of your hobbies as a profession, what will you choose?

I would be very happy to run a small hotel with a nice wine bar and restaurant by a lake or seashore, or maybe even in downtown Budapest.

How do you unwind?

Spending time with the family, go to the theater or cinema, or simply have a bottle of wine at home on the terrace.

On your day off, what is your schedule?

I plan in advance. Day trips around the country or inviting friends for a grill in our garden. Or, I play tennis.

What is the last book you read?

1Q84 by Haruki Murakami Tell us about your holiday destinations.

I go skiing every year, once for a week and on 4-5 long weekends, mainly to the Austrian Alps, with friends and family. In summer, I go for at least two weeks to Balaton lake where I have a house and often sailing to the Adriatic sea in Dalmatia. Last year, I spent two weeks in Japan. I have Chile and Brazil lined up. The most interesting holiday destination would have to be Jerusalem.

I want to visit the US, China and India, Baltic States.

Favourite cuisine?

Hungarian, Italian, Japanese.

Any social cause you are passionate about?

The university sector and developing young generations. I’m doing an MBA at the University of Minnesota and WU in Vienna. At the same time, I’m on the supervisory board of the University of Economics in Budapest.

As told to Madhurima Roy

International Finance Jul - Sep 2017

Jul - Sep 2017 International Finance For all magazine stories, visit www.internationalfinance.com/magazine/all-ifm-issues/