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3 | 2017 int’l

Rubrik | 1

The Magazine Management know-how for practical use

Fraud in Private Banking – Are You Protected? How to Efficiently Implement Chatbots Is Your Data on Your Balance Sheet?



ÂŤIntelligence is the ability to adapt to change.Âť

Stephen Hawking

4 | Rubrik



Are you also familiar with feelings of consternation when you learn from the daily news about the impacts of natural catastrophes that are becoming more frequent, intense, and devastating every year? When you come to know that they cause ­inconceivable human suffering and financial damage running into billions of dollars? Only a couple of months ago, hurricane «Harvey» raged over the southern United States and was rated as the most fatal and expensive cyclone in American history so far. ­However just after that storm had passed, the next one called «Irma» was already on its way and was even more destructive than its precursor – much worse than «Katrina» in 2005 or «Andrew» in 1992. It is all the more important to develop technology that can ensure fast and ­effective help in times of crisis. Particularly aid organizations rely on a possibility to filter ­relevant information out of a huge data pool quickly in order to initiate suitable emergency measures. In our series of interviews, called «From Outside In», Patrick Meier, who is an expert in the field of digital technology and co-founder of «We Robotics», presents a ­pioneering method for this kind of challenge. Taking advantage of drones and artificial intelligence, he and his team are developing strategies for a ­constructive and fast method of filtering and analyzing relevant information out of a plethora of data. Possible fields of application are disaster areas, developing countries, as well as nature conservation. In this context, I would also like to refer to the very inspiring interview with John Noel Victorino in edition 1/2017. He developed a unique mobile ­application for generating knowledge on how to behave during natural disasters. (You can find all published editions of «The Magazine» on our website I am always enthusiastic when I get to know such unique personalities who invest lots of energy in mastering changes and who face future problems proactively. That is also our goal even though we deal with other topics, focusing on banks and ­insurance ­companies. We are likewise convinced that technological development – when used ­responsibly – can achieve many positive outcomes. Artificial intelligence, for example, is also part of our advisory business. Learn how the finance industry can take ­advantage of it as well in an article in this edition.

I wish you informative and inspiring reading. Sincerely Christoph Nützenadel


Table of contents | 5

Editorial .................................................................................................................................................................................


Digital Transformation

Partnering to Create a Better Journey for Customers . ................................................................................................ How to Efficiently Implement Chatbots ..............................................................................................................................

6 10

Digital Banking

Next Generation Community Bank .................................................................................................................................. Is Your Data on Your Balance Sheet? . ..............................................................................................................................

14 18

From Outside In

Interview with Patrick Meier: Robotics Technology for Humanitarian Use ...................................................................................................................


Regulatory & Compliance

Fraud in Private Banking – Are You Protected? . ............................................................................................................ IFRS 9 – A Paradigm Change in Financial Reporting? ................................................................................................... CRS – Choosing the Correct Reporting Model Is Half the Job Done . ........................................................................

26 30 34

Operational Excellence

Scaling the Wealth – Consolidation in the UK Wealth Management Industry .........................................................


Masthead . .............................................................................................................................................................................


6 | Digital Transformation


Partnering to Create a Better Journey for Customers The life insurance industry faces challenges gaining and retaining customers. The traditional approach continues to underperform modern proceedings such as a data-driven under­ writing. To stay competitive, insurers have to adopt a digital ecosystem with other technology providers. Authors: Christian Seidel | Sheena Strawter-Anthony

Life insurance is out of touch with young families, one of the

Requirements for life insurers

core customer segments. Analyzing the typical customer

Product development requires the specialization of product

­journey of traditional life insurers quickly results in the

features and the ability to customize the products quickly to

­conclusion that there are many built-in sales barriers. In fact,

fit the channels provided through the digital ecosystem. Here,

the product is not easily accessible for many and straight-

customers expect to spend less time researching products and

through-processing is nonexistent for over 80% of the appli-

easily understand features, terms, and conditions. ­Aggregators

cants. These observations are also valid for the servicing and

and technology providers disconnect the distribution of

administration of ­existing customers. It is a myth that people

­personal policies and the ownership of customer relationships

who do not own insurance do not want it. According to the

from insurers. Customer loyalty decreases as aggregators cre-

­research organization «LIMRA», 19 million insurance shoppers

ate distance between the individuals and their insurer. Com-

got stuck because they did not know what or how much

petitive advantages offset existing retail channels (e. g. agent

­coverage to buy.

force, brand). As health (risk) awareness rises, individual risks are increasingly standardized and commoditized. The impor-

New players like «Haven Life» and «Ladder» in the US concen-

tance of actuarial and underwriting capabilities grows as other

trate on the engagement and distribution of new customers.

parts of the value chain disaggregate. Insurers’ margins on

A data-driven underwriting approach advertises quick and

personal and small commercial products are decreasing.

simple application processes at competitive rates. Traditional players must rethink their positioning, because significant

A larger proportion of investment risks are transferred outside

transformations are predicted in most areas of the industry’s

the insurance companies as more alternative providers of

value chain. Technology partners offer new ­opportunities but

­capital (e. g. hedge funds) offer cost-effective options. Growth

if insurers do not catch up with the present, tech-savvy and

of insurers is less constrained by their access to risk capital.

disruptive players, they will fall behind; thus they disaggre-

­Increased underwriting capacity, transfer of catastrophic risks

gate the insurance value chain in the ­future and change the

and commoditization of risks may lead to a decreased impact

nature of the insurance business to a digital ecosystem.

of insurance cycles.


Digital Transformation | 7

Change has yet to come

pressure in terms of investment capability, increasing the

The above results in insurance companies facing challenges

short-term ­focus of insurance companies. Facing these

on several fronts. Insurers’ legacy IT systems are complex,

­challenges, insurers need to focus on the following:

which limits their agility. A bias towards largely intermediated Consumer centricity: Insurers will need to tailor their

towards greater consumer orientation. Complex insurers,

­offers and services to the real needs of their customers.

­often siloed by branches or lines of business and long-term

For many, this will entail a radical shift in their core

view, tend to have a limited focus on innovation. In many

­processes, such as new product development, customer

countries, the economic environment creates significant

contact and claims process design.

Value chain

distribution and the technical nature of products hinder a shift

R&D product manufacturing

Observed trends

Driver for change






Distribution 1


Underwriting 1



Risk & investment management 1




Customer heterogeneity Data sources Innovation in a­ nalyti­cal tools

I ncreasing demand for transparency Emerging digital policies purchase platforms Intensive competitions due to information flow

Increasing competition in underwriting process ­efficiency Broad source of ­information and data

Customers seek honest and transparent advise

 tilization of data U ­analytics Wearable devices integration Portfolio creation Product customization

 obile platform M Online aggregator Online purchase platform Social media Advice model to self-­ direct model

Device-integrated UW process Rule-based UW Point-of-sale UW Effective case ­management

Robo-advising Data predictive analytics External solutions

Online distribution

2 Wearables


Predictive analytics/data

4 Robo-advisors


Machine learning & cognitive systems Source: Synpulse

1: Strategic Approach for Engagement and Distribution of Customers

8 | Digital Transformation


Cutting across silos: The digital paradigm requires that

services, and marketing profiling, all these can be found

­silos between branches and functions are broken down.

­frequently on the market and strive to engage closer with ­potential customers. For life insurers, it is important to select

Partnerships: Insurers need to sign up suitable partners to develop more immersive ecosystem offerings.

the right partner according to their own attribution. With ­respect to aggregators, for example, these shall include:

IT evolution & flexibility: Digital technology requires (front-

Reaching the mass versus segments: Many aggregators

end) IT systems to operate on a different level. Consumer

and other ecosystem partners may be segmented into

data must be easily accessible; operations need to happen

mass players or players who personalize the offering to a

in real time. New alternative distribution partners need to

specific market. Therefore it is important for the life

be on-boarded in no time. Consequently, IT systems have

­insurer to choose between commoditization or individual-

to find a way to manage the evolution of insurers’ core sys-

ism in product design and distribution.

tems at a measured pace while enabling rapid absorption of technological innovation. In short, they need to­ manage «two-speed IT».

Showing collaborative capabilities: Successful lead ­conversion can only happen if both players, the insurer and the aggregator, can integrate to the extent that the

Innovation: Adapting to the digital world requires sound

critical mass is reached. Web traffic on the aggregator’s

knowledge of the technology available; ability to develop,

website provides an initial indication. However, the

test and pilot at the right pace; readiness to fail in an

­product mix of the insurers has to correspond to the

­entrepreneurial spirit; and capacity to do all that without

­offering of the ­aggregator to convert the web traffic into

jeopardizing the core business. Insurers will also have to

leads. Multi-line aggregators might be a better fit for multi-

scan the horizon for new, game-changing technology that

line insurers.

may be too far ahead to commercialize now, but could have a significant long-term impact on the industry.

Covering the value chain: It is also important to assess how far the aggregator covers the value chain. Nowadays

Data analytics: New capabilities offered by big data tech-

aggregators cover lead generation to underwriting and

nology need to be embedded within insurance and need

policy servicing. On the one hand, there might be a busi-

to support most of the underlying changes.

ness case for life insurers to gain savings, because the ­aggregator covers the operational aspects at a lower cost.

Unleashing the potential

On the other hand, the life insurer’s processes have to be

An ecosystem can help life insurers become more customer

mature to allow for such deep integrations.

centric, data driven, innovative and efficient. Ecosystems are best achieved by assessing the value chain and identifying

Involving aggregators and other potential ecosystem partners

partners for synergies along the customer life-cycle and cost

into the business model generates value for all three – the

­effectiveness. Potential partners, who complement or substi-

­customer, insurer, and partner – but only if these synergies

tute an insurer in a value chain activity directly or indirectly,

can be unleashed.

are identified by mapping core competencies required in a complete customer lifecycle and servicing framework. The thought process behind structuring the partnership ­portfolio begins with core competency mapping and ­matching against the customer lifecycle and servicing framework. From there, partners are assessed for their readiness to synergize with the insurer’s requirements and cope with regulation, process and service quality boundaries. Most common are ecosystem partners who support the need and research stages of the lifecycle. Aggregators, concierge


New ecosystem business models New business models have emerged and now pose potential ­competition to incumbents. Aggregators: Online aggregators that allow customers to ­compare prices and purchase insurance products online may displace traditional distribution channels as customer ­preferences change and more insurance products are commoditized (e.g. UK P&C market). Telematics: Use of existing and new data. In underwriting, ­medical assessment at point of sales as well as flexible client analytics are made possible. In pricing, dynamic pricing models such as «Pay-As-You-Live», flexible yearly premium, and ­product ­adjustments are offered. Sales and distribution develop into new, electronic distribution, multi-channel marketing, and a holistic, customer-centric approach. Portfolio management now allows increased client touch points and target-grouporiented marketing for e. g. 50+. Sources may include electronic

Digital Transformation | 9

health and prescription records, credit history, and behavioral data. Sharing economy: As sharing economies emerge from ­«Pay-As-You-Go» rentals to shared vehicles and houses, the concept of ownership may radically change, challenging traditional insurance models developed based on one-to-one ownership structure. Securitization: Insurance-linked securities such as ­catastrophe bonds are introducing new pools of capital providing ­fully ­collateralized coverage to insurers, outside traditional ­re-insurance and insurance pools. Entry of tech players: Technology providers with brand recognition and trust may enter the insurance ­distribution market, leveraging their extensive data and ­distribution capability. Largest technology companies acquire ­InsurTech startups, e.g. Google acquired the UK e-aggregator ­«BeatThatQuote», who charged insurers up to USD 54 per click.


