Global Banking & Finance Review Issue 5 - Business & Finance Magazine by Global Banking & Finance Review®

Issue 5

Leasing in Mexico Mr. Rodrigo Lebois, UNIFIN Founder and President

The Future of Banking Pedro Pinto Coelho, CEO, BancoBNI Europa discusses the future of banking

BMO Capital Markets in the USA A look at the year ahead in Forex with Debbie Rechter, Managing Director, Co-Head of US FICC Sales, Bank of Montreal

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I am pleased to present to you the Issue 5 of Global Banking & Finance Review. For those of you that are reading us for the first time, welcome.

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In this edition you will find engaging interviews with leaders from the financial community and insightful commentary from industry experts. Featured on the front cover is Mr. Rodrigo Lebois, Founder and President of UNIFIN FINANCIERA SAB de CV SOFOM ENR. On the 21st of September, Mr. Rodrigo Lebois, Founder and President of UNIFIN met with Global Banking & Finance Review at the London Stock Exchange studios to discuss leasing in Mexico and UNIFINs history and success. For over 5 years, we have enjoyed bringing the latest activity from within the global financial community to our online and now offline readership. We strive to capture the breaking news about the world's economy, financial events, and banking game changers from prominent leaders in the industry and public viewpoints with an intention to serve a holistic outlook. We have gone that extra mile to ensure we give you the best from the world of finance . Send us your thoughts on how we can continue to improve and what youâ&#x20AC;&#x2122;d like to see in the future. Happy reading!

Wanda Rich Editor

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Issue 5 | 3

CONTENTS

How Banks and FinTech Start-Ups Can Work Together

Digital Banking in Chile

inside... BANKING

What does the future hold for correspondent banking?

BUSINESS

Alex Ladaa, managing director and head of trade finance services Germany , UniCredit

Triggering the customer tipping point: design, convenience, and expectations

THE RISE AND RISE OF MOBILE BANKING

Ian Goodliffe, Consulting Partner at CACI

How e-money innovators are racing ahead as traditional banking lags behind Scott Dawson, commercial director, Neopay

4 | Issue 5

FinTech revolution: transforming traditional banking models

Guy Mettrick, Practice Leader of Financial Services, Appian

102

Chris Smith,Senior Product Strategist, Monitise Create

The Power of Identity in Retail Banking

The bank of me â&#x20AC;&#x201C; why banks need to be totally customer centric

Mark Roper, Commercial Director, Collinson Group

122

Patrick Voss, managing director, Jeito

Kaleidoscope of Clouds

108

Coming together how to get the people side right when two companies merge

Current Banking Trends Banking Mr. Vo Tan Hoang Van, Member of the Board of Directors, CEO, Sai Gon Joint Stock Commercial Bank

Getting diversity off the ground and keeping it moving forward

Harry Mowat, United Kingdom Managing Director, Greentree

Mary Clarke, CEO, Cognisco

146

India, the UK and the European Union CP Gurnani, CEO & MD, Tech Mahindra

CONTENTS

MiFID II: A regulatory burden or a chance for wealth firms to shine?

Leasing in Mexico Innovative Financing in Turkey

FINANCE

PSD2: “strong customer authentication” – what, when & how? Chris Finney, Partner, Cooley LLP's London office

Life after Basel III

106

Making the Case for EPM: Musical Chairs, Revolving Doors, and Economic Uncertainty

INVESTMENT

16 20

Justin Silsbury, Corporate Liquidity & Investments, iGTB

Charlie Wickers , Director of Financial Planning and Analysis, HEAT Software

Invest in London Chantal Aimée-Doerries QC, Chairman of the Bar, The Bar Council

HOW ASSET MANAGERS CAN GET ON TOP OF MAR Bruno Piers de Raveschoot, COO of Compliance, RIMES

The circle of wealth: how technology is disrupting the traditional investment life cycle Charles Owen, Founder of CoInvestor

CFIUS Implications for Foreign Lenders Elana Broitman, Shareholder, Greenberg Traurig, LLP

SEC Proposes Business Continuity and Transition Plan Rule for Investment Advisers

Eric Wagner chairs the Corporate Department at Kleinberg Kaplan Jamie Nash partner at Kleinberg Kaplan

138

China – one year on from the panic Jade Fu, Investment Manager, Heartwood Investment Management

Issue 5 | 5

CONTENTS

THE FUTURE OF BANKING

BRINGING THE AGE OF OPPORTUNITY TO EVERYONE

BMO CAPITAL MARKETS IN THE USA

inside... TECHONOLOGY

Identity & Fraud Protection

Understanding the importance of ID and verification

Nick Mothershaw, ID & Fraud Expert, Experian

David Poole, Head of Growth, MYPINPAD

From Basel to Blockchain – the Dawn of Digitisation

INSURANCE

Simon Finneran, Managing Director, Ad Hoc Property Management

David Hennah, Head of Trade & Supply Chain Finance Products at Misys

110

The Insurance Act (2015) – implications and impact on businesses?

Garbhan Shanks, Head of Insurance & Reinsurance, Michelmores LLP

Why Fragmentation is the Silent Killer in the Finance Industry

Portugal Insurance

An unusual suspect

Who really pays when it comes to cyber insurance?

Adam Vincent, CEO, ThreatConnect

136

Property cover up- Insurance Industry benefits from Property Guardianship Scheme

Ian Salmon, Accedian

Sérgio Carvalho, Head of Marketing, Fidelidade

Philip Lieberman, president, Lieberman Software

6 | Issue 5

interviews... THE FUTURE OF BANKING 44 Pedro Pinto Coelho, CEO, BancoBNI Europa

BRINGING THE AGE OF OPPORTUNITY TO EVERYONE 70 Eduardo Olivares, Head of Digital Banking BBVA Chile

Founded in 1857, BBVA is a customer-centric financial services group. The Group is the largest financial institution in Spain and Mexico and it has leading franchises in South America and the Sunbelt Region of the United States; and it is also the leading shareholder in Garanti. Its diversified business is focused on high-growth markets and it relies on technology as a key sustainable competitive advantage

Redefining the ease of banking

CONTENTS

133

RETAIL BANKING IN VIETNAM WITH ABBANK

118

BANKING IN THE PHILIPPINES TRADING IN SOUTH EAST ASIA

127 140

BANKING INNOVATION IN VIETNAM

BMO CAPITAL MARKETS IN THE USA 92

Debbie Rechter, Managing Director, Co-Head US FICC Sales,Bank of Montreal

BANKING IN THE PHILIPPINES 118

TRADING IN SOUTH EAST ASIA 127

Melvin Tan, Group Chief Executive Officer, Tradesto and Samuel Law the Executive Director Global Head of Risk Management, Tradesto

RETAIL BANKING IN VIETNAM WITH ABBANK 133 Mr. Bui Trung Kien, Deputy General Director, An Binh Commercial Joint Stock Bank

In May of this year Mr. Bui Trung Kien, Deputy General Director of An Binh Commercial Joint Stock Bank (AB BANK) spoke to us in London about retail banking in Vietnam, the banks success and the significant growth of their retail division over the last few years.

BANKING INNOVATION IN VIETNAM 140

Ms. Le Thi My Dung, Deputy, Head of Consumer Banking and Head of Bank Card Center at Asia Commercial Bank

Global Banking & Finance Reviews Phil Fothergill discusses banking innovation in Vietnam with Ms. Le Thi My Dung, Deputy, Head of Consumer Banking and Head of Bank Card Center at Asia Commercial Bank (ACB).

Mrs. Gilda E Pico , Former President, Land Bank of the Philippines

Issue 5 | 7

Europe 8 Issue 5

EUROPE FINANCE

Innovative Financing in Turkey Global Banking & Finance Review spoke the experts at ALJ Finansman A.S. (ALJ Finans) about financing in Turkey and the innovative solutions available.

Can you tell us about ALJ Finans services and its history?

Nilüfer Günhan: ALJ Finansman A.S. (ALJ Finans) is a financial services company specialized in car loans in Turkey. ALJ Finans serves as a partner of ALJ (Abdul Latif Jameel)owned Toyota, Lexus and Otoshops (used car brand) distributor in Turkey and provides new and used car auto loans via Toyota, Lexus and Otoshops dealers as well as other specialized used car retailers.

ALJ Finans offers instalment loans to customers wishing to buy a new or pre-owned vehicle. Disbursement of the loan is made directly to the sellers on behalf of the customers with the delivery of the good/services to the customers. Loan repayments are made by the customers to the finance companies. ALJ Finans has operations since 2013 all around in Turkey and is headquartered in Istanbul, the largest city of Turkey. ALJ Finans offers its services under white label operations as Toyota Finance, Lexus Prime Finance, Otoshops Finans and ALJ Finans. How do finance companies operate in the Turkish automotive sector, how big is the sector?

Soner Irmak: Consumer Finance sector’s history dates back to 1995. Since 2006, the sector operates under the supervision of BRSA (Banking Regulation and Supervision Agency). Until year 2000, Finance companies were very strong in instalment loans for durables (White & Brown goods, furniture, etc.), but after credit cards started offering instalments, the potential in durable goods died. Sector continued to grow in vehicle loans and mortgages. Since 2016, telecommunication companies and home products companies have initiatives to launch retail finance operations at PoS.