Christian Seidel Associate Partner (Synpulse USA)

Sheena Strawter-Anthony Senior Consultant (Synpulse USA)

10 | Digital Transformation


How to Efficiently Implement Chatbots Chat is becoming more and more relevant as an interaction channel between customers and businesses. Recent advances in artificial intelligence enable the development of ­efficient chatbots that understand natural language. The financial services industry is becoming ­increasingly aware of the emerging opportunities. Authors: Weili Gao | Karim Attia

Chatbots are computer programs that can chat with people

party services via a single messaging app. Chatbots allow

automatically, e.g. via Facebook Messenger. This means that

banks and insurers to automate most of their customer inter-

customers can interact with a company via chatbots just as

action, resulting in a significant reduction of labor costs and

they would with a human customer service representative.

processing time for customer requests. Additionally, a chatbot

Chatbots have debuted in 2016 for business use, and we

is easy to scale as it can communicate with thousands of

­expect them to become the primary way customers engage

­customers on different messaging platforms at the same time.

with companies within the next few years.

Finally, it is possible to program efficient chatbots with ­relatively low cost and time investment due to the large

Benefits of chatbots

­number of available chatbot development platforms. By using

Chatbots offer many benefits that enable financial services

pre-trained artificial intelligence (AI) models from providers

providers to fundamentally reshape and improve their

such as Microsoft, IBM, Google, Amazon or Facebook as a

­customer interaction. Chatbots are much easier to use than

­basis, it is possible to reduce the amount of effort required to

customer portals or mobile apps as the customer doesn’t need

train a chatbot significantly.

to search for the right webpage or go through complex menus to find relevant information or to place a request. Instead,

How modern chatbots work

­customers can just start chatting with their bank or insurer.

As soon as a chatbot receives a message from a user, it has to

It will automatically navigate them through the correct

identify the intent of the user’s request. It then guides the user

process – just as if they were talking to an insurance broker,

through the relevant business process by providing him with

financial advisor, or customer service employee, but with 24/7

information and determining required parameters by using

availability and no waiting time.

so-called entities.

Furthermore, chatbots can serve as a single point of contact.

Thus, when developing a chatbot, it is necessary to first ­specify

This means that customers are able to access all the available

the intents and entities that the underlying AI should be able

services of a financial service provider as well as various third-

to identify when receiving a request from a client. With the


Digital Transformation | 11

help of a few sample user inputs and the machine learning

Chatbots with limited scope will only gain little acceptance

­approach, the chatbot is then able to link previously unknown

among customers due to the poor user experience.

user input sentences to the correct intents and entities.

­Therefore customers must constantly make the mental

­Comparable to a child who naturally makes many mistakes

­effort to consider how to phrase their messages in a way

when it first starts to learn how to speak, a chatbot initially

that the chatbot will understand them.

makes many mistakes when processing natural language. We can improve the accuracy of intent and entity identifica-

These chatbots are deployed to work without any human

tion by training the chatbot with additional annotated user

supervision. Hence, they need to be 100% accurate in

inputs. This training effort can be reduced significantly by

­processing user input to avoid errors in the business

­using a pre-trained «natural language processing model» (NLP

­process. However, attaining 100% accuracy often requires

model) from AI-as-a-service providers.

a lot of training for the chatbot, and in some cases it might even be impossible to achieve that goal with the current

How to avoid pitfalls when introducing chatbots

state of technology.

Financial services providers are still hesitant about investing too heavily into chatbot technology. Before committing more

Gradual automation

resources, they first want to assess the reaction of their

We therefore suggest a different approach: Human agents

­customers. They typically start experimenting with chatbots

work closely together with chatbots to achieve an optimal

by initially automating only a few selected processes involving

customer experience (


customer interaction. Accordingly, the customers of the financial services providers need to be informed that they will only

1. First, introduce chat (without chatbot) as a new ­interaction

be able to access a very limited number of services when using

channel through which customers can access the full array

the chatbot. The answer to any ­customer request that exceeds

of available services. At this stage, incoming requests are

the abilities of the chatbot is a response such as «Sorry, I could

still processed by human agents, typically in traditional

not understand you». Thus, there are two problems arising

customer service centers.

from this p ­ roceeding:

Benefit: A customer can always access the full array of services as if talking to a human agent

Stage 1:

Stage 2:

Introduce chat as new interaction channel

Deploy chatbot into chat channel

Customer can access all available services via chat immediately Requests sent via chat are processed by ­human agents

Immediate benefits since automation and training starts right away Chatbot hands over unknown requests to humans agents

Stage 3: Continuous training of chatbot

Number of handovers to human agents is reduced continuously as the abilities of the ­chatbot improve

Stage 4: From chat to voice

Extension to voicebased interaction Integration into ­virtual assistants and smart home devices Send responses based on customer analytics & sentiment analysis

Final vision Complete automation of customer interaction No more need for expensive call centers or customer portals and apps

Source: Synpulse 1: Gradual Automation of Customer Interactions via Chatbots

12 | Digital Transformation


2. Next, a basic chatbot is deployed into the chat channel

Whenever the chatbot is not sufficiently confident about the

­established in the previous step. This chatbot will only be

processing of user input, it sends its proposed response to a

able to handle simple requests initially. Whenever it

human agent (

­receives a request it cannot process, it automatically

­directly forward the chatbot’s response to the customer, or to

hands over control of the chat to a human agent who will

modify the response first before sending a reply. The agent’s

reply to the customer.

decision is then used to train the chatbot for similar future

2). The agent then decides whether to

­requests. 3. Use the incoming customer requests and the corres­ ponding responses and decisions of the human agents as

Virtual assistants

training data to improve the chatbot continuously. With

In 2015, Facebook launched a virtual assistant called «M» on

time and training, the chatbot can handle more and more

their «Messenger Platform» that adopts a chatbot-human

requests autonomously, i.e. without human intervention.

­hybrid approach to process user requests, just like the concept we suggested above. In contrast to completely AI-based virtual

4. Expand the chatbot with further capabilities, such as

assistants like «Siri» or «Alexa», the responses generated by M

voice-based interaction, or modify responses based on

are always sent to human agents initially. These agents then

­customer analytics and sentiment analysis.

decide whether to directly forward M’s responses to the users or whether to intervene before replying.

Handover between chatbots and human agents

For example, users can make a reservation at a restaurant

An important requirement of the gradual automation

via M. The human agents simply call the restaurant for the

approach is the smooth transition between chatbots and

­customers. The users of M do not know if they are currently

human agents. Unless general artificial intelligence steps out

chatting with a chatbot or a human agent. Facebook records

of the realm of science fiction, there will always be times

all interactions between the customers and M and uses this

where the chatbot needs to reach out to a human being.

data to further improve the NLP capabilities of M’s AI.

How the interface of a human agent could look like after a handover Send automatically g­ enerated response Chatbot > 99% confidence

Incoming customer ­request

Chatbot < 99% confidence

Send suggested response to human agent

Hi, I would like to buy a­ n ­insurance. Intent: Buy insurance Hi Tim, thank you for your interest! Which type of cover do you need? Homeowners insurance Private liability insurance Vehicle insurance Send response

Modify response

Source: Synpulse 2: Dynamic Handover from the Chatbot to a Human Agent


Digital Transformation | 13

Current virtual assistants like Siri or Alexa cannot ­communicate

will become used to communicating with companies via

with restaurants or insurance companies to make a ­reservation

­messaging apps, virtual assistants, and smart home devices.

or to purchase an insurance product on behalf of customers.

We expect that companies will even start designing products

Imagine they could do this by forwarding requests to the

specifically tailored to chatbots.

­businesses in natural language. Which restaurant would the virtual assistant select to make a dinner reservation?

Despite their many benefits, chatbots still require a

Which insurance company would it choose to purchase travel

­well-thought-out strategic initiative so that they can be

insurance? Certainly, not the one with which it cannot

­successfully deployed in customer interaction. Devising such


an initiative requires in-depth knowledge of chatbots as well as detailed industry-specific know-how.

Conclusion and outlook Chatbots are not just a current hype but will become an ­important part of future business models. They enable ­businesses to offer their customers a new type of interaction to improve sales performance and to reduce costs. Customers


Weili Gao Consultant (Synpulse Switzerland)

Karim Attia Consultant (Synpulse Switzerland)

14 | Digital Banking


Next Generation Community Bank Personal customer relationships play a vital role for the success of community banks1. But new players with extensive digital capabilities threaten these personal service-oriented banks. In order to stay competitive, community banks have to consider taking advantage of digital strategies that enhance their customer relationship management. Authors: Mathias Hausherr | Pallav Kapur

Current environment

bank services means that future demand for client service

Two essential factors for keeping up with today’s competitive

­representatives will decrease. Also the remaining advisors will

banking industry are technology adoption and digitization.

assume new technology-augmented roles that will involve

New technology platforms like «cloud computing» and «robo-

consulting on estate and wealth planning, insurance coverage,

advisors» present countless choices for executives that are

philanthropy, and tax planning. Simple tasks such as account

now required to understand bank customers as well as how

and checking management will be left for machines to

technology enhances their customer experience. Traditional


banking services augmented with strategic technologies ­enable community banks to compete with large e-commerce

The following five strategic initiatives provide areas where

and national banks while still embracing a client-centric

community banks heading into the future could leverage

­operating model.

­technology to assist with digital demands (

The most important attributes for community banks are

1. Tapering of process inefficiencies through Robotic

­summarized in the classical «SWOT» analysis (strengths,

Process Automation; main goal: cost reduction

­weaknesses, opportunities, threats) in

Introducing Robotic Process Automation (RPA) solutions can



reduce operational errors and increase process efficiency by

Target landscape

providing rule-based systems that detect and correct errors in

Face-to-face advisory will still play a role for community banks

real-time. RPA technology provides comprehensive support

but clients’ expectations will shift towards a digital,

for time-consuming manual tasks, such as «Know Your

­self-managed banking experience. The evolution of traditional

­Customer» (KYC) data collection and loan submission. As a

1 A community bank is an independent depository institution which is owned and operated by the local working community. It typically provides traditional banking services.