Finance companies’ regulation in Turkey only allows the financing of a purchased good/ service at the PoS to individuals and corporate customers. Cash loans could be provided only by Banks. 13 companies operate in the finance sector including ALJ Finans, majority of which are automotive captives. Two of them are mortgage companies. Captive companies (parent finance companies of the distributors/importers) are the main players in the Turkish retail car finance arena with 61% share. While mainly captives have more than doubled their share in commercial car loans, banks still have 53% share in commercial car loans due their strong banking relationships with commercial customers. Issue 5 | 9

EUROPE FINANCE ALJ Finance is an expert automotive finance company. What is your expertise considering the services and systems you provide? Volkan Döşoğlu: ALJ Finans products and services are designed to differentiate Toyota in the Turkish automotive market and the products can be easily customized based on the customer’s profile. The main objective is to make Toyota an affordable brand for everyone with its financial services tools, while taking utmost care to protect the customer from over-indebtedness or from instalment plans that may deteriorate their family budgets.

ALJ Finans’ comprehensive range of products are tailored to meet the needs of the cooperated dealers and customers: Auto Plan, monthly equal payments, Credit Balloon, balloon payment at the end of the contract, less monthly instalments, Credit Flex, flexible monthly payments, Credit 4 Season, monthly payments are adapted to the income of the customer, Credit SekSek, deferred payments, buy now, start to pay 3 months later.

manage documentation, instant messaging and other credit process related information. ALJet is one of the most dynamic dealer front-end systems in Turkey and is one of the key success factors of ALJ Finans. General ALJ Finans Process of a car loan is as follows;

ALJ Finans offers different types of credit solutions to its customers through its web and mobile based software, ALJet. ALJet is used at the PoS by the dealers for credit application, quotation, application tracking, CRM, reporting,

•

• •

•

Customer enters to the car showroom and selects the car; Sales representative makes the credit application through ALJet Customer will get the answer while he is sipping his coffee in 1 up to 20 min. After the credit approval, finance contract is signed by the customer and car is delivered.

Nilüfer Günhan Country General Manager ALJ Finansman A.S

Volkan Döşoğlu Chief Operations Director ALJ Finansman A.Se

Soner Irmak Chief Finance Director ALJ Finansman A.S

10 | Issue 5

EUROPE FINANCE ALJ Finans developed a differentiated Credit Management System. What are your competences? Nilüfer Günhan: Innovative processes fortified with a strong technical infrastructure ALJ Finans started its journey with the vision to become an “innovative finance company” in Turkey. In a very short period of time (15 months), the company was ready to launch its fast credit services at 60 dealers throughout Turkey without any branches. This was thanks to a very motivated team with strong know-how who in turn led the implementation of a successful systems infrastructure enabling a best-of-class service level. Customer-centric financing process ALJ Finans has established a customer-centric finance process in the Turkish automotive market. IT infrastructure is a strategic pillar as no customer has the patience and time to wait. The buying behaviour of consumers are rapidly changing and internet has become the key distribution channel. Fast granting and assessment processes of ALJ Finans, which can be reached by its dealers on a web-based platform, allows them to answer their customers’ credit needs in a very short time (on average 15 minutes). With the help of ALJ Finans artificial decision engine tool, dealers are able to pre-assess their potential customers’ credibility and can even guess which cars they can afford before the customer can name them. They can help customers who come with the intention to buy a smaller car, e.g. Yaris, to leave with a larger one, e.g. Corolla in less than 30 min. by designing an affordable payment plan for them. The same is true for Toyota buyers who may come with a brand in mind which they cannot afford at that period and ALJ Finans leads the sales decision such that the Toyota salesman convinces the buyer to purchase a lower model which they can afford comfortably. Robust Risk Management Solutions Volkan Döşoğlu: ALJ Finans has very efficient risk management solutions which differentiates the company from its peers in the market. These solutions not only lead to operational excellence, but also allows the company to live with comfortable risk levels. The following three applications are unique in the consumer finance sector in Turkey and ALJ Finans has been the first to innovate and implement them: When a customer arrives at a Toyota dealer, the salesman checks the credibility and borrowing capacity of the customer by just keying in the national identity number in the ALJet system. The decision engine comes up with a max. credit amount the customer can receive from ALJ Finans and also tells the salesman which Toyota models this customer can buy with the specified credit amount and also with how much instalment. The decisioning model of has been developed by ALJ Finans. (details are explained in the Customer Centric IT Infrastructure) ALJ Finans aims to be the best auto finance partner of Toyota, Lexus and used car dealers in the market. Thus responding the customer demand in the shortest timeframe is critical for ALJ Finans.

In order to reach that target, ALJ Finans benefits from automatic decisioning tools rather than only manual evaluation for highly credit worthiness customers. Those customers mostly produce very low NPL compared to a standard application in spite of the fast decision process. Another area where ALJ Finans utilizes its risk management expertise is in arrear management. The Company segments its customers according to their real-time risk indicators. The main parameters used in determining risk indicators are the customer characteristics (e.g. self-employed, student, payrolled, etc.), performance of the customer in ALJ Finans and also at other finance institutions buy utilizing Credit Bureau information. For lower risk segments, ALJ Finans adapts less costly collection activities such as sending e-mails. ALJ Finans utilizes most of its resources for riskier segments and puts customers with high risk indicators at the top of collection call lists on a daily basis. High risk level customers are contacted by call or text message in the very early stages of delinquency in order to be one step ahead of the market in collection activities. User-friendly and flexible dealer services ALJ Finans developed a portal for dealers which offers kind a knowledge bank regarding ALJ Finans credit process. ALJet Portal features are: customizable user profile page, ALJ Finans news, online messaging, adhoc alerts, announcements, bulletins, online document archive (forms, lists, rate sheets), training & new product presentations, self-service reports. All-in-one Credit Platform The system features of ALJ Finans credit management modules are not limited with decision engines and/or dealer online / mobile systems. The system allows real-time data transfer and communication between dealers and ALJ Finans; integration between credit module and third party sources; an automated workflow based on a statistical analysis & scoring & strategy management for application processing, acquisition. Besides, easy and fast credit application process, application only with ID; supported by Electronic archiving module. Importance of being a sustainable and effective partner Nilüfer Günhan: ALJ Finans believes that a financial services captive always creates an added-value to its partner by continuously building innovative products and effective processes that support sales, being at the side of the dealer network, supporting their sales at good & bad times and keeping in touch with the customer and increasing loyalty to the brand by CRM activities. ALJ Finans puts its customers at the heart of everything they do and that is why they offer a simple and transparent solution for all financing needs of their customers. Today, ALJ Finans is one of the important auto loan providers in Turkey, aims to move forward with strong, confident and sustainable steps with the support of its powerful shareholder, Abdul Latif Jameel. www.aljfinans.com.tr Issue 5 | 11

EUROPE BANKING

The Power of Identity in Retail Banking Banks are far from immune from the digital revolution that is changing the way we live our lives. Simon Moffatt, Director of Advanced Customer Engineering at ForgeRock, discusses how identity is central to the personal, tailored banking experience that customers now expect. In the same way that iTunes revolutionised the music industry and Amazon transformed the book trade, digital initiatives are disrupting retail banking in ways that will alter the face of the industry forever. Pressures are both numerous and varied, from innovative digital payment platforms (Google, Amazon), and payment methods (PayPal) to new currencies (Bitcoin) and P2P lending (Kickstarter). Not only that, but banks also face increasing expectations from customers for 24/7 services, while ever stricter regulations such as PSD2 and Open Bank API are forcing them to open up and give more access to competitors than ever before. Traditional banks must evolve if they want to survive. Simply being transaction facilitators isn’t enough anymore, they

12 | Issue 5

need to become digital partners for people’s day-to-day and lifetime events. This means helping customers to navigate financial decisions, make smart product purchases, benefit from relevant and timely offers, and enjoy personalised advice or recommendations. At the centre of this required digital transformation is the ability to recognise, identify, authenticate and protect their customers – wherever they are, at scale, in real-time and across a growing number of devices What is this technology? Digital identity management. Implemented correctly, a digital identity management platform can tie every aspect of an individual customer together under a single view that creates almost limitless opportunities for a frictionless, personalized banking experience. Digital identity also makes it possible for banks to anticipate and recommend new products and services based on customer behaviour. However, if tackled incorrectly, it can create disparate and insecure systems that do more harm than good.