Digital Banking | 15

first step, in order to understand where there is potential to

tunities, customer insights solutions enhance the already

implement RPA technology, bank executives need to analyze

­individualized role of community banks. Customer insight

and map their complete existing process landscape with

technologies pull information from both external and internal

­regard to products and business units. After a feasibility

sources to ­generate a 360 degree, comprehensive representa-

­assessment, robots can be ­programmed and embedded into

tion of the clients’ circumstances and anticipate their next

the existing operating model, resulting in reduced manual

best action. Community banks could use customer insights to

­labor, freeing up resources for more ­value-added activities.

focus on generational wealth transfer, asset retention; and

For example, robots replace database administrators to e­nsure

­additionally, as a security layer for local loan decisions.

complete and accurate data models, which allow adminis­ trators the time to develop analytical tools and to better

Properly applied, data analytic tools will reduce time

­understand client behavior.

­consuming and labor-intensive processes in the community bank and allow representatives to better serve the clients.

2. Enhance client interaction through data capitalization;

High employee tenure and lower labor cost provide a unique

main goal: increase client experience & profit

opportunity for community banks to invest in educating and

By leveraging community presence and utilizing affordable

retooling their current workforce. With an enhanced skillset,

technology to improve customer insights, community banks

representatives will build upon their already ­customer-oriented

can secure their place for a vital role in future economic devel-

interactions and provide better understanding and structuring

opment. Community banks must focus on customer retention

of services for their target segments.

with enhanced customer insights for sustainable business. With the appropriate toolset (e.g. data insight platforms like

3. Automatization of risk & compliance rules and reporting

«Squirro»), community banks can better understand client

requirements; main goal: cost reduction

needs and proactively provide solutions or products to meet

Currently available and used by large banks, real time

their demands. Besides assisting with cross-selling oppor-­

­processing and reporting of multidimensional and complex

Strengths Vicinity and trustworthiness Good standing in the community (reputation, ­establishment, personal networks, social ­responsibility ) Proficient local market knowledge Local decision-making capabilities

Weaknesses Insufficient 24/7 (digital) delivery of banking ­services (poor user experience) Bank processes are not customer-led Brick & mortar distribution limits market expansion Tech-savvy executives Legacy IT seen as support and not as «business driver gap»

Opportunities Technology enabled products leading to new markets Generational transfer of wealth (educational ­opportunities for saving and spending) Regulatory authorities evolve and support ­compliance & reporting automation. Fintechs seek for white labeling of their products rather than competing

Threats Emergence of non-traditional bank market players Switching banks is easier than ever before Further increasing regulatory requirements drive costs and lower margins Challenged non-distinctive banking models leading to the overall reduction of workforce and attractiveness for talents to join the community banking industry

Source: Synpulse 1: Important Attributes for Community Banks Shown in the Classical «SWOT» Analysis

16 | Digital Banking


data provide advance governance and risk mitigation

for clients. Workflow solutions also support the expected digi-

­capabilities. As regulators apply more compliance regulations

tal customer experience, for example, by ­assuring faster loan

to banks, data management solutions will help community

origination due to decreased manual processing while

banks to apply changes quickly in order to control models,

­reducing fraud and compliance risk with detailed audit logs.

avoid late or incorrect reporting, and better capitalize on economies of scale for regulatory compliance efforts. Specific

5. Holistic, family office like «Advisor of Trust Approach»;

software solutions, such as «Qumram», allow banks to ­monitor

main goal: a larger percentage of individuals’ portfolios

digital client interaction in real time continuously to identify

Local banks should become a family office like a ­one-stop-shop

new errors, abuse, fraud and non-compliance.

agency that provides services such as education, investment, tax and philanthropic planning, as well as lifestyle

4. Cloud-based workflow solutions to enhance the regional

­management. As an example, the local advisor of a trust

market; main goal: business volume increase

­consults a family on better health insurance conditions by

As clients become more digitally adept, extensive networks of

making use of wearables, refer them to nutrition coaches and

local branches will become obsolete and the focus will shift to

so forth.

enhanced technology capabilities. Bank representatives will be required to support and utilize technology among their

Once the family has been coached and accompanied for a

day-to-day duties. Work-flow solutions create order and effi-

more financially optimized «family life cycle», the risk of losing

ciency for community banks. As the full customer lifecycle will

the younger generation that inherits current wealth will also

be digital, work flow solutions delegate tasks to the ­appropriate

shrink. Currently there is a high chance that subsequent gen-

bank employee to ensure seamless and prompt response time

erations will remove assets from community banks in ­exchange

Family-oriented approach

Cloud-based solutions

Data insights Community bank


Workflow management

Source: Synpulse 2: Five Initiatives of Using Technology in Community Banks for Digital Demands


Digital Banking | 17

for a larger bank with a more digital and ­user-friendly experi-


ence. Community banks pride themselves on their strength in

Plain vanilla banking services such as loans, checking

person services, community presence and ­customer loyalty.

­accounts, and credit cards could remain with community

To succeed in the increasingly competitive digital banking era,

banks but it is vital that these services are augmented with

community banks must develop loyal relationships with not

­innovative digital solutions to meet customer demand.

only clients but also third-party vendors. Third-party vendors

­Alternative and larger competitors will offer them faster,

allow community banks to leverage cutting­-edge technology

cheaper, and more integrated with existing products. To keep

without building out complex IT infra­structure. This allows

pace in a rapidly evolving market, the operating model of

community banks to benefit from the power to provide a

­community banks must evolve.

­digital experience like a large ­institution, with a ­state-of-the-art IT service environment at a fraction of the cost.

A use case Cost reduction and geographic expansion Issuing and servicing small and medium loans within a US south-west community bank was reaching a point of unprofitability. Wishing to provide smaller loans in a faster, more mobile and digital manner to local business owners, the bank began exploring possibilities that would help reduce cumbersome manual processes, perform a holistic risk assessment and ­expand their geographical ­footprint. The bank’s legacy loan generation software required business owners personally attend loan consultations, complete applications, and closing activities with a loan officer at one of their branches.

Synpulse’s major contributions to tackle the challenge! The bank approchaed Synpulse to support their decision process and we created, modeled and validated a benchmark framework and assessment for loan origination processes. Our benchmark framework establishes costs associated with a bank's current loan generation process and identifies areas of gained efficiency associated with the to-be process. A digital loan platform promotes efficiency among employees who will service more loans and generate more profit. Additionally, the solution will support a geographic friendly online interface, ultimately reducing or eliminating the need for business owners to visit one of the few ­brick-and-mortar locations. The role of Synpulse includes process analysis and coaching for management and employees on the benefits of the new digital loan solution.


Mathias Hausherr Associate Partner and Managing Director (Synpulse USA)

Pallav Kapur Manager (Synpulse USA)

18 | Digital Banking


Is Your Data on Your Balance Sheet? Nowadays hardly anyone doubts the strategic importance of data, yet the statement that it’s a «valuable asset» sounds too figurative unless true value is assigned to it and this asset is managed as such. Which are the opportunities and implications of this idea for the private banking and wealth management industry? Author: Vladimir Dimitroff


Digital Banking | 19

We live in the age of big data, advanced analytics, and artificial

As we have discussed in other papers, the evolution of data-

intelligence. It is widely recognized that the availability of

driven organizations is a journey with distinct stages of matu-

­diverse, detailed and wide-reaching data, and the capabilities

rity and every company is at some point of that journey.

to utilize it in decision-making provide a distinct competitive

The financial criterion above is a good indicator of maturity,

edge to any business. Advances in data analytics are embraced

as it confirms the other criteria: It takes commitment to

and utilized by the private wealth (private banking and wealth

­develop a data strategy and a pragmatically planning mindset

management) industry in a fragmented manner and the ­sector

to grasp the need for a financial approach. Only the more

lags behind retail banking or insurance, not to mention

­mature businesses would have this in place and would use it

­«digitally native» industries such as e-commerce or telecoms.

to drive improvements.

A coherent data strategy and a transformation to a data-driven organization, therefore become significant competitive

What is the current state of the industry in this respect? Once

­opportunities for a private wealth organization, and in some

the hype about big data fades away and it becomes business-

cases – even a survival imperative. The roadmap for such

as-usual, it is easier to separate lip service from genuine

transformation inevitably includes an evolving cross-­

­actions. Have you read or heard the statement «Our data is

functional maturity view, and enabling enterprise-wide

one of our most valuable assets»? According to a recent study

changes in operating model and culture.

by Ernst & Young (EY), out of 150 financial services companies 83% said that data is their most strategic asset. A similar num-

The data-driven organization

ber (84%) also said data is a source of competitive advantage.

What are the characteristics that qualify a business as «data-

Yet almost half of them – 47% – have no idea about the real

driven»? Having and using data is apparently not enough,

value of their data. And about a third – 31% – admit that they

as we all have and use this commodity just like we use

don’t have the needed capabilities to extract value from their

­electricity – without even thinking about it. A true data-driven


organization can be defined by its commitment to data as a central component of long-term business strategy. As a result of such commitment, such companies have a dedicated data strategy with a clear vision about data ownership and management, and a roadmap for growing both the data and related capabilities,

83% of financial services companies declare that data is their most strategic asset, but 47% do not know its value and 31% are poorly prepared to extract value from it.

a governance structure and operational plans for continuing improvements in data-dependent and data-generating

This was declared by insurance, banking and a broader range

areas of the business,

of financial services organizations. In private wealth, the picture is even less encouraging, due to historic protective atti-

a business case and corresponding investment commit-

tudes towards high net worth client information and overall

ments for the fulfilment of the strategic vision, and

more conservative business practices. The changing nature of

last – but not least –

wealth management, however – with market pressures like regulation and fintech disruptors – already obliges sector play-

a financial view of «all things data» where the business

ers to re-examine their data-driven maturity.

benefits of owning and processing data, as well as the ­associated costs, are represented with clear monetary

Reasons to know the value of your data

­values and drive respective budgets and performance

The capabilities to acquire, organize, protect, process, and


profit from data require considerable investments, both capi-

1 Source: EY – «The Science of Winning in Financial Services»

20 | Digital Banking


tal and operational. It is unthinkable to commit to such invest-

of its maintenance to its present state. This has well docu-

ments without an accurate appraisal of the asset you are try-

mented inputs and can be very accurate, however it is poorly

ing to manage. Assigning financial attributes (including a

(if at all) related to the potential for extracting value from the

monetary value) to data thus becomes an imperative for the

asset. Data can be precious as well as worthless, and costs do

data-driven organization. Knowing historic, current and pro-

not indicate those possibilities.

jected data value can be ­directly useful in certain scenarios: The income-based method, on the other hand, focuses on the Building a business case to justify, as mentioned, invest-

revenue opportunities from exploiting the data and thus is

ment in data management infrastructure, technical capa-

much better for pricing if data is to be sold as such, or if it is an

bilities and human skills

asset when the entire business is sold or merged. This can be done for current income levels, or at net present value of

Innovating for data-based new product and service offerings, treating data as a new revenue resource

­future projections, making the valuation models predictive. The result, compared to (separately calculated) costs can be disappointing or lucrative, which justifies attempting a hybrid

Adding (significantly) to the value of the entire company in

approach: net present value of projected revenues, minus

M&A cases; this is currently very frequent, particularly in

­acquisition and maintenance costs. Financial experts debate

the UK, where the fragmented wealth management

many details of such models, but they are closest to an accu-

­industry is u ­ ndergoing rapid consolidation

rate, decision-supporting idea of data value. The market-based approach can often be brutal, but it most

From pricing in M&A situations to developing innovative products and services, knowing your data value has become an imperative.

objectively reflects the fundamental principle of Adam Smith’s «invisible hand». Markets account for (and discount for) both incurred costs and, especially, earning potentials. It even considers, albeit not too transparently, the behavioural psychology of buying and selling parties that reflects their own perceptions of value.