EUROPE BANKING

Identity and Retail banking: Avoiding the pitfalls of improper implementation Any bank wishing to implement effective customer identity management must work to ensure it avoids the numerous pitfalls encountered by ill-prepared institutions. The most common of these pitfalls are detailed below: Creating Unnecessary Data Silos Many banks try to save money by implementing digital identity management in a piecemeal fashion, bolting new systems onto existing infrastructure that wasn’t designed to work in the way the new systems require. Most banking organizations have legacy internal identity systems in place that were designed to control access to data, applications and services for employees and staff members. Customer identity, however, presents a fresh set of complexities over and above those of internal identity. First, scalability is critical with customer identity. The typical internal identity platform would have to handle tens or maybe hundreds of thousands of users. Enterprise-grade customer-facing

identity platforms are designed to quickly scale to handle millions of individuals, devices, and things. Additionally, only a unified, fully integrated platform will have the horsepower to process as many as 50,000+ transactions per second (token validations, authentications, etc.) – a pretty typical processing load in customer identity deployments. Securing millions of identities, devices and things also requires end-to-end security, and the ability to manage and personalize highly complex relationships between them. Only an open source, standards-based, and functionally comprehensive identity platform is capable of supporting these kinds of interactions today. Banking organizations that attempt to build customer identity capabilities on existing legacy internal identity platforms inevitably end up with data silos that prevent the successful creation of a single customer view, which can leave the bank struggling to offer personalised services in a timely manner. While it may be tempting to try and save money by adopting a piecemeal approach, it nearly always results in disparate systems that fail to achieve the objectives for which they were implemented. Additionally, legacy identity systems prevent

Issue 5 | 13

EUROPE BANKING

financial organisations from building the meaningful relationships with customers that are so important in today’s highly mobile environment. This in turn makes it very difficult for banks to deliver the types of experiences that increase customer loyalty. Furthermore, IT teams are left to grapple with the cost and risk of complexity as different divisions end up deploying their own identity management solutions. An effective identity platform consolidates the identity data of users, services, and connected things so every part of the bank can respond to customers with full knowledge about who they are. Further, a properly flexible and scalable digital identity platform lets retail banks create seamless user experiences as part of a digital identity ecosystem. Within this ecosystem, banks can register users, services and connected things, link them together, authorise and de-authorise access to data, and apply policies that dictate security practices and personalisation. A lack of robust security Unfortunately, banks are a prime cybercrime target and face an everincreasing number of hacks and data breaches that can not only cost profits, but erode customer trust and damage brand integrity. Without constant monitoring for suspicious activity and unusual circumstances it is all too easy to become the next victim. Banks that don’t have an effective customer identity capability in place are at a disadvantage, placing them at a greater risk of malicious attacks. With a properly implemented digital identity platform in place, however, not only can banks improve service delivery, but they can also turn security into a competitive edge. This is because today’s most advanced digital identity

solutions can deliver continuous security for users, devices, and things, constantly verifying authenticity throughout any interaction that takes place. Factors taken into consideration include geographical location of the user or device, type of device, number of log-in attempts, and user behaviour during the session. Anything out of line with the user’s typical profile and behaviour can result in additional security checks or termination of the session, boosting security and protecting both customer information and the bank’s brand integrity. For instance, let’s say you usually log in to your online bank account from your home computer in London during evening hours. If someone attempts to access your account from a domain in China at 4:00 a.m., identity technology can flag this and prevent access, or implement step-up authentication. The erosion of consumer trust With high profile data breaches making the news headlines on a seemingly daily basis, it is inevitable that customers are becoming increasingly wary about which organisations they are willing to share their personal data with. The good news for banks is that at present, they remain amongst the most trusted organisations, thanks largely to their legacy of safeguarding customers’ most sensitive data. However, that reputation for secure, trustworthy service could quickly change if banks rest on their laurels and fail to move with the times. As more aspects of business go online, banks are now racing to maintain their high levels of data privacy without compromising on user experience. Any failings in these departments can quickly lead to a rapid erosion of trust, which can have significant and detrimental consequences.

Thankfully, leading identity management platforms are now adopting new privacy standards such as User Managed Access, which can empower users with far greater control over who can access their data, for how long and under what conditions. Not only does this give power back to the customer, but it reinforces and strengthens trust between parties because consumers know exactly what is being shared about them and with whom. This is particularly important for notoriously fickle groups such as millennials, who are often ready to switch for higher quality, more private digital experiences. Becoming more than just a bank: the key to future survival It’s clear for all to see that the way customers approach banking and what they expect, is changing rapidly. The rise of mobile devices and the demand for ubiquitous online access are at the forefront of this change. Branch visits have long been in decline, yet the demand for services and the opportunity to interact with bank employees has never been higher. Banks need to adapt accordingly, and putting identity at the heart of their service delivery is the key. In doing so, banks can become far more than just a bank, they can become personal financial partners throughout the key life events of their customers, which certainly won’t go unnoticed.

Simon Moffatt Director of Advanced Customer Engineering ForgerRock

Issue 5 | 15

EUROPE INVESTMENT

Invest in London A world class city supported by a world class legal system Chairman of the Bar, Chantal AiméeDoerries QC explains how the City and our legal profession can use our justice system as an asset to meet the challenges of Brexit.

I would like to offer an insight as to what I believe is one the key features of the City’s success, and explain how we can build on it to foster stability and growth at a time of uncertainty and challenge.

The City of London’s position as a world leader in finance and business is widely acknowledged. This is apparent to me from my own work, both as a commercial barrister working for British and international clients, and as the current Chairman of the Bar of England and Wales.

Together with the ability and drive of those who work in the City, a central plank of its success is the strength of our justice system – by this I mean the barristers, solicitors and judges who make our justice system work, as well as the law of England and Wales. Together all play an integral role in making London, and the UK more widely, an attractive destination for business and investment.

But what is on everyone’s mind this summer is whether, and to what extent, Brexit might threaten our pre-eminence in these sectors, and what this could mean for business, finance and the wider economy.

16 | Issue 5

TheCityUK’s UK Legal Services 2016 report indicated continued financial growth for UK legal services, reporting that the sector’s contribution to the UK economy increased to a record £25.7bn in 2015 (1.6% of GDP).

The integrity of our justice system and the expertise of our legal services professionals are praised and envied throughout the world. Now, perhaps more than ever, we need to be alive to just how valuable they are, and recognise them as key building blocks in ensuring that our economy can stabilize and grow in a post-Brexit era. The rule of law To attract investment, and in order to function efficiently, markets must be reinforced by a system of justice that resolves disputes and uncertainties quickly and definitively, without corruption, giving businesses the clarity and predictability they need. For commercial parties from around the world the UK is the jurisdiction of choice. We need to ensure that it remains so.

EUROPE INVESTMENT

We should not underestimate the role the reputation of our courts plays in our economic success. Our judges are respected as independent and incorruptible. This perception supports inward investment and attracts dispute resolution work to this jurisdiction. In 2015, foreign parties were involved in more than two-thirds of the 1,100 commercial claims issued. This reflects the appeal of our courts and also that of the barristers and solicitors who practise in them. Competition amongst international dispute resolution centres has, it seems, never been greater. We need to ensure that we continue to attract work to London. Our courts are innovating in response to demand. The new â&#x20AC;&#x2DC;Financial Listâ&#x20AC;&#x2122; helps to ensure that cases relating to financial markets are managed and heard by judges with particular expertise and experience in that area of law. The List has been designed to provide swift, efficient and high quality financial dispute resolution and will enable us to consolidate our position as a world-leader in this field, benefiting those specialising in dispute work as well as those engaged in transactional work in the City.

London is also the preferred seat of international arbitration. Some 47% of those responding to the 2015 Queen Mary University of London and White & Case International Arbitration Survey favoured London over competitors. By comparison, the second most popular city for international arbitration, Paris, was favoured by 38%. The use of English law in commercial transactions across the world is a central part of what makes the UK and London attractive for transactional work and dispute resolution. In the first quarter of the 21st century, English law remains the main choice of law for commercial contracts. Our challenge is ensuring it remains so. The Queen Mary University survey concluded that English law was chosen by 40% of companies, with New York state law being chosen by 17%. With many international financial, trade and energy contracts being based on English law, transactional work, as well as dispute work, flows into to the City.

The preference for English law, together with our relatively open market, is also reflected in the wealth of foreign law firms located here. There are more than 200 foreign law firms in the UK from over 40 jurisdictions, many of which have English law capability in addition to their home jurisdiction offering. As someone who has spent time abroad and in London advising international clients in relation to commercial disputes, it is clear to me that the rule of law and our justice system underpin the success of the City. Trust in both our legal and financial systems is probably the single biggest factor in attracting investment to the UK. Role of barristers post Brexit One of the most immediate consequences of Brexit is that the legal framework governing the relationships between City institutions and their European clients will need to be reviewed and in many cases amended or re-written. We will need to see what deal is done with the European Union, but whatever the outcome, there will be changes to the legal framework and these are likely to be felt across the board. Issue 5 | 17

EUROPE INVESTMENT Legal professionals will inevitably play a critical role in steering the country through this process of extricating itself from the European Union and adjusting to the new context. Lawyers can also help their clients assess and address the risks as deals, contracts and regulations are renegotiated with existing investors, and they will play their part in attracting business and trade from entirely new jurisdictions. Our job will be to maintain international trust in the rule of law and the legal frameworks governing our finance and trade. Barristers are well placed to do this. As well as being specialist advocates representing clients in courts and arbitrations, we provide specialist legal advice to businesses of all sizes up and down the country.

As a profession we have a strong international reach. Barristers’ earnings from international work have been rising steadily for over a decade, with some chambers establishing a physical presence overseas. This growth in international work enhances the UK’s reputation as a business partner. The Bar Council carries out trade missions every year to promote the work of the Bar, as well as English law and the UK, with recent visits to countries including China, Singapore, Russia, Brazil and Germany. The increasing importance of international clients is reflected in the increasing number of barristers handling work for clients based overseas. In 2014 over 10 per cent of the profession received instructions from overseas clients. In the same period, the Bar’s international earnings grew by nine per cent. Significantly, 30 per cent of the overall increase in the self-employed Bar’s earnings in 2014 came from international work.