A number of smaller and subordinated reasons add to the ­picture and help justify the effort to assign value to your data – from acquisition (at a cost) of extra data from public and third party sources, to the costs of compliance with data ­protection regulations. But where do we start – exactly to ­approach the valuation of data?

The right price of anything is as much as those who need it are prepared to pay for it.

Approaches in the valuation of data as an asset

Market-based valuations are reliable when there are signifi-

Like most intangible assets (patents, trademarks, domain

cant transaction flows to observe and align with. When

names or software), datasets and database contents can be

­considering that data-related deals are a smaller number, it is

valued in one (or more) of the three fundamental appraisal

inappropriate to talk about «market price» as any single


­precedent risks being an anomaly.


Once we mention hybrid approaches, market information can be included in an income-minus-cost model as an adjustment,


a weight factor to make the internal valuation more relevant to other parties.


Steps to leverage the potential of data The cost-based method, as the name suggests, accounts for

Data is undoubtedly the most strategic asset, deserves to be

the costs incurred in acquiring the data and the historic costs

treated as such, and should have its place in a firm’s financials


including the balance sheet. To reach such a level of maturity, private wealth companies need to assess their current state and draw a roadmap to their ­envisioned capability level,

Digital Banking | 21

allocate resources and responsibilities to manage every phase and step in the roadmap, make initial steps towards a financial view of their data, estimate a value and, while continuing to improve its ­accuracy, start using the value in business cases and

commit to a data-driven corporate strategy and to a functional data strategy aligned with that vision,


Vladimir Dimitroff Principal (Synpulse United Kingdom)

­critical decisions.

22 | From Outside In


Robotics Technology for Humanitarian Use The American-Swiss nongovernmental organization ÂŤWeRoboticsÂť uses unmanned aircraft for social and ecological purposes in developing and disaster-prone countries. Patrick Meier, the co-founder and expert in the field of digital technology for humanitarian issues, explains how robotics technology can be used for development and emergency aid. Interview with Dr. Patrick Meier


From Outside In | 23


are potentially not in a good condition and may be impassable

­«WeRobotics» you demonstrate that drones and other robotic

during the rainy season. Unfortunately, mosquitoes multiply

vehicles can be used for humanitarian and environmental

during the rainy season. Also, you have to take into account

­purposes. How can people in need and the environment

that communities might not live next to a road. So, we are

­benefit from that?

­exploring the use of drones to complement the release of

The science of artificial intelligence (AI) and robotics is quite

mosquitoes. This is not trivial, as you have to develop and

distinct in the field of emerging technologies. Before the rise

­engineer a semi-autonomous release mechanism that can be

of AI and robotics, technology was manually controlled.

carried by a drone. We plan to test this in Peru and hope that it

Now, it can be operated on an autonomous or semi-­

will turn out to be effective.







autonomous basis and programmed to collect data or deliver cargo. As it is not manually intensive, it is safer, cheaper,

Robotics technology not only encompasses aerial vehicles but

and quicker than previous technology. In a humanitarian

also terrestrial and maritime vehicles. How advanced is

­context, data can be collected with higher resolution and also

­robotics technology in each area and how can robotic vehicles

in realtime. Life-saving cargo can also be delivered more

be employed to detect environmental problems?

quickly ­using robotics.

Marine robotics is ahead of terrestrial robotics. So far, ­terrestrial robotics has primarily been used for search, rescue

How did you come up with the idea of founding WeRobotics

and demining. Aerial and marine robotics can be used,

and linking robotics usage to humanitarian aid?

for ­example, for pollution detection, counting the population

I have been exploring drones and robotics for the past ten

of sea life, or monitoring algae blooms. In Tanzania we are

years. For me personally, the catalyst experience was the

­currently doing coastal monitoring. One of our partners in

­devastating earthquake in Nepal in the spring of 2015. I was

Canada is ­developing a terrestrial robot to pick up plastic in

asked by the United Nations to help coordinate the use of

polluted areas. We hope to secure funding so we can leverage

drones in response to the catastrophe. As a result, I had to

this solution for use in polluted lakes in Nepal.

­coordinate several teams, including startups from Silicon ­Valley who had never worked in Nepal or in a developing

How strongly do you depend on the cooperation with local

­country. This turned out to be a complete disaster. I witnessed


firsthand how ­important it is that we localize robotics solu-

Many of our projects include government bodies as formal

tions and train ­local pilots, who already know the language,

partners. In Tanzania, for example, our Flying Lab was asked

country, and customs, and who won’t leave once the media

by the Ministry of Interior to carry out aerial surveys of the city

coverage ­subsides.

of Bukoba following the earthquake there in 2016. The ­Ministry wanted to have a better assessment of the recovery and

One current project of WeRobotics tackles the spread of the

­reconstruction. All our projects also require formal permission

Zika virus. Could you tell us a bit more about this? What are

from the respective Ministries of Aviation, so we also work

the specific challenges regarding the use of unmanned aerial

closely with these bodies.

vehicles (UAVs)? A number of studies have been published over the years on

You call your operating places all over the world (e.g. ­Tanzania,

how to reduce mosquito populations. One of the most inter-

Nepal or Peru) «Flying Labs». Your work is based on partner-

esting insights to come out of these studies is a new technique

ships with local communities, not-for-profit groups, universi-

that focuses on sterilizing male mosquitoes and releasing

ties and governments. How do you manage to work with these

them to reduce the overall mosquito population. This often

local communities and to gain their trust, especially if they

proves to be a better solution than using chemicals, which

have an indigenous lifestyle?

have an environmental and public-health impact. So, to

In order to do projects in a local community, we first need a

­employ this technique, mosquitoes are put into boxes with a

formal permission. Subsequently our local team, who runs

special release mechanism and are then transported by a car

our Flying Lab, introduces itself to the local communities and

or truck into the relevant areas. Although this ground-release

builds long-term relationships. The local communities also

approach is quite effective, you need to consider that you

become actively involved in the project and help us to con-

must have functioning roads. In developing countries roads

sider ­domestic rules. For example, there might be areas that

24 | From Outside In


are ­sensitive to fly over, such as ­cemeteries, so these need to

Besides your headquarters in Washington, D.C. WeRobotics

be avoided.

has opened a second office in Geneva, Switzerland, this year. What are your business targets in Europe?

One of your goals is to incentivize local entrepreneurship.

Three of the four co-founders of WeRobotics, including myself,

Have you already experienced cases where local partners have

are Swiss (Sonja Betschart and Adam Klaptocz are based in

founded other Flying Labs in their region?

Switzerland, Andrew Schroeder and I are based in the USA).

WeRobotics was founded in 2015 and we launched our first

So opening an office in Switzerland was a natural next step.

Flying Lab in 2016. Since then, two of our labs (in Nepal and

We selected Geneva for strategic reasons: the United Nations

Tanzania) have received requests from neighboring countries

and many other international organizations are also based in

to establish labs there, which we’re very excited about. Earlier

Geneva. Furthermore there are leading universities and Swiss

this year, we also provided business incubation ­training in

companies with whom we can build partnerships for

­Nepal, focused on robotics or «drones as a service», which

­fundraising. It is our goal to gain more visibility in Europe,

means that drones can be used to generate maps, 3D models,

­develop our business and partnerships and diversify our

indexes, aerial imagery, and provide many other services.

­funding base.

During that process we also helped to incubate three local ­Nepali startup companies that offer drones as a service. We’re

How does WeRobotics fund itself?

doing the same in Tanzania this fall.

The first pillar of funding is derived from grants and ­foundations. We have strong support from the Rockefeller

The installation of Flying Labs unfolds along a four-phased

Foundation, the Hewlett Foundation, the Inter-American

framework. Could you specify these phases?

­Development Bank (IADB) and the World Bank, among others.

The first phase is the scoping phase where we identify

The second pillar of funding is based on our consulting work,

­countries with pressing challenges. The next step for us is to

which we do for the UN World Food Program (WFP), the United

further distinguish which countries are local champions keen

­Nations Development Program (UNDP) and the UN Children’s

on ­exploring technologies. Then we also check if robotics

Fund (­UNICEF).

can be a solution for the problems, and if so, which type of robotics can be considered for use. The second phase is

You are also an expert on other technological fields like for

­building ­local capacity. Here we provide training and

­example big data and crisis mapping. Could you explain to us

­technology transfers to our Flying Labs staff and support their

the use of those for humanitarian efforts?

first ­projects. The third phase comprises remote support.