Integrity and investment Without trust in the integrity of our legal system, inward investment to the UK would suffer. The UK ranked as the 10th least corrupt country in the 2015 Transparency International Corruption index, which measures corruption levels in the public sector of each country. When I lead Bar international trade missions, I am struck by how important the integrity of our judges is for overseas businesses and lawyers. We need to ensure that we continue to attract men and women of the highest quality to serve as judges. They are essential both to the rule of law domestically, and to our ability to attract inward investment and disputes to the UK. The City makes a considerable contribution to the prosperity of the UK. In turn the contribution our legal services sector makes to that achievement is crucial. To ensure that these achievements continue and that our country is able to face future challenges, we must recognise and invest in the UK’s reputation as a guardian of the rule of law and as the jurisdiction of choice for international dispute resolution. As destinations for finance and law, London and the UK are world class. Let’s keep it that way.

Chantal Aimée-Doerries QC Chairman of the Bar The Bar Council

18 | Issue 5

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EUROPE INSURANCE INTERVIEW

Property Cover Up Insurance Industry benefits from Property Guardianship Scheme According to Simon Finneran, Managing Director of Ad Hoc Property Management, insurance companies are becoming increasingly aware of the potential savings to be made on unoccupied properties with a new model of vacant property protection. Frequently called the Guardianship model, here Simon considers the insurance implications surrounding empty properties and how such a model can both reduce high premiums and help property owners to slim down what can be a complicated array of security measures. There are an estimated 600,000 privately owned domestic properties in England that are classified as empty, with nearly 51,000 of these being empty for over six months. The rise of rentals and buyto-let mortgages has additionally led to periods between occupancy where a property will often be left to stand alone and ‘fend for itself’. The aftershocks of the last economic slump continue to be felt and contribute to the number of empty commercial properties across the country; this has subsequently had potentially serious implications for insurers as well as property owners. In addition, the ongoing commercial property landscape is now even less certain post ‘Brexit’. With the prospect of premium hikes and ever growing pay-outs, the increased threat of criminal and environmental damage means insurance claims on empty properties are getting ever higher. The Property Guardian model offers a solution to the risks

20| 44 |Issue Issue55

unoccupied properties pose to insurers, though the insurance industry is yet to fully recognise the benefits that such a model can offer. Insurance premiums on unoccupied properties are increasing, to a point today whereby they are a huge burden for the property owner. Lisa Paul, Account Manager at Endsleigh Insurance (Brokers) Limited, explains: “If we look at a block of flats with a rebuild value of £2,500,000, which is occupied by professional tenants, the premium for just the buildings cover could increase by up to four times the amount if the property becomes unoccupied.” This just goes to show that for property owners with empty buildings, having a tenancy solution not only keeps the property secure, it also reduces outgoing costs. It is in this context that unoccupied buildings clearly pose substantial risks to both property owner and insurer. Vacant buildings are frequently targeted by squatters (there are an estimated 20,000 in the UK) and vandals; in many cases substantial damage to the property occurs. According to Aviva, of the £2 billion worth of damage to properties in the UK through vandalism and arson, 25 per cent of it relates to vacant properties. Similarly, asset stripping is a significant threat to vacant properties1. Many empty buildings are left with their plumbing and electrics intact, meaning they are a major target for thieves. Vacant property specialists argue that the pillaging of metals is one of the fastest

growing crimes in the UK. It is also one of the most expensive, costing the county an estimated £770 million per year. Consistently, unoccupied buildings go unchecked for months2. Even if properties are regularly checked, as most insurance policies stipulate, minor damage can go unnoticed until it is a large and costly issue. If the property owner is fully compliant with their insurance policy, the liability falls to the insurer. Furthermore, G4S Security services have revealed that up to 90,000 vacant shops are at risk of devaluation through criminal damage. Furthermore, if significant damage is caused to a property and it is devalued, the effect will be a reduction in the premium an insurance company can charge on the property3. However, it is worth noting that the premium may not reduce, as the fact that there has been a claim could actually increase the premium regardless of the reduction in cover. To avoid these costs most insurance companies impose conditions to reduce the risks to unoccupied properties. Measures include carrying out a risk assessment to identify points of entry, putting in place appropriate measures to secure the property, ensuring CCTV and alarm/security systems are in place and, removing anything valuable which could be enticing to thieves or squatters. These methods have advantages but can be ineffective. In 2015, insurers paid out on average £12.9 million per day in property claims, of which £8.2 million was domestic and £4.7 million commercial4. It is becoming clear therefore that insurance conditions alone cannot make up for the protection residents inhabiting a property provide. A property owner that uses an empty property management service demonstrates that they have acknowledged the risks to their unoccupied property and employed an effective means of minimising them. Admiral Insurance explains the benefits live-in residents, and by extension Property Guardians, offer. “When there are residents in the house it is much safer and less of

EUROPE EUROPEINSURANCE INTERVIEW a risk for insurers as there is someone to limit the damage from accidents and prevent vandals from striking5.” Empty property management organisations like Ad Hoc Property Management provide live-in Guardians as a means to reduce risks for both property owner and insurer. They install live in Guardians to protect the property, keep it running and report any damages. The result is the provision of round-the-clock protection for the property, which is a Guardian’s temporary residence until it is handed back to the owner, therefore reducing the risk to property owner and insurer alike. Lisa Paul, Endsleigh Insurance (Brokers) Ltd., understands the advantages installing live in Guardians in an unoccupied property offers. “The Guardian will be able to ensure there are no leaks, there is no build-up of combustible material and the property will be kept in a well maintained state, therefore preventing any issues of vandalism, arson and water leaks that are associated with unoccupied properties”. A major concern of many insurance companies is the increased health and safety and fire risks associated with placing temporary residents in unoccupied (especially commercial) buildings. Property management companies adhere to strict guidelines to ensure the safety of their Guardians. The risk to insurers are therefore low and significantly reduced compared with if the property had been left vacant. Guardian organisations like Ad Hoc perform thorough health and safety and fire inspections. Where necessary, facilities such as pop up showers are installed to make a property habitable. All buildings have bath or shower units and a cooking area which vary in size depending on the property. From an Ad Hoc perspective, we only allow Guardians to inhabit properties that meet very high standards. Some insurers also have concerns about the reliability of residents looking for this type of accommodation. However, unoccupied properties are frequently

located in the centre of urban areas or in attractive rural locations. They therefore attract young professional people who could not otherwise afford to live in desirable or convenient areas. A recent example of the effective use of Property Guardians comes from Entrust. It explained: “As Staffordshire County Council rationalised its property portfolio, we were faced with a substantial list of empty buildings to manage. Traditional security measures, for example boarding up properties, were very visible signs that a property was unoccupied, and were also proving very expensive. So, an alternative was sought whereby the sites were secured by occupation. “We have now been using Ad Hoc for over four years, providing security for a range of public sector buildings from closed residential sites to vacant Magistrates Courts. Using Ad Hoc means that we can continue to maintain the fabric of the building until our plans for its future use are finalised. It also provides greater peace-of-mind to neighbouring properties, and considerably reduces the Authority’s resource requirements for managing closed sites.” “We see Ad Hoc as an invaluable part of our property management processes.” In conclusion, responsible property owners that minimise the risks to their property are the most desirable customers to insurance companies. An owner that uses an empty property management service demonstrates that they have acknowledged the risks to their empty property and have taken steps to reduce them. These owners are less likely to make insurance claims and they are more likely to retain the value of their property. In a climate where threats on unoccupied properties are ever increasing, Property Guardians offer a viable solution to the risks associated with leaving a property empty.

Simon Finneran Managing Direcector Ad Hoc Property Management Source: 1 https://www.eddisons.com/articles/vacant-property-

3 4

compliance/what-are-asset-stripping-thieves-looking-forin-an-empty-commercial-property https://www.eddisons.com/articles/vacant-propertycompliance/what-are-asset-stripping-thieves-looking-forin-an-empty-commercial-property http://www.ifsecglobal.com/90000-vacant-shops-at-riskof-devaluation-through-criminal-damage/ https://www.abi.org.uk/~/media/Files/Documents/ Publications/Public/2015/Statistics/Key%20Facts%20 2015.pdf http://www.admiral.com/magazine/guides/home/insuringan-unoccupied-house

Issue 5 | 21 45

EUROPE BANKING

What Does the Future Hold for Correspondent Banking?

The practice of correspondent banking faces pressure from mounting costs associated with due diligence in trade finance, yet banks are well placed to see off these challenges through a number of collaborative solutions, says Alex Ladaa, managing director and head of trade finance services, Germany, at UniCredit Recent difficulties with due diligence requirements belie a promising future for correspondent banking. Indeed, banks are already working on a number of solutions for dealing with the due diligence demands of trade finance, and these promise to pave the way for more efficient and more profitable trade finance operations in the years to come. Collective action is at the heart of these initiatives – with communal data repositories, standardized documentation and new technology all playing key roles in reducing the operational demands of due diligence on the trade finance industry.