Due to digital technology and the emergence of big data,

Here, projects run on their own. The Flying Labs rely on other

we have to deal with an overwhelming flood of information,

labs and learning networks. The fourth and final phase

which abounds in social media, for example. But this hasn’t

­encompasses incubation. This means, that the Flying Labs

­always been that way. Whenever a catastrophe happened in

should create local markets, local ecosystems, and jobs by

the past, there has been information scarcity. Now for almost

­incubating local businesses.

ten years this problem has been changed into the opposite ­extreme: there is an information overload following major

Can you tell us about one specific project in which you

­disasters. For that reason, humanitarian organizations have to

­pioneered humanitarian aid and achieved fast success and

develop effective strategies to filter relevant information more

­improved the lives of people in need?

quickly in order to support decision makers. The use of

I experienced this a long time ago in Haiti during the

­artificial intelligence can help to make sense of big data by

­devastating earthquake of 2010. Here, crowd sourcing and

«the needles in the haystack», that is, the relevant and

­disaster mapping were used for the first time. Digital volun-

­actionable pieces of information that are generated during

teers began extracting various data sources like social media

­disasters. Drones are also able to collect data much faster than

and text messages to detect areas of damage and


need. ­Haitians living abroad assisted with translating the

We have created cooperative partnerships with ­universities to

­messages – so we had digital v­olunteers who cooperated in a

leverage artificial intelligence and computer ­vision in order to

global ­initiative. This was the first major milestone for digital

develop automated solutions to analyze this vast amount of




From Outside In | 25

You founded the «Humanitarian UAV Network» and co-

­Science could make a difference in Africa. So that same day I

founded the «Digital Humanitarian Network». What are the

decided to drop out of Computer Science and change degrees

goals of these organizations?

to International Relations where I could study more relevant

The Humanitarian UAV Network (UAViators) provides an infor-

subjects like Economics or Political Science. Ironically, in the

mation and coordination service. The website connects over

last ten years I have worked closely with many Computer

3’000 members in 120 countries. UAViators has also developed

­Science ­experts, and this is also true regarding my work at

a code of conduct for unmanned aerial vehicles. I co-founded

­WeRobotics. So in some way I have returned to Computer

the Digital Humanitarian Network with the UN. The goal there


was to create an interface between established humanitarian organizations and digital volunteer groups. We have invited

Finally, what is your wish for the development of WeRobotics?

digital volunteer groups who can go to the website and fill out

What is your vision for the planet, especially with regards to

an activation form.

the fast development of technology? My plan for WeRobotics is to establish eight Flying Labs in

Could you tell us more about your personal background?

eight world regions over the next three years. Another goal is

­According to your blog «iRevolutions» you were born and

to enable these labs to work directly together and thus to

raised in Africa. Do you think that your experiences have influ-

­support each other. Promoting this direct South-to-South

enced your career choice?

­capacity building is central to our vision.

I was born in the Ivory Coast and grew up in Kenya, as my

With respect to my vision for the planet: The rise of robotics

­father worked there for a Swiss international company. I com-

and artificial intelligence will have a profound change on our

pleted high school in Vienna and then started a Computer

world. The Global North will be the main actor in this space.

­Science degree in England. However, I experienced a key

Therefore, we have to ensure that the digital divide does not

­moment here: When I was building logical circuits, I began

get ­bigger, where only the rich parts of the world have access

asking myself whether what I was doing had any connection

to ­robotics technology. Our mission at WeRobotics is thus to

to my upbringing in Africa. I couldn’t see then how Computer

­democratize access to robotics solutions.

Dr. Patrick Meier is the Executive Director and co-founder of the NGO «WeRobotics». Over the past 15 years, he has been collaborating on a wide range of humanitarian projects and has worked together with well-known international organizations like the United Nations, the Red Cross, and the World Bank. He has guided the field of crisis ­mapping at the African NGO Ushahidi and at Harvard ­University in America as well. Patrick is a very popular consultant and speaker in the ­matter of humanitarian use of robotics. In his book «Digital ­Humanitarians» and on his blog «iRevolutions» he discusses the possible and different ways of using digital technology for social and ­ecological purposes. Furthermore, he is the co-founder of the organization «Digital Humanitarian Network» and founder of the ­association «Humanitarian UAV Network», which supports the secure use of unmanned aircraft in a humanitarian context. Patrick has a doctoral degree from Tufts University in International Affairs. For further information see: and

26 | Regulatory & Compliance


Fraud in Private Banking – Are You Protected? Fraud has risen to be one of the key threats currently facing private banks. Besides huge financial losses, it causes reputational damage. Banks could prevent this with tailor-made technological solutions and managing fraud risk. Find out what you need to know to identify and manage your vulnerabilities. Authors: Prasanna Venkatesan | Parsa Khoshdel

The volume of high net worth individuals (HNWI) wealth in

­complexity of fraud attempts. Unlike retail banks, which use

Asia-Pacific region has hit new record highs; and is now the

standard IT ­solutions available in the market for fraud risk

largest in the world. In 2015, Asia-Pacific HNWI wealth grew by

management and fraud risk detection, private banks are

9.9%, which is nearly six times higher when compared to the

­considering bespoke fraud risk management s­ olutions.

growth experienced by the rest of the world (1.7%)1. Due to a growing base of clients and an increasingly strict regulatory

Private versus retail banking risk management

­environment, managing operational risk has emerged as a

To highlight the particulars of fraud in the context of private

major area of concern for private banks. The potential impact

banking, it is useful to compare the nature of fraud in private

of fraud on the business is substantial. According to a recent

banking to that in retail banking.

report2, a typical fraud incident may lead to financial losses ranging between USD 5-10 million and severe reputational

A retail banking business involves large volumes of small-

damage. In 2011, a case of internal fraud brought about a loss

sized, relatively simple transactions. As such, fraud detection

of over USD 10 million to a major private bank. Front-office

capabilities are generally standardized and are often geared

staff of the bank had siphoned off funds out of client accounts

towards the limited scope of activities performed by

for many years. Similarly, in 2013, another private bank bore a

­mass-market clients. Technology plays a significant role in

loss of around USD 5 million, due to internal ­misconduct by

­automating most detection processes and controls, forming

front-office staff.

the overall basis of the fraud controls. Ultimately, due to the large volume of transactions, fraud cases are a drag on

Banks have started strengthening their ­control frameworks

­revenues. Hence, the aim is to keep incident counts and losses

and technology platforms to cope with the increasing

low in the most efficient manner possible.

1 Source: Asia-Pacific Wealth Report 2016 2 Source: Private Banker International


Regulatory & Compliance | 27

In contrast, a private banking business involves a small num-

In both scenarios, the fraudster may reside either inside or

ber of large-sized transactions. Consequently, fraud cases are

outside the bank. To reduce the risk of such cases occurring,

infrequent, more intricate, and highly impactful. To avoid the

it is imperative to minimize the gaps in the bank’s checks and

risk of fraud, private banks have typically sought to tie their

controls. Maintaining purely manual operational controls is



becoming increasingly difficult and expensive. Enhancing the

with ­processes becoming increasingly complex, the opera-

size of control units and sales surveillance often stymies effi-

tional cost of maintaining checks and balances is also rising.

ciency and adds complexity. Therefore private banks have

Fraud in private banking typically arises from operational gaps

steadily turned to new software tools to complement their

that provide opportunities for abuse. However, due to the

­operational controls, thereby enhancing their ability to detect

­additional services offered to HNWIs, the risk of having such

and prevent further cases of fraud in a scalable way.





gaps is correspondingly larger. A few common examples are:

Introducing technology in fraud risk management Forging clients’ identity to take over control of relatively

Software solutions tackling fraud detection span across a wide

vulnerable dormant or hold-mail accounts. Such cases

range: from off-the-shelf tools, complete with detection and

may occur due to lack of controls such as a lack of callback

case management functionality, to purely technical platforms

checks for client verification.

that are highly customizable for implementing fraud detection solutions (


In terms of maturity and sophistication, initiatives undertaken

these often do not involve four-eye checks or independent

by banks are diverse. Some opt to use off-the-shelf software to

verification checks.

automate the consolidation of data and certain manual checks

More sophisticated

with repeated transfers concerning smaller amounts since

Programming language Build-up required State-of-the art technology Workflow not available Open sourced Community support available

Data science platform Build-up required Sophisticated, with programming language extensions Workflow available Visual programming Technical support available

Less sophisticated

Pattern recognition (sophistication)

Fraudulent transfers and unauthorized trades, particularly

Off the shelf solutions (industry leader) Less to no build-up required Sophisticated Allows bank specific changes Technical support available Very expensive

Off the shelf solutions (challengers) Less to no build-up required Allows bank specific changes Technical support available

Off the shelf solutions (niche players) Less to no build-up required Less sophisticated Allows bank specific changes Technical support available Area focused, i.e. audit More customization required

Off-the-shelf products

Ease of implementation for private banks Source: Synpulse 1: Categorization of the Market’s Fraud Analytics Platforms

28 | Regulatory & Compliance


to flag suspicious activity. Others are using data science

products, few are designed exclusively for private banks.

­platforms that offer a lot of technological agility to build

Due to limited potential for customization, the product adds

­business rules and sophisticated algorithms on the platform.

­unnecessary bulk and complexity in the form of excessive

Lastly, some banks are pursuing custom-built solutions from

functionalities that are not applicable to private banking

the ground up, such as the joint venture «Signac», between

­processes. Additionally, the important nuances that need to

«Credit Suisse» and «Palantir»3, which aims to detect unau-

be applied in the private banking context are overlooked.

thorized trading or other suspicious internal activities. On the other hand, the development of an in-house platform Currently, the trend for large multi-national private banks has

from scratch is likely to be time-consuming and expensive.

been slowly shifting away from off-the-shelf solutions towards

As an optimal alternative, private banks should adopt a hybrid

bespoke fraud prevention platforms. These are highly custom-

approach. They can opt for a solution with a high degree of

izable and offer significant capabilities in analytics. This

customizability while leveraging a pre-defined analytics

­enables the bank to process substantial amounts of data using

framework consisting of fraud scenarios, pattern recognition

an automated tool, replacing manual processes handled by

and risk-scoring methodologies.

different departments. More sophisticated checks can be ­implemented to replace labor-intensive tasks.

The hybrid approach enables risk managers to customize predefined fraud scenarios based on the bank’s existing processes

Deciding on a suitable fraud analytics platform

and known control weaknesses. The next step of developing

As highlighted in

1, private banks can choose from a wide

an effective risk scoring methodology across these scenarios

range of solutions when selecting a suitable fraud analytics

becomes much faster as the tool would have pre-built capa-

platform. Unfortunately, within the range of off-the-shelf

bilities to run simulations using statistical methods such as

Data sources Client static data

Fraud analytics platform New activity Control list

Analytics engine


Scenario-based pattern analysis

MI reporting

Transactional data Blacklist

Whitelist Watchlist


HR data Suspicious activities

Independent verification data


Case management Yes

Valid? No

Special client data


No issue detected 2ⁿᵈ Line investigation

Historical data

Fraud detected

Source: Synpulse 2: A High-Level Overview of a Fraud Analytics Platform’s Structure

3 Source:


Regulatory & Compliance | 29

sampling, and false positive reductions. Finally, the hybrid

­suspicious cases by connecting the dots based on the overall

­approach also offers case management and management

client, risk management and portfolio activities and at the

­reporting functionality, which can be integrated into the

same time eliminating false positives effectively.

bank's fraud risk management processes. Fraud risk management: a shared responsibility Defining risk: the core of a fraud analytics platform

Apart from a strong fraud analytics platform, effective fraud

Banks usually set up dedicated fraud controls for individual

detection requires clear, pre-defined action plans for identi-

processes which results in incidents being investigated

fied cases. Fraud case management can be a sensitive topic

­independently of each other. Fraud cases, however, usually

among staff, and care must be taken to treat such issues with

comprise multiple steps, taken by the fraudster to bypass such

respect. Project teams must ensure ample buy-in from across

controls. They involve various transactions and changes to the

all levels of the organization as a source of support for the

bank's records, such as HR or client data. Due to the isolated

­initiative. Working level teams must also be instructed to

nature of investigations, connections between such steps are

­remain flexible and maintain a sense of trust with the market-

often overlooked. A fraud analytics platform attempts to

side staff under investigation. The fraud case management

bridge precisely these gaps.

team must include team members who have existing rapport and trustful working relationships with the front office.

The platform will typically ingest various kinds of data from several sources: client data, transaction data, HR data, etc.


and by applying the built-in scenarios against this data, it can

The challenges that private banks face in fraud risk

identify potential cases that would need ­further investigation.

­management are rapidly changing. Synpulse has been at the

Using dynamic control lists, the platform can eliminate false

forefront of working with stakeholders at leading private

positives and reduce the effort required to analyze suspicious

banks in developing and optimizing frameworks for fraud risk

cases. In effect,

2 illustrates how the various components

management. With the threat of regulatory fines, reputational

mentioned fit together in the fraud ­analytics platform’s

and financial risk due to fraud, banks are looking to ­strengthen


their overall framework over the next few years. Innovative technologies and analytics tools will play a pivotal role in

However, what truly differentiates a fraud analytics platform

­enabling banks to tackle various topics within the areas of risk

from the bank’s internal controls is the smartness of the

management and compliance.

­platform’s risk scoring methodology to highlight the truly


Prasanna Venkatesan Associate Partner (Synpulse Singapore)

Parsa Khoshdel Senior Consultant (Synpulse Singapore)

30 | Regulatory & Compliance


IFRS 9 – A Paradigm Change in Financial Reporting? The reporting standard «IFRS 9» is imposing significant changes in financial reporting on financial institutions. Particularly impairments are now treated very differently than in the past. Functional and technical implementations as well as procedural aspects are ­decisive factors and need to be optimized for future success. Authors: Florian Köller | Daniele Abbruzzese

Without any doubt, the financial services industry has been

Standards» (IFRS) was issued by the «International Accounting

facing an increasing level of audits and investigations over the

Standards Board» (IASB). In general, IFRS enforces ­comparable

last decade. This can be contributed to the aftermath of the

balance sheets over different legislations. Internationally,

financial crisis of 2008, when complex new financial products

it has been adopted by numerous countries and is obligatory

and services emerged. With these developments, it also

for listed companies in particular. The current standard

­became increasingly difficult for regulatory bodies, audit

­«International Accounting Standard 39» (IAS 39) dates back to

­companies, and other stakeholders to assess the financial

1998. Over the course of the years, financial markets have

health of the companies.

changed and new financial instruments have been created.

Governments and regulating bodies felt the need to control

ments and additions to the accounting standard were ­released.

the behavior of banks in a more stringent manner and aimed

The economic crisis increased the pressure for a major ­revision

at ensuring a healthy and functional financial sector through

of the regulation, and after years of detailed definition, the

new guiding measures. Also, tax authorities used the window

IASB issued «IFRS 9 Financial Instruments» in 2014. As of

To properly catch up on these developments, several improve-

of opportunity to raise tax transparency and reduce tax ­evasion

January 1, 2018, IFRS 9 will be mandatory for banks and insur-

through regulations such as the «Automatic Exchange of

ance companies whose reports are based on the European

­Information» (AEOI) and the «Foreign Account Tax Compliance

IFRS or «Generally Accepted Accounting Principles» (GAAP)1,

Act» (FATCA).

­developed in the United States.

Changes in the reporting standard

Particularly the recognition of expected losses was in focus

In line with these overall market trends, in the area of financial

­after the economic crisis. Until now impairments were based

reporting an update of the «International Financial Reporting

on historic experience as losses occurred. In order to make

1 Source: IASB


Regulatory & Compliance | 31

banks more robust for difficult conditions, a model was devel-

Furthermore, the impairment model under IFRS 9 results in an

oped to change the current approach to a simulation-based,

earlier recognition of losses by switching to an expected

forward-looking approach. The following fields are ­affected by

­loss-based approach from an incurred loss-based approach.


Banks will be required to consider macroeconomic ­information when calculating expected credit losses. Based on this new approach, the complexity of provision calculation increases

Classification and measurement of financial assets

significantly. The reason lies in the required simulation ­element, while so far a simple calculation upon occurrence

Impairment calculation

was sufficient. Hedge accounting

Banks will be required to consider macroeconomic ­information when calculating expected credit losses.

What is new Classification and measurement of financial assets in the ­future will depend on two things: On the one hand, on ­contractual cash flows, meaning sole payment of the ­principal and interest or other forms of compensation. ­Particularly this focus on ­product cash flows distinguishes the

In comparison with impairment and classification, the hedge

approach from today’s regulation. On the other hand,

accounting changes seem less critical for financial ­institutions.

the business model of an asset is considered. The term

The corresponding requirements will reduce complexity.

­«business model» in the context of IFRS 9 refers to how

They allow entities to apply hedge accounting more broadly,

­financial assets are managed and the ­intention as to whether

the effectiveness test is simplified and more types of assets

positions should be held until ­maturity, sold, or both.

qualify for hedge accounting.

Close link between controlling, treasury and risk management for credit risk processes required



Business model impacting risk management and collateral management

Financial reporting

Initial impact on provisions Potentially higher volatility Increased disclosure

Source: Synpulse 1: IFRS9 Challenges in Operations, Controlling and Financial Reporting

32 | Regulatory & Compliance


What is required?

as various processes and local solutions must be revised and

The regulatory framework is expected to have high organiza-

amended. This aspect needs to be factored in and offers the

tional, technical and operational impact (

opportunity to standardize processes across all locations.

1) as the changes

require adaptations in several functional areas of the organization. The implementation of IFRS 9 will undoubtedly need a

Institutions can leverage an IFRS 9 implementation to

closer integration of different functions and skills ­(finance/

­introduce a centralized and fully integrated end-to-end

treasury, accounting, risk management, and quantitative

­impairment calculation. This eases compliance with IFRS 9

modelling). This is due to the overarching requirements which

regulations through all business units and geographical

affect different parts of the organization, not only accounting

­locations. Another advantage is a reduction of the implemen-

teams. Consequently the preparation of a new ­methodological

tation effort involved on a local level and the leveraging of

framework (for loans and guarantee contracts), policies and

economies of scale. Otherwise every decentralized system

processes is an opportunity for any organization to foster

component would have to comply accordingly.

­closer collaboration. From a change management perspective a skilled, multidisciplinary project team is required for a

IT impact

­successful and smooth transition to IFRS 9.

With the technical changes, due to IFRS 9 and the increased disclosure obligations raised in the recent past, entities are

Organizational impact

confronted with an increased volume of information being

The initial setup of the necessary data can pose a challenge to

­required. This information may not be easily and readily

organizations: The initial classification of financial assets is to

­available from current systems. In the past they may not have

be closely derived from corporate and credit risk strategies.

captured and maintained data at the level of detail required

When considering dependencies on processes, such as credit

under IFRS 9 (one potential option may also be to rely on

risk management, the IFRS 9 implementation needs to ensure

­external data if available).

consistent calculations, data flows and external reports to make sure, that all processes, e.g. credit risk management, are alligned. To ensure compliance with IFRS 9, financial institutions also have to implement new processes such as a control framework to fulfill the new disclosure requirements. For this purpose, the existing credit risk models (e.g. incurred loss model)

The implementation of IFRS 9 therefore poses significant ­challenges to banks and financial institutions, on data models as well as on the IT infrastructure.

need to be amended and a new end-to-end process should be ­designed and introduced. Besides the implementation, also

Based on these requirements, many financial institutions will

­training and building up know-how in the organization are

need to collect and analyze additional data on their positions

­recommended best-practice: They bridge the gap of the

and implement changes in their systems. For example,

­interdisciplinary requirements posed by IFRS 9 and ease

the new standard for impairment calculation will tremen-


dously affect how credit losses on loan portfolios are accounted for. The expected impairment loss model will most probably lead to bigger provisions. It could even lead to more

Institutions can leverage an IFRS 9 implementation to ­introduce a ­centralized and fully integrated endto-end i­mpairment calculation.

volatile provisions, as they will depend on macroeconomic factors rather than the individual credit quality. The implementation of IFRS 9 therefore poses significant ­challenges to banks and financial institutions, on data models as well as on the IT infrastructure. The new expected credit

Currently, in many banks and financial institutions the impair-

loss approach make necessary both new data attributes

ment processes are handled slightly different by each location

(such as collateralization or new IFRS 9 impairment stages)

or business unit, which raises the complexity of a project,

and large amounts of data and complex calculations for simu-


Regulatory & Compliance | 33

lating the expected loss. Integrating those attributes into the


current platforms can represent a challenge in terms of

­Standardization, data governance, and close collaboration







­complexity, ­effort and consequently higher costs. Additionally,

have proven to facilitate projects. Besides, institutions are

it may be ­required to establish a setup that is fit for future

well advised to assess the expected impact on reported results

changes due the inability of current systems to capture the

early on. Therefore, running IFRS 9 parallel to IAS 39 this year,

needed data. This may call for integration with new or

would allow a comparison of the impact over a certain period

­additional software modules.

and adaptations could be made prior to IFRS 9 being effective. Due to the changes regarding audited data and procedures,

Based on the past projects, establishing comprehensive data

proactive information to auditors is advisable.

management can ensure that all necessary data is available. Data governance structures and controls improve quality

From a technical perspective, data availability and quality

­because the required data is often sourced from various IT

challenges should be the focus of attention from an early stage

­systems and may necessitate cleansing before it impacts

on, as static data is the key for all changes that IFRS 9 brings


along. Besides the conceptual changes, IT landscapes and processes in finance and risk in general are expected to require

Best practices

a higher level of flexibility going forward. Amendments of IFRS

Although IFRS 9's mandatory effective date of January 1, 2018

9 in the future would particularly impact modifications of for-

may seem still some way down the road, banks are requested

ward-looking information. Therefore developing a clear target

to introduce IFRS 9 parallel to other regulatory projects

picture for business and IT in order to guide the ­implementation

(e.g. MiFID II) at this time. Additionally, banks may also depend

of a robust and efficient end-to-end process is essential.

on their software vendors to deliver the basis for IFRS 9 and


Florian Köller Manager (Synpulse Switzerland)

Daniele Abbruzzese Associate Partner (Synpulse Switzerland)

34 | Regulatory & Compliance


CRS – Choosing the Correct Reporting Model Is Half the Job Done The scale of Common Reporting Standard (CRS) is unprecedented and reporting of tax information is scheduled to start for most Asian jurisdictions in 2017 or 2018. For financial institutions (FI) who haven’t done so yet, it is advantageous to design and implement a solid reporting model that can handle the scope and complexity of the regulation. Authors: Cherry Hong Pei | Yash Shah

In Asia, two large-scale tax amnesty campaigns aroused the

­already start to prepare, as compliance with CRS requires both

­finance world’s attention: one in India in 2016 and another in

operational re-engineering and technological transformation.