Yet these solutions will take time to bear fruit. In the meantime, banks must be more selective in their choice of correspondent relationships to ensure that their operations remain profitable. And by combining this short-term strategy with longer-term collaborative initiatives, they can forge a path through rough terrain – continuing to provide corporates with invaluable trade finance services, despite the challenges. Due diligence driving costs Certainly, there can be no doubt that progress is necessary – not least because correspondent banking plays such a pivotal role in the execution of trade finance. Indeed, the provision of risk mitigation through correspondent banking relationships is vital to the workings of global trade – with instruments such as the letter of credit and the Bank Payment Obligation (BPO) routinely turning unworkable trades into valuable business. On top of this, there is a host of other benefits associated with correspondent banking, including access to local expertise in foreign markets, as well as to extensive contacts that can help firms find new business and suitable banking partners in unfamiliar regions. Yet these benefits are becoming increasingly costly to realize, as banks labour under the growing complexity and expense associated with maintaining their correspondent networks in the face of due diligence requirements. In order to finance trade responsibly, banks must collect huge quantities of data on their counterparties and correspondent partners, as well as on each individual transaction – from financial details to the specifics of goods’ shipping timelines. This generates a great deal of extra work for correspondent banks – diverting time and resources to seeking out, verifying and recalibrating data from disparate sources. Drawing together to craft a solution With the workload so high, collaboration will be central to any solution, and, with this in mind, banks are looking to work together to create communal data repositories that enable participants to add and extract information on counterparties – thereby avoiding duplication of research. This solution can go some way towards minimizing the work involved in gathering the financial details of parties involved in trade finance, but it cannot help with transaction-specific data, such as the physical flow of traded goods. This must be collected independently for each individual trade. This task, too, however, can be made easier through collaborative means – by promoting and adopting common standards for categorizing, formatting and generating data. Important steps have already been made in this regard – with the Bankers Association for Finance and Trade (BAFT) bringing out its Master Loan Agreement (MLA) in 2014. This year, we have seen a further step forward, with the International Chamber of Commerce (ICC) launching its Supply Chain Finance Terminology. Both initiatives – aimed at harmonizing practices surrounding trade finance – are highly valuable, but more such work is required to eliminate the difficulties for banks. Some of the slack can perhaps be taken up by new technologies. Certainly, with technology companies looking to bring innovative solutions to the financial services industry, banks should look to collaborate with these newcomers to reduce the strain of data-

22 | Issue 5

EUROPE BANKING gathering on correspondent banks. Existing technology also has a part to play. The BPO, for instance, can generate standardized data according to ICC’s Universal Rules for Bank Payment Obligations (URBPO), injecting greater speed and efficiency into the trade process. Dealing with the pressure While these solutions will require time to take effect, there are ways for banks to deal with the pressure in the meantime. Critically, they must take a highly selective approach to their correspondent banking partners – ensuring that each of their relationships adds value to their clients and to their own business. Certainly, this is what UniCredit has been doing for some time – pruning marginal activities and relationships in order to build out those which are most promising. This not only improves the overall profitability of a correspondent network, but also simplifies the implementation and monitoring of due diligence processes. Such an approach should stand as a blueprint for the world’s correspondent banks – showing that even in the face of adversity, there is still scope for running profitable correspondent banking operations. And, through investment in collaborative solutions, this scope can be improved further – helping banks continue to provide the vital trade finance services that sustain the world economy.

Alex Ladaa Managing Director & Head of Trade Finance Services Germany UniCredit

This article was originally published on the Global Banking & Finance Review website on 11th July 2016

Issue 5 | 23

EUROPE INVESTMENT

HOW ASSET MANAGERS CAN GET ON TOP OF MAR Asset management’s operating environment is changing at a faster pace than ever, driven by a raft of new regulations. One of the most important of these – Market Abuse Regulation MAR) – came into force in July this year with the aim of tackling insider dealing and market manipulation in Europe's financial markets.

Quite clearly this new environment calls for a completely new approach to compliance and market surveillance. The days of logging trades on an Excel document are long gone: not only do asset managers need to report on a much greater volume of data, but the stipulations of the regulation demand that the quality of the data is high.

As a consequence of this regulation, asset managers are going to have significantly larger compliance challenges than at any time in the past. If they are to meet these challenges, they have little option but to completely overhaul the way in which they monitor and report on orders and transactions.

So how can asset managers meet this significant challenge? Importantly, ESMA has provided guidance which will be of help. “In order to detect market abuse and attempted market abuse”, writes ESMA, “entities will need to have in place a system which is capable of the analysis of every transaction and order, individually and comparatively, and which produces alerts for further analysis. ESMA is of the view that in the large majority of cases this will necessitate an automated surveillance system.”

The most significant change brought about by MAR is that asset managers can no longer rely on brokers for market surveillance. Under the regulation, asset managers need to be able to report on both trades and orders, and are expected to monitor across all regulated markets, multilateral trading facilities (MTFs) and organised trading facilities (OTFs). Firms are required to monitor their order books and report insider dealing or market manipulation – or attempts at manipulation – to the regulator. It is important to note here just how much these changes will affect asset managers. Not only are they expected to report on exponentially more trades and orders, but their liability increases too: if a broker reports an instance of market manipulation not picked up by the asset manager, they or their firm might well be penalised.

An automated tool capable of collecting a range of different file formats, standardising them and analysing them against the market for cases of potential market manipulation, and then alerting analysts when one is found is both complex and expensive. Some firms are looking at creating central data repositories in-house to collate and analyse this data, but this is an approach which might prove inefficient and costly. Rather, asset managers should look for market surveillance tools that can read any file type without needing to reformat the data. Such firms should also consider whether keeping compliance in-house is still an option.

By outsourcing these tasks, asset managers can avoid much of the cost associated with the otherwise necessary overhaul of their IT. Moreover, with managed service providers, asset managers will be able to benefit from levels of expertise most will not have in their organisation. However, it must be remembered that ultimate responsibility for compliance rests on the heads of the asset managers – not their managed service providers. It is therefore essential that any such partnerships are only made after due diligence. MAR is bringing about new responsibilities for asset managers and calls for a complete overhaul of their compliance regimes. However, by partnering with the right compliance experts and putting the right market surveillance solutions in place all buy-side firms will be able to meet this challenge.

Bruno Piers de Raveschoot COO of Compliance RIMES

Issue 5 | 25

EUROPE TECHNOLOGY

Identity & Fraud

Protection

26 | Issue 5

EUROPE TECHNOLOGY With banks beginning to turn to voice recognition1, the growing shift away from passwords to the stronger security promised by biometrics has reached a milestone. Innovations in sensors, processing and secure storage have brought biometrics into everyday life. People are already embracing biometrics for tasks like fingerprint recognition to unlock mobile devices from phones to laptops – and even to open particular apps. It’s likely that within the next few years we’ll see even more types of biometric become cheap, reliable and secure enough to become mainstream. This is quite understandable as the fear from both businesses and individuals of falling victim to ID fraud or financial theft have become acute. This year the ONS even included cybercrime and fraud in their annual crime survey for the first time, demonstrating the seriousness and rising awareness of the problem. Biometric identification has the potential to add a very secure layer and boost current security processes, but far more importantly for widespread adoption is that banks get that seamless user experience right. It’s no use having a great security barrier that real customers don’t feel comfortable using, or get false positives blocking access when they really need to access their money.

Biometrics is all about people

The good news for the banking industry is that biometrics like fingerprints or voice – unlike passwords2 and log-ins – are ‘us’. They are difficult to fake or recreate and don’t require any special effort to remember. However, it would be wrong to say that biometric technology should be just adopted in place of passwords and other security measures, because the best way to stop thieves and fraudsters is to make them face a number of different barriers. It’s not only one wall that keeps out a criminal – it’s a variety of traps and obstacles that they are unlikely to have every key or answer to that really reduces the risk to users. Experian’s research of over 2000 nationally-representative people showed that 76 per cent of the population agree that biometrics is the future of identity verification. Despite this acceptance, firms should note that only one in twenty (5 per cent) of this sample say they’d be happy using voice recognition technology to unlock their online accounts… So it seems that despite voice recognition having been around for over 20 years in different forms, there could be a long-term resistance to the technology. Perhaps it still doesn’t ‘feel’ as secure as the ‘ritual’ of typing in passwords, counting characters from memorable information, and calculating on fingers to find the right numbers in customer IDs and PINs.

Identity and access Criminals will always go for low hanging fruit first. This means cybercriminals will certainly go for those smaller number of financial firms without the advanced security and access technology investments. It’s not alarmist to state that the fewer the layers of security, the more vulnerable to theft those systems are. Experian’s own research went into more detail around the biometrics that the UK could get on board with. Fingerprint scanning is the biometric identification most UK adults are most comfortable with, as 40 per cent said that they would be happy relying on it to access online accounts. Yet less than one in five (19 per cent) of people were willing to have their ID verified by retina scanning – related to a squeamishness around messing around with eyeballs, perhaps? And less than one in ten (9 per cent) would be comfortable with camera facial recognition as the main form of identification verification.

Making it matter

It’s crucial that any solutions don’t just help banking customers stay secure – they must also be inclusive so no users get left behind. Not all users want to live a high tech world. And what happens when people lose their devices? Are they barred from accessing their cash or will biometrics let them move through verification on premises, faster? Will banks allow us to change biometric data if users face bodily changes from age or accident that mean their real bodies don’t match their official, stored identities? These questions need to be answered to get a broad range of the population behind any possible technology ‘jet lag’, if and when the biometric wave reaches an industry tipping point.