Indonesia that ended in March 2017. The campaigns offered a

On the operational side, client onboarding processes need to

window for taxpayers to declare previously undeclared wealth

be revised while ensuring that pre-existing client remediation

and pay a special tax, in return obtaining freedom from pros-

happens with minimum friction to client experience. Further-

ecution over their unmet tax liability. This was p­articularly

more, changes are necessary for core banking platforms and

­attractive due to the increasing exchange of tax information

customer relationship management (CRM) systems to capture

between jurisdictions, under regulations e.g. FATCA1 and CRS.

client tax information in a structured manner.

CRS, the OECD2 version of FATCA (US), or CDOT3 (UK), is a

Three unique challenges presented by CRS

cross-jurisdictional regulation that aims to standardize the

The high volume of reporting data may require widespread

e­xchange of client tax information globally. It was first

enrichment or cleansing exercises, which in turn increases the

­endorsed by the OECD in 2014.

risk of erroneous reporting. The freedom offered by the OECD poses a further challenge, as it allows the participating juris-

Reporting solution readiness

dictions to choose local reporting formats. This adds to the

Although reporting is not scheduled to start before 2018 in

organizational and technical complexity that FIs will need to

Asia, Financial Institutions in Singapore and Hong Kong

cope with.

1 Foreign Account Tax Compliance Act 2 Organization for Economic Co-operation and Development 3 Crown Dependencies and Overseas Territories International Tax Compliance Regulations


Regulatory & Compliance | 35

Choosing the right reporting model is the key

reporting model towards the local model. From an implemen-

Considering the unique challenges, tight timelines and the

tation perspective, the local reporting model is advantageous

high likelihood of regulatory changes in the near future, it is

because it requires a shorter timeline. It needs fewer r­esources,

clear that an effective and flexible target reporting model for

costs less and hence has the lowest implementation ­complexity

CRS is critical. The key reporting steps are common and need

of the three models. However, the implications of this model

to be performed by each FI. However, the implementation of

are a low scalability and flexibility in adapting to global

the reporting process can be done in various ways, especially

­requirement changes. It also has a high chance of global

for FIs with an international presence. At a high level, effective

­reporting inconsistency. To compensate for these weaknesses,

reporting models can be categorized in three groups: the ­local,

FIs should target to align and monitor the various implemen-

regional, and the central model. Each has its own advantages

tations globally. Imposing global implementation standards

and disadvantages. All three reporting models are widely used

through a global tax office is recommended in this regard.

by FIs for FATCA reporting, and each can potentially be applied

­Synpulse’s past experience shows that the local target

to address CRS reporting. The diagram presents the drivers

­reporting model is mostly chosen by FIs whose branches

that motivate an FI to choose a particular model, as well as the

­operate relatively independently in markets in various parts of

implications in terms of scalability, flexibility, and reporting

the world.

consistency. The solution consideration section describes two approaches from business and technical aspects an FI may

The central model

take to mitigate the weaknesses of the chosen model.

The weaker aspects of the local model are those where a

The three main drivers that relate to the current situation of

­central model is the strongest. It is highly scalable to other

the FI are: technological infrastructure, business and organi-

­locations, flexible in adapting to global regulation require-

zational setup, and implementation constraints such as time-

ment changes, and can maintain a high level of global report-

line, resources, and cost. The implications of each model are

ing consistency. The main selection drivers for this model are

evaluated according to three criteria: scalability, flexibility,

a global infrastructure setup and a global reporting process.

and global reporting consistency. These are particularly rele-

Client data can be sourced in each branch separately, but is to

vant for CRS reporting due to its scale and dynamic regula-

be stored and controlled centrally. A global tax advisory team

tions. For FIs with international presence, branches which are

is also of key importance for this model to work. The imple-

currently not affected by CRS regulations may need to be

mentation timeline for the central model is the longest,

­compliant in the future. Hence, the CRS reporting model

­consumes the most resources, and has the highest cost of the

should be scalable enough to be rolled out to other branches.

three models. To address these points, FIs are strongly recom-

Furthermore, CRS regulations are subject to irregular and

mended to start project planning early and accurately.

­sudden changes. These can affect jurisdictions globally when

­Leveraging a third party automated reporting solution is

changes are imposed by the OECD, or locally when imposed

­essential to reduce implementation complexity and save

by a particular local regulator. Reporting models therefore

costs. Such automated solutions should be able to

need to be flexible enough to be able to adapt to either kind of

­automatically draw data from source systems, comb through

change. Lastly, the reporting model has to ensure global

them, present them in the appropriate formats, and deliver

­consistency of reporting, since an FI operating internationally

the reports to specific places at specific times. They can help

carries one name.

to increase the operational efficiency and reduce human ­errors. For the other two models, automated reporting

The local model

­solutions are useful, but may not be of critical importance.

The evaluation of the local model shows that the main drivers

The central reporting model is primarily recommended for FIs

are a local technological and organizational structure: Devel-

with a strong presence in one jurisdiction and a few branches

opment and maintenance of applications are done locally,

in other regions.

with often very different CRM systems and reporting systems in use for each branch. In this kind of application landscape,

The regional model

client data is sourced in each branch and captured in ­individual

The regional model is a hybrid between the local and central

systems. Similarly, locally organized tax advisory teams and

model. It is suitable for FIs concentrating their activities in

regulatory reporting processes can drive the selection of a CRS

only one or two regions (e.g. APAC, EU). A regional IT setup in

36 | Regulatory & Compliance







Reporting model









Each branch performs the entire reporting process independently




No dependency & no collaboration between branches

Branches located in the same region, e.â&#x20AC;&#x2030;g. Asia Pacific, perform the data preparation, report generation, & post-submission governance steps regionally in one branch such as SG

Reporting implementation projects are run independently

Data sourcing & validation remains the individual responsibility of each branch


Only the data sourcing will be performed by each branch independently A global centralized reporting tool is used to handle the data preparation, validation & reporting submission, track the reporting status & handle the post-submission governance

Selection drivers Application landscape is set up locally. Each branch has a different core banking system

Application landscape is set up regionally. A common core banking system is shared among branches

Application landscape is set up globally. Most of the data is captured & controlled centrally

Business & organization setup

Existing reporting process only involves local teams. Local tax expertise exists

Existing reporting process involves a regional team. Local & regional tax expertise exists

Existing regulatory reporting is performed centrally. Global tax office exists

Timeline, resources & costs

Timeline to meet regulatory requirement is short with limited resources & tight budgets

FIs have some time to meet regulatory timeline. Some resources are secured with fixed budgets

FIs have sufficient time to meet regulatory timeline. Major resources are secured with flexible budgets

Low scalability to other locations due to the localized approach

High/low scalability to other locations within the same region/in different regions

Highly scalable to other locations

High/low flexibility in adapting to changes in local regulations/to global regulatory changes, applicable to all branches

Low/medium flexibility in adapting to changes in local regulations/to global regulatory changes

Low/high flexibility in adapting to changes in local regulations/to global regulatory changes

High chance of global reporting inconsistency & related reporting errors

Low to medium chance of global reporting inconsistency & related reporting errors

Very low chance of global reporting inconsistency & reporting errors


Implementation is driven locally. A global tax advisory office should be set up to monitor & interpret regulations, & advise individual branches thereon, in order to ensure consistency between branches

Implementation is driven regionally. A global tax advisory office should be set up for the same purposes as in the local model: to ensure consistency between regional offices

The global tax office should drive the implementation & coordinate the solutionâ&#x20AC;&#x2122;s adoption across branches, while individual branches play a primarily consultative role


Focus on reporting consistency & crossleveraging of solutions among branches. Solutions addressing common component of CRS applicable to all branches may be reused & locally customized

The optimal solution for the regional model lies between those for the local & central models in terms of flexibility & regulatory scope coverage

Leverage an automated reporting solution to handle reporting volumes. Focus on coverage of the regulations applicable to FIâ&#x20AC;&#x2122;s branches, while ensuring flexibility for frequent changes to regulations

Technological infrastructure

Implications Scalability


Global reporting inconsistency

Solution considerations

Source: Synpulse 1: Three Reporting Models


this context is characterized by shared CRM- and reporting

Regulatory & Compliance | 37

Achieve compliance globally

­systems between branches within each region. Client data can be sourced locally but are stored and processed at a regional level. For this model to be effective, organizational require-

Uphold client experience by minimizing adverse ­regulatory impact

ments include the presence of a regional reporting process and expertise. The regional model is more expensive and takes longer to implement than the local model. It requires regional

Develop reporting processes that are cost effective, ­flexible and sustainable

alignments of people, processes, and technology. The main advantage is that it is easily scalable to other branches in the

It is important that an FI considers its current IT infrastructure,

same region. Furthermore, the chance of global reporting

business and/or organizational setup. The feasibility of imple-

­inconsistency is much lower than the local model.

menting any type of reporting model must be evaluated against these factors. In fact, no single model fits all the FIs’


needs: even FIs running very similar operations within the

In an ever-evolving global regulatory landscape, CRS poses

same region have chosen different reporting models. With the

major challenges to FIs. The volumes involved, technical

start date of reporting under CRS fast approaching, FIs gain

­complexities and dynamic regulations make it exceptionally

competitive advantage by preparing well and carefully

difficult to define a reporting model capable of meeting the

­assessing which reporting model to opt for.

regulatory reporting goals:


Cherry Hong Pei Manager (Synpulse Singapore)

Yash Shah Senior Consultant (Synpulse Singapore)

38 | Operational Excellence


Scaling the Wealth – Consolidation in the UK Wealth Management Industry The private banking and wealth management industry in the UK is changing significantly. Having historically evolved into a diverse ecosystem of companies, it responds to external challenges through scale. Mergers and acquisitions between firms are arduous undertakings, but organic growth takes too long for the rapidly changing market conditions. Authors: Vladimir Dimitroff | Aastha Dhawan

The current fragmentation in the private banking (PB) and

and some have evolved from accounting firms. Today, some

wealth management (WM) industry is not necessarily negative

UK wealth managers exceed in size (client base and AuM)

in itself, but too many and too small players can suffer with

the average private bank, and the segment as a whole

revenues lagging behind managed assets and often behind

­outnumbers the banks. The regulated role of retail financial

growing costs. This incentivizes everyone into up-scaling

advice ­providers, in particular the IFAs, also differs from ­similar

mode, ­creating the observed exponential increase in M&A

­independent professionals elsewhere (e.g. the Swiss «external

­activities in the sector.

asset managers», or the Registered Investment Advisers (RIA) in the US). Some have ceded their independence to tie up with

Fragmented landscape

primary providers (or large distributors/wholesalers of finance

The UK wealth management sector has emerged and evolved

products), and act ­effectively as their client-facing front.

in specific ways that bear resemblances to the rest of the

­Adding to the picture are insurance players in long-term

world, but also significantly differ for historic reasons and

­protection segments like «life» and «pensions», where the

­today present a unique amalgam of firms and roles in the

product has a distinct ­investment nature and the boundary

­market. Private banks are solidly present and recognized,

with private asset ­management blurs to the extent that many

both native institutions and subsidiaries of foreign private

insurers now have «asset management» or «wealth

banks (or private banking arms of multinational universal

­management» subsidiaries.

banks). They, however, do not dominate the sector. There is a separate and unique breed of wealth management firms

When this typology is seen from the perspective of size, a full

(sometimes called «investment management» or «asset

spectrum from the single independent individual to the giant

­management» but with a distinct focus on private wealth).

asset managers and global banks, completes a picture of

Many have their historic roots in traditional brokerages,

­massive diversity, with less-than-clear demarcation lines.