Nick Mothershaw ID & Fraud Expert Experian Source: 1 BBC News Kevin Peachey - http://www.bbc.com/news/ business-36939709

2 Latest Thinking Blog By - http://www.experian.co.uk/blogs/ latest-thinking/whats-in-a-password/

Issue 5 | 27

EUROPE BANKING

Triggering the Customer Tipping Point: Design, Convenience, and Expectations

People say you are more likely to divorce your partner than to switch banks. And that has been the case, at least until now. Please spare a thought for the Competition and Markets Authority who, in its mission to encourage retail banks to innovate more quickly and provide better services, has been empowering consumers to switch bank accounts. Despite the launch of a ‘switching service’ in 2013, only three per cent of customers switched accounts the following year.

What’s more, recent reports1 suggest that 60 per cent of consumers have had the same account for more than 10 years. It’s clear that ‘move bonuses’ of up to £200, not to mention millions spent on marketing, haven’t yet inspired the masses to move. However, this could be all about to change. With new entrants challenging the traditional bank models, people are starting to see banks not just as the places where you store your money, but as services that help you manage your money, and by extension, your life better. This is starting to bring new opportunities for innovation. But will this be enough to encourage people to switch? As Malcolm Gladwell described in his much-quoted 2000 book of the same name, the “tipping point” is the moment of “critical mass, the threshold, the boiling point”. Effectively, it is the moment when large numbers of people start behaving differently as a consequence of the actions of an influential few – the early adopters that understand an idea, educate the masses, and persuade them to join them. There has been much debate in the banking industry about the new digital-first or digital-only banks entering the market. Are they just built for the Silicon Valley and Silicon Roundabout technology enthusiasts and other early adopters? Will they ever enter the mainstream; will those early adopters’ parents sign-up? The chance of my uncle who has been loyal Lloyds customer for 32 years suddenly switching over to Atom Bank is slim to say the least. However, I do believe that, beyond existing and potential regulation and initiatives, we are reaching a tipping point that will see bank customers start to switch more frequently.

EUROPE BANKING

Disruptors are reframing the meaning of ‘convenience’ “I didn’t know I needed it until I got it” – this old adage has never been more relevant. When was the last time you went to a mini cab office? We didn’t know we needed an app to find cheap, comfortable taxis in minutes until Uber came along. We didn’t know we needed takeaway from our favourite sit-down restaurants until Deliveroo launched. In fact, Deliveroo employs more than 3,000 couriers in the UK alone and is said to be experiencing 25 per cent month-on-month growth, so the need is real. These businesses are totally redefining people’s expectations of the customer experience. In the banking sector, CommonWealth Bank’s property search app uses third-party APIs (accessible programmable interface) to provide customers with sale prices, property history, and other details in one place. The SmartBank app we built for Santander enables customers to visualise their everyday spending in the same way they typically think about their finances: what have I spent this week; what have I spent it on; where am I spending the most money? It’s all about providing customers with the right tools at the right time to make better financial decisions. So, if my hypothesis is correct, how can those in charge of customer experience affect that tipping point and encourage customers to move over? Importantly, how can they keep existing customers locked in, not because there was no motivation to move but because there was a real motivation to stay? Design with the customer at the core Those businesses that integrate the consumer directly into the design and build of products and services will come out on top. Using an agile approach, banks can continually test positions with real consumers, receive feedback at an early stage, and then iterate the product or service using that feedback until it truly satisfies the needs of the target audience.

Focus on experience To understand customer problems, you need to spend time with them and then recognise that experience is, in itself, a complex matter. If we look outside the banking industry we can identify experience trends that have been used by new entrants to topple the incumbents. Firstly, personalisation: Using hyper-individualised attention to drive an emotional connection with the customer. Secondly, integrity: Aligning the aims of the business directly with those of the customer. And lastly, frictionless: Minimising customer time and effort required to achieve the desired action or result. KPMG’s report2 on the importance of customer experience in banking suggests that achieving optimum levels could drive revenue growth of up to £3.7 billion (between 2015 and 2018). So customer experience isn’t just a ‘nice-to-have’ but a real revenue opportunity, and has to be a leading trigger driving consumers over the tipping point. Fix customer problems, not banking problems Meanwhile, disruptive digital banks are bridging to other sectors: Mondo is exploring Uber integration and “push” notifications that alert users when they forget to ‘tap out’ of a station with their Oyster card, and automated expense claims. Mondo CEO Tom Bloomfield is often quoted3 affirming this customer-centric approach: “Bankers tell me what I’m doing isn’t banking. I don’t care about banking or financial products, we want to solve real problems.” The key here is to go beyond the constraints of the typical banking model. Understand how people, not banks, interact with money, and build experiences that enhance that interaction. Leverage data Banks know who their customers are and how they spend their money. But they seldom use that information to create compelling customer experiences. Data allows banks to predict customer behaviour – how, when,

why, and in which circumstances are their customers interacting with them? Taking this idea of predictive analytics one step further, what would happen if your bank knew what you needed, before you knew it yourself? What if the bank was able to predict your future spending behaviour based on your previous history, and nudge you before you overspend? Banks have an abundance of data. By using it to deliver the right financial product at the right time, in the right way, they could increase customer acquisition and retention, driving in turn good commercial results. In summary – I believe the tipping point is coming. In his book, Gladwell describes the power of context - he talks about how human behaviour is sensitive to, and strongly influenced by, its environment. Without a doubt, the customer experience environment is changing at a rapid pace. In finance, this is being driven by regulation, yes, but also by a complete re-definition of customer experience expectations. This is the opportunity banks need to take hold of with both hands. In a world where people are more willing to switch, banks can bring their own customers into the development process, and design and launch innovations that will inspire real loyalty.

Chris Smith Senior Product Strategist Monitise Create

Source: 1 https://www.gov.uk/government/news/cma-wants-banksto-work-harder-for-their-customers

2 https://home.kpmg.com/uk/en/home/insights/2016/01/ banking-the-customer-experience-dividend.html

3 https://medium.com/@davidgtonge/why-mondo-will-blowatom-out-of-the-water-a1d39924c310#.cuetym3ge

Issue 5 | 29

EUROPE INVESTMENT

MiFID II: A regulatory burden or a chance for wealth firms to shine?

30 | Issue 5

EUROPE INVESTMENT

The full impact that the second Markets in Financial Instruments Directive (MiFID II) will have on UK firms is not yet clear, but the industry needs to embrace the power of technology or risk facing an uphill struggle to accommodate these new rules. Wealth managers will have let out a huge sigh of relief at the news that the implementation date of MiFID II has been postponed until January 3rd 2018. As one of the most complex and extensive regulatory changes to come into play in years, firms should not brush MiFID II to one side and rest on their laurels. Instead, they should view this delay as an opportunity to prepare for the legislation before it comes into force. Times are not easy for the financial services sector at the moment. Along with MiFID II, firms are facing new rules for Packaged Retail and Insurance-based Investment Products (PRIIPS), the Market Abuse Directive and Regulation, the AntiMoney Laundering Directive and the Senior Managers Regime, all of which are coming into force by 2018. As a result, firms are dealing with strict timeframes to prepare for this new legislation, and for some it’s proving to be quite an ordeal. On top of the regulatory burdens, we are also going to experience the fallout from Britain pulling out of the EU. The FCA has reminded UK firms that they “are obligated to abide by UK law, including

those derived by EU law, and continue with implementation plans for legislation that is still to come into effect.”

The challenges The recent consultation paper for the Financial Conduct Authority (FCA) remains open for comment until the end of October, and we will not receive the policy statement and official guidance until early 2017. We are also waiting on further guidance on retail clients from the FCA which will provide further clarity on charges and reporting. This will leave firms second-guessing in the meantime about how this new regulatory change will impact their business and how they should approach the preparation required to achieve compliance. With regulation comes the challenge of managing the time and cost burden associated with complying with new rules. To prepare, a vast amount of effort is required to run detailed risk analysis and map out the changes to processes and procedures made necessary by MiFID II. As such, it is crucial that firms utilise this extra time wisely, ensuring that a comprehensive compliance strategy is in place and that, when the time is right, the directive can be tackled seamlessly. Transaction reporting will be a key area of focus of MiFID II, including requirements to demonstrate and provide evidence on

how trades are being processed in order to prevent market abuse. Whilst the need to report this information may be delayed until 2018, it will be necessary for firms to have much of this information on file well in advance, otherwise they may be left chasing their tails at the last minute. Firms will also need to bear in mind the new Legal Entity Identifier (LEI) requirements under MiFID II. A LEI is a unique global legal entity identifier that will allow authorities to trace the source of every trade made by “non-natural persons” such as companies or trusts. Worst case scenario, firms could find themselves unable to trade because they do not have a LEI for a trust or have failed to gather the relevant details, such as an investor's passport number.

A collaborative approach It is essential that firms take a proactive approach and use the extra time they’ve been given to ensure that they have a robust infrastructure in place to manage the increased need to process large quantities of data. Technology is key to this process and engaging with an IT provider should therefore be the first point of call, as changes will be required to transaction reporting systems in order to comply. Working closely with technology providers who have a track record for leading and cutting through the noise to deliver the systems that are required will be crucial and will in return make the process much easier. Issue 5 | 31

EUROPE INVESTMENT

High levels of engagement will also be essential. Changes to regulation will impact both clients and staff, so firms will need to discuss the regulations with their clients to pre-empt any issues, and share best practice with other industry experts and regulatory bodies. JHC Systems has been working closely with both the Wealth Management Association (WMA) and our client base to raise awareness of the new regulatory requirements, gain further insight into the measures which need to be taken by firms to ensure compliance, and ultimately achieve full consensus on best practice across the industry. Firms must be able to demonstrate to the regulator with conviction and integrity that they have taken the necessary steps to improve transparency and investor protection. The regulator is unlikely to be sympathetic with firms who have carried out little preparation with the intention of using lack of clarity as a â&#x20AC;&#x2DC;get out of jail freeâ&#x20AC;&#x2122; card. We are in no doubt that firms which fail to comply by the deadline will find themselves at the mercy of the FCA and will face costly fines.