Operational Excellence | 39

Through most of history such fragmentation has been

shareholder value. This makes cost savings a very acute

­sustainable: consolidation always happened, but until ­recently

­objective and the expectation that scale can improve the cost

was not a burning imperative. Today analysts and ­practitioners

base is driving the M&A appetite.

alike agree that in the UK market there are too many sub-scale players. Even a narrowed classification of private wealth

We conducted a study of 38 M&A deals in the wealth manage-

­managers yields in excess of 150 firms (excluding IFAs).

ment sector announced in 2017 and, among other stats,

We take a look at how this is changing.

combed the press releases and CEO interviews for some keywords to infer the motivation behind the deals. «Scale» was by

Drivers of the industry consolidation

far the top driver, followed by reaction to «market conditions»,

«Size Matters» was a teaser headline we used recently to intro-

«improving the firm’s offering», «regulation» and «diversifica-

duce the third «Senior Executives Forum on Consolidation»1.

tion». It should be noted that these terms overlap and have

There we predicted that «scale» will become a most frequent

dependencies, hence they cannot constitute a clear taxonomy.

buzzword and explanation of why industry players acquire

Most of the others are subordinate to scale, representing

(or get acquired by) others. Scale, however, is not a goal in

­challenges for which it is a perceived solution. Nonetheless,

­itself, there are some known root causes that can potentially

this is a strong indicator of the strategic goals of many industry

be ­addressed by scaling up.

­players and the decision process to undertake M&A actions.

First and foremost, we cannot ignore the market conditions.

The path correlating other variables to scale usually goes

Among them low interest rates, competitive price pressures

through the cost objective. If we remove scale from the picture

and increasingly informed and demanding clients all present

completely, the cost base would clearly dominate. We also ran

a challenge for the revenue yields on managed assets (AuM).

a small survey with 31 executives from the sector, and

Fees and resulting margins are squeezed too low for comfort.

­according to them the main drivers for consolidation are as

Then there is regulation. Well intended to prevent financial

shown in

turmoil and to protect consumers, piles of regulatory require-

through carefully considered and constructed upscaling of the

ments mean more complex and resource-intensive processes,


1. Clearly all these objectives can be achieved

monitoring, enabling technology investments – all adding to the cost base. At the same time required transparency of

The rapid advancement of digital services and business

charges and other restrictions on revenue streams mean

­models is mostly seen as a cure for the other consolidation

­further limitations on profitability and downward pressure on

drivers, rather than one of them. Indeed, Robotic Process

Cost synergies Regulation Innovation Market synergies 0








Source: Synpulse summer survey, June 2017 1: Main Driver of Consolidation (%)

1 The 2nd Senior Executives Forum took place in March 2017 in the historic Barber-Surgeons’ Hall in London. Learn more about it in The Magazine 2, 2017.

40 | Operational Excellence


­Automation (RPA) is a proven cost-reduction strategy,

In the fuller landscape of wealth M&A players, there are a

and digitally enabled omnichannel front ends improve user

­couple of odd, but nonetheless important ones. An obvious

experience and help to retain customers and their wealth.

target for many banks (and to a lesser extent – wealth

Digital wealth ­management, however brings to the market

­management firms) are the very disruptors they are trying to

swarms of disruptive new players and creates an overload of

resist. A fintech is becoming a popular acquisition for those

choices. ­Eventually, the public is attracted to the best

lagging behind in their digitalization (and many in the PB and

­performers available from the most popular (i.e. most scalable

WM sector are), it is a rapid addition of critical capabilities,

and widest-reaching) platforms. «CREATE-Research» and

a safeguard against disruptors, and a new «door» into the

«Dassault Systèmes», in their latest study, liken this process to

­wider mass-affluent segment below high net worth ­individuals

the «winner takes it all» scenario that disrupted the music

(HNWIs) – all this at an affordable (for their scale) price. A para-

­industry in recent years. They surveyed 450 wealth managers

dox is that the reverse can also happen: in a «man bites dog»

with over USD 30 trillion in global AuM – and a third of the

scenario, an ambitious fintech challenger can target a smaller

­respondents expect their industry to be disrupted by fintechs.

(or distressed) bank and thus shorten their path into a desired

Quite a few of those in the study expected their incumbency to

market. This is exactly what we saw in recent weeks, as chal-

prevail, but history ­teaches us that denial is not the best

lenger «Tandem» successfully bid for «Harrods Bank». This


may not be the last and only case in these interesting times. ­Another counter-intuitive paradox is the effect of Brexit on the

The consolidation players

sector. Prevailing assumptions (and observations) are about

Who consolidates – and how? It is tempting to describe

financial institutions seeking to abandon the City for other

­consolidation as a «food chain» – a somewhat cynical view to

­European financial centres. This is true, but mostly for invest-

which we prefer «value chain». At the bottom, ­small-to-medium

ment banks. At the same time no less than four major Euro-

wealth management firms are busy attracting and ­absorbing

pean private banking players: «Credit Suisse», «Pictet», «UBS»

the lowest unit in the trade: the IFA. Acquiring the business of

and «Societé Générale» all declared to Bloomberg and the

several (or several hundred) IFAs is a good way to climb the

­Financial Times that they plan to increase their UK presence.

ladder with benefits to every party. The scale achieved in this

They see ­plentiful evidence that wealthy global citizens prefer

way, has the additional benefit of turning the bidder into a

vibrant London to Switzerland, especially when recent laws

more attractive target. Up the chain the bigger bidders have

remove the famous secrecy. More important, a weaker pound

plausible incentives to acquire larger targets: the name of the

sterling makes many assets cheaper for them and easy to add

game is scale.

to their global pools. One more trend to watch closely. With all the «fringe» actors, it is still the mainstay players accounting

«A firm should be agnostic as to whether it’s buying or

for the majority of recent deals. Wealth management firms

selling – it’s all about scale», said Ashcourt Rowan (then) CEO

and private banks ­between them dominate the M&A scene.

­Jonathan Polin at the time they were acquired by «Towry». Later they were in turn bought by «Tilney Bestinvest».

At present the WM firms, unique to the UK market and ­apparently in greater need for scale, are twice as active as

Apart from the industry players themselves (private banks and

­private banks. Deals across them are quite rare, but with scale

wealth management firms), notably active and helping to fuel

this is likely to change.

this consolidation trend are financial investors, primarily ­private equity (PE) firms. For them acquisitions are not an end

A glimpse of the future landscape

in itself, but a move up the chain – often with lucrative profit.

It is easy to predict that opposite to the current fragmented

They may not just sell an acquired target after optimising it

state, the future wealth management market will be consoli-

and making it more attractive, but they can even merge two

dated. The question is: how consolidated? Which players will

acquired firms before offering the combined entity upstream.

dominate? Where is the balance point after which healthy

An example of this PE approach is the case of «Bridgeport»,

­consolidation becomes a monopoly or cartel? The last

who acquired «Quilter & Co.» and «Cheviot Investment

scenario may sound gloomy but is rather unlikely. First and

­Management» separately, merged them, and then sold ­«Quilter

foremost regulators take care to prevent monopolies, but

Cheviot» to current owner «Old Mutual».

more importantly – the wealth market is too far from such a


Operational Excellence | 41

state. With a solid middle tier of multiple players and a­

scale we discuss in this paper, we think that the ability and

growing long tail of ­ambitious challengers, the current­

willingness to change will determine the future industry

number of 150 may drop to 100 or below, but it is highly


­unlikely to drop to just a handful of quasi-monopolists. In our summer study we asked our 31 ­industry guests how many

Size does matter, after all. And scale is the name of the game

players they ­expect to be active in 2020 (

– the «economies of scale» from classic economics are ampli-


fied in the current conditions by subtle but important effects. The sample of respondents is small, but given the seniority of

The scale also enables qualitative improvements like faster

the group it is noteworthy that some even expect the number

and more effective innovation, diversified market strategies,

to grow. It is possibly a matter of which moves faster: the con-

and exciting ideas for even more scale. The scope of this paper

solidation or the new fragmentation from an influx of

did not allow for coverage of scale-dependent and

­challengers. One thing is certain about the future: wealth

­scale-enabling ­aspects such as technology platforms or target

management will never look the same. Digital capabilities,

­operating models – but a strategically minded company would

­innovative business models, connected and knowledgeable

have the concepts and resources to develop all aspects and

clients – all this is already changing the character and ­structure

benefit in multiple coherent ways.

of the industry. Change is the only constant and beyond the

Between 75 and 100 Between 100 and 120 More than today The same as today (~150) 0






Source: Synpulse summer survey, June 2017 2: Expected Number of Firms in 2020


Vladimir Dimitroff Principal (Synpulse United Kingdom)

Aastha Dhawan Associate Consultant (Synpulse United Kingdom)

Masthead The Magazine is published three times a year (English edition). Articles can be accessed via Published by: Synpulse Management Consulting | Editor: HBS International GmbH | Realization: Synpulse Management Consulting | Printer: Neidhart + Schรถn Print AG | Feedback and inquiries to: Synpulse Switzerland AG, Thurgauerstrasse 32, CH-8050 Zurich, phone +41 44 802 2000, fax +41 44 802 2001, | Copyright: The reproduction of articles is permitted with the agreement of the publisher if the source is acknowledged. Articles by guest authors do not necessarily represent the opinion of the publisher. | Photos: Shutterstock, Inc. | Layout/Illustration: HBS International GmbH

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Synpulse - The Magazine Int. 3/17  

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