32 | Issue 5

If we take the suitability review as an example, Coutts had to pay hundreds of millions of pounds in compensation to its clients, as well as the cost of carrying out the review. Firms must embrace technology that will alleviate the compliance burden and provide a streamlined approach to data collection, whilst also providing an overview of all account information in one place. Firms using multiple systems and platforms to manage their accounts are likely to struggle to pull together the high level of data demanded by the regulator. It would therefore be wise for firms to engage with their IT solutions providers as early as possible to find a way to integrate these systems seamlessly and ensure they have the best technology in place to provide the services expected by the regulator. Wealth management firms need to embrace the spirit of the regulation ensuring the best outcomes for their clients and making sure they are treated fairly. By evidently doing their best for their clients they will be doing the best for the regulator and the wealth management industry at large.

Andrew Watson FIGARO Product Manager JHC Systems

EUROPE BANKING

THE RISE AND RISE OF MOBILE

BANKING

WHAT IT MEANS FOR THE FUTURE OF THE BRANCH NETWORK Never before has mobile banking been so dominant. If you add up all the times people call their bank, visit a branch, or log on to online banking on a laptop, the total number is still nowhere near the number of times people bank on a mobile. With these statistics, it starts to become much clearer why banks are closing branches due to decreased footfall, and concentrating their efforts on technology. It is therefore important, now more than ever, for these closures to be handled with customers front of mind, ensuring that the transition works for bank users in a way that is tailored to their preferred method of interaction. Data analysts and researchers at CACI found that 56% of all current account interactions in 2016 will be done on a mobile or tablet, compared with a total of 44% for interactions, in branch, over the phone or via a desktop computer. Even though almost a third of interactions still happen online via a laptop (28%), only 13% are branch visits and a minute 3% are phone calls. Branch visit numbers are at a modest 278m in 2016, which is less than half the volume of logins using their computer for online banking at 603m. This trend also projects into the future. Continuing on the same trajectory, CACI estimates physical branch visits to drop by over one third (33%) by 2021, leaving them at a subdued 185m. In stark comparison, mobile banking will accelerate to handling

34 | Issue 5

3,464m account interactions, making it the overwhelming favourite medium of choice for consumers to deal with their banks. In this new world, we can see that there is a significant challenge for high street banks who need to manage the technological shift while still meeting the demands and needs of their customers. To add another layer of complexity, CACI’s research also shows that the change of pace isn’t equal across the country. This means that banks need to look at both the demography, and the geography, of where closures will have the most impact. In bigger cities, such as London, Liverpool and Manchester, CACI has found an increase in customers who are cash rich and time poor. While the differences between these cities should not be overlooked, their size and general attraction to young professionals means that they have many commonalities in respect to being the homes of early adopters of online banking, who prefer to use their mobile devices rather than visit a branch. Conversely, retirees commonly residing in coastal or more rural areas are less likely to have embraced the digital banking revolution early on. They may rely on banks for their ‘everyday’ banking needs, and in turn will be more dependent on physical branches.

EUROPE BANKING By 2021, CACI predicts that only 56% of those under 35 will visit their branch at least once a year. On the other hand, for the over 65s this figure will be 72%. For those under 35 that do visit their branch, they will visit on average just 3 times a year, while for those aged over 65 who visit their branch will visit an average of 9 times a year. In addition, they are more likely to use cash for their payments, and they are less likely to use self-service machines. They favour face to face conversations with bank staff, over using apps and technology for general advice. These preferences should also be incorporated into the services that bank branches do provide, in particular for those who rely upon a physical presence. By investigating who their customers are and how these people behave in different areas of the country, banks can target which services are the most important to which groups of customers, and where these services are needed.

Using in-depth data analysis banks can ensure that necessary closures are happening in appropriate areas and that any branches that are retained are formatted to deliver the most relevant services to the local community. This insight also means that during the process of restructuring the branch networks, they can continue to be informed about their customers and customise any alternative services, rather than offering a â&#x20AC;&#x2DC;blanketâ&#x20AC;&#x2122; solution which is far less likely to suit everyone. Taking this case-by-case approach allows banks to economically and efficiently ensure that they are offering their branch customers no less, and also no more, than what they need and require. CACIâ&#x20AC;&#x2122;s analysis shows that the trend for mobile banking is only set to rise, so banks need to progress into a more cost efficient business model, and make the right decisions for their customers.

Ian Goodliffe Consulting Partner CACI

Issue 5 | 35

EUROPE FINANCE

PSD2:

“Strong Customer Authentication” – What, When & How? From 13 January 2018, banks, electronic money issuers and other payment service providers (together, PSPs) will be required to “appl[y] strong customer authentication“. Now that we have both the second Payment Services Directive (PSD2) and the European Banking Authority’s draft Regulatory Technical Standards (RTS), we can begin to see what this might mean, and what it might involve. I know. This doesn’t exactly ring with clarity or certainty, does it? Here’s why.

•

(See articles 4(29) to (31) of PSD2.) The When:

•

A PSP must apply “strong customer authentication” every time a payer: •

The What: “Strong customer authentication” means “an authentication based on the use of two or more elements categorised as knowledge (something only the user knows [for example, a password]), possession (something only the user possesses [for example, a particular cell phone and number]) and inherence (something the user is [or has, for example, a finger print or iris pattern]) that are independent, [so] the breach of one does not compromise the others, and is designed in such a way as to protect the confidentiality of the authentication data“.

a contactless payment at a point of sale, provided that (a) the individual amount is no more than €50; and (b) the aggregate value of previous contactless payments without “strong customer authentication” is no more than €150; and

“personalised security credentials” means “personalised features provided by the [PSP] to a [PSU] for the purposes of authentication“.

•

(directly or through an account information service provider (AISP)), (a) accesses its payment account online; (b) initiates an electronic payment transaction; or (c) carries out an action through a remote channel that “may imply” a risk of payment fraud or abuse; (directly or through payment initiation service provider (PISP)), initiates an electronic remote payment transaction. This “strong customer authentication” must also include elements dynamically linking the particular transaction to a specific amount and payee.

However:

paragraph 2 (above) won’t usually apply if the payer initiates an online credit transfer, if the payee is on a list of trusted beneficiaries, which the payer has already created with its account servicing PSP. Nor will it apply if (for example) a payer transfers money from one of its accounts at an account servicing PSP to another account at the same PSP.

For these purposes: •

a “payment transaction” is “an act, initiated by the payer or on his behalf or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payer“; and

•

a “remote payment transaction” is “a payment transaction initiated via internet or through a device that can be used for distance communication“;

For these purposes: • •

“authentication” means “a procedure which allows the [PSP] to verify [(a)] the identity of a payment service user [(PSU); or (b)] the validity of the use of a specific payment instrument [and/ or] the user’s personalised security credentials“; and

36 | Issue 5

paragraph 1 (above) won’t usually apply if “the payer accesses exclusively the information of its payment account online, or the consolidated information on other payment accounts held, without disclsoure of sensitive payment data“. And it won’t apply if the payer makes

… which makes the undefined terms “electronic payment transaction“, “electronic remote payment transaction” and “remote channel” seem rather odd, until you remember the policymakers’ underlying aims – to be (a) proportionate (“strong customer authentication“ probably isn’t necessary for paper based transactions);

EUROPE FINANCE and (b) technology neutral (so that payments and security technology can develop freely, without being unnecessarily constrained by the law). (See articles 4(5) and (6), 74(2) and 97 of PSD2; and article 8 of the RTS.) The How: (What?) When a PSP applies “strong customer authentication“, it must use a procedure that (a) allows it “to verify [(a)] the identity of a [PSU; or (b)] the validity of the use of a specific payment instrument [and/or] the user’s personalised security credentials“; and (b): •

“result[s] in the generation of [a single use] authentication code” (SUAC) every time the payer accesses its payment account online, initiates an electronic transaction, or carries out an action through a remote channel “which may imply a risk” of fraud or other abuse;

•

includes a “time out” mechanism;

•

includes a mechanism that will stop a person (a) working out which element of the “strong customer authentication” was wrong, if the procedure is followed correctly but that doesn’t generate an SUAC; or (b) accessing the relevant payment account after a maximum number of failed attempts;

•

prevents, detects and blocks fraudulent payments before the PSP’sfinal authorisation.

If a payer is initiating an electronic remote payment transaction, the procedure must also ensure that the payer “is made aware at all times” of, and the SUAC must be specific to, the transaction amount and the payee. So, if the amount or payee changes, the SUAC must change too. It must also be impossible to forge the SUAC; take one SUAC to generate another; or to use an SUAC to uncover any knowledge, possession or inherence information. (Although it isn’t absolutely clear, it appears that the account servicing PSP of the payer must ensure that), the elements of “strong customer authentication” that are categorised as: •

knowledge, are subject to mitigation measures to stop them being disclosed to unauthorised 3rd-parties;

•

possession, have security features “ensuring resistance against“ copying; forgery; cloning; and use by, and disclosure to, unauthorised parties;

•

inherence, have security features (a) “ensuring

(For “The How:“, see articles 4(29) to (31), and 97, of PSD2; and the rather circular and ambiguously drafted article 1 of the RTS. See also articles 2 to 7 of the RTS.)

protects communication sessions against (a) the capture of data transmitted during the authentication procedure; and (b) data manipulation by others; and

The European Banking Authority (EBA) has deliberately taken a principles based approach to the RTS, so that it doesn’t inadvertently stifle payments and security innovation. It has also tried to be proportionate and technology neutral, so that PSPs can still innovate without having to think about frequent legal-framework change; and PSUs can still take advantage of new payment methods and technologies, without having to give security an especially high priority when they choose one payment method over another. These are laudable aims, but the drafting of the RTS shows just how difficult it can be to meet them, and still make the legal position clear. It’s often difficult, with principles based regulation, to work out exactly what you need to do to meet your legal obligations … and the RTS have been drafted in a way that makes it especially difficult in this case. Start with the proverbial blank piece of paper, and it could take weeks. Start with modern best practice in mind – for example, (a) passwords that meet minimum and maximum length and character criteria; and (b) app-based SUAC generators that are (in both cases) consistent with modern best practice – and there’s not as much to do … even if there’s still a great deal. Unfortunately, these problems are exacerbated by the circular and frequently ambiguous drafting that’s been used in PSD2 and the RTS. Some member state regulators will try to fill these gaps – most won’t. So, unless the EBA sorts its drafting out before it finalizes the RTS, many PSPs will need a lawyer in the room when they design or change their “strong customer authentication” procedures. Like many things, it’s impossible to tell whether that’s really what the EBA had in mind, or not. Either way, it seems to have met this particular goal, even if it hasn’t met the others.

Chris Finney Partner Cooley LLP's London Office

Issue 5 | 37

EUROPE BANKING

How E-Money Innovators are Racing Ahead as Traditional Banking Lags Behind In August of this year, the UK’s Competition and Markets Authority (CMA) published the findings1 of its retail banking market investigation, which found that older and larger banks don’t have to compete as much for a consumer’s business as they still have a monopoly on financial services. The CMA is now introducing a package of measures to overhaul the retail banking offering and ensure that banks work harder for consumers. This announcement comes just months after our research2 found that over half of consumers in the UK are experiencing some form of frustration with their high street bank. For the 2,000 people surveyed, unfair fees and charges (24%), branch closures (18%), and IT failures (18%) came out as top frustrations. It’s important to consider these findings in context of the growing consumer trust issues that have manifested since the global financial crisis of 2008. In doing so, it should then come as no surprise that new and forward-thinking fintech firms are on the rise, exploiting the shortfalls of traditional banking and leaving an imprint on the UK’s financial services industry. With this in mind, we must now question where is it that traditional banks have been going wrong? And just how have e-money providers been monopolising the shortfalls? The current shortfalls of traditional banking Our report delivers a clear message to traditional banks – consumers are growing increasingly frustrated with their services and more needs to be done to combat this.

38 | Issue 5

The research found that the top frustration of consumers was unfair fees and charges. Whether that’s unplanned overdraft fees, the charges applied when a card is used on holiday, or the fee for sending money abroad, banks apply charges that many customers feel are too high. In fact, as many as 41% of the survey respondents explicitly stated that banks imposing lower and fairer fees and charges would directly improve their customer experience. And, this is something the CMA has picked up on, as its reforms will be looking to address at least one of these grievances – it will be introducing a requirement for banks to inform people immediately when they fall into an unplanned overdraft, in a bid to help them avoid incurring further charges. Branch closures are another major bugbear of consumers and over half (53%) stated they had not met with a staff member from their local branch in over a year. This means that customers either have to opt for online banking in order to access services, or travel further in order to reach a bank branch. This can be problematic for already disadvantaged groups, such as those on lower incomes or the elderly, who may not have access to the internet, may not be digitally-literate, or who may not be able to travel further. Unsurprisingly, opening more local branches was one of the recommendations of those surveyed for banks to consider when seeking to improve their relationships with customers.

EUROPE BANKING

Alongside the aforementioned, IT failures, delays in bank balance updates, and mistakes in transactional history were also cited as some of top annoyances of consumers. And, to add insult to injury, over a quarter of those surveyed then said they perceived these issues would only be getting worse.

And, e-money innovators are likely only to continue to monopolise the growing levels of trust as the future generations become more and more relaxed and open-minded toward alternative methods of banking.

It would seem that things aren’t looking great for traditional banking.

With e-money businesses racing ahead, it looks like it’s time for banks to reconsider their position and become more open to innovation. With the CMA package of reforms, opportunities will present themselves to modernise traditional banks and help them become more competitive, as they play catch up with the e-money innovators.

So, what are e-money providers getting right? With the failings of traditional banks, comes opportunity for fresh, new fintech firms to come along and pick up from where banks have been slacking. With support from the UK government and regulators, e-money providers are seizing the day and providing consumers with viable alternatives. Whether it’s offering lower fees and charges for sending money abroad, taking less time to process transactions, or providing real-time account balances, there are a rising number of e-money innovators who are taking advantage of traditional banking shortfalls. Striking while the iron is hot, these firms are appealing to the younger, tech-savvy generations whose levels of trust in traditional banks is lessening steadily. In fact, our research found that among millennials there was increasing levels of trust in technology companies handling their money – with one in three 18-24 year olds stating they would be happy to trust a tech firm, such as Apple or Google, with their money and transactions.

So where does that leave the future of banking then?

With help from the UK government as well as from regulators, such as the FCA and its Project Innovate, the outlook for traditional banking may not be as dire as once thought, as increased competition can only be a good thing. It just means that banks will need to take a more customer-centric approach, be more open to innovation, and offer something more competitive – or risk being left behind. If banks can be more in tune with what consumers want, and begin to adjust their offerings, it might just work out well for them. Even in the face of increasing numbers of new firms coming to the market, banks still have long-standing reputations – it may just be a case of e-money firms driving competition with the banks. After all, who’s to say traditional banks can’t begin offering similar products to those that innovate - it’s just a case of whether they are willing to take the plunge.

Scott Dawson Commercial Director Neopay Source: 1 https://www.gov.uk/government/uploads/system/uploads/ attachment_data/file/544567/overview-of-the-bankingretail-market.pdf 2 http://neopay.co.uk/site/wp-content/uploads/NeopayResearch-Report-Are-banks-losing-the-innovation-game1.pd

Issue 5 | 39

EUROPE BUSINESS

Getting Diversity

off the Ground

and Keeping it Moving Forward Financial Services organisations, particularly the large Western ones, have been investing heavily in diversity and inclusion (D&I) activities for some time. Yet they are still, on the whole, struggling to make a game-changing impact. At a macro-level, a report by UBS Investment Services, ‘Does prejudice prejudice growth?’ (June 2011), suggest that societal prejudices do have some connection to competitiveness at a country level. There may not be much that financial services organisations can do to directly impact societal prejudices, but reports such as McKinsey’s ‘Diversity Matters’ (February 2015) also show a positive link between diversity representation and profitability within companies. While we are starting to see some increase in female representation through campaigns like the 30% Club1 in the UK (and now being taken-up internationally) and HeforShe2 at the UN within society, it takes a long time for a company to change. Despite an improvement in female representation at all levels in many

40 | Issue 5

financial services companies, PwC’s report ‘Millennials at Work: Reshaping the workplace’3 found that female millennials in financial services are slightly more cynical than those in other industries that they have a level playing field in the workplace.

Challenging times So why do financial services organisations find diversity and inclusion so difficult? Firstly, it’s easy enough to put policies in place - particularly when there is a need to address local regulations and customs but policies in themselves don’t bring about change. Instead, a change in culture is needed. Of course, this is very easy to say, but less so to implement. The accompanying diagram - representing an academic model called the Cultural Web from Johnson and Scholes - depicts the six elements to culture in an organisation. Just having the systems and controls in place is great, but what about everything else?

Organisational structures or charts can be changed, but if the power systems, including informal networks such as university or family connections’, don’t change as well, then companies are facing an uphill battle. Décor can be revamped, offices made more open, or remote working introduced (referred to as ‘Symbols’ in the model), but if the anecdotal stories being told at induction briefings refer to drunken nights out or a particular employee ‘just liking a good joke’, that can speak volumes to those who don’t come from the same culture or feel like they don’t fit in.

EUROPE BUSINESS

Where to start?

Digging deeper – D&I specific

A critical starting point is to look at existing company data, what else might be gathered and how it can be analysed to reveal a picture about the company.

Diversity and Inclusion data can come in many shapes and sizes, from recruitment details to employee surveys or evaluations such as benchmarking against peers. Digging deeper into data should show any patterns that exist. For example, are certain groups more likely to get promoted or hired in the first place? Do some employees leave work to have children and are then less likely to return? Are some teams finding that a very low number of members take up certain policies or working practices?

At the most basic level, simply head out into the organisation and look around. Do teams, groups or those you meet regularly simply look the same? Are there more men or women? What is the average age? Is the room typically full of a dominant ethnic background? Some of this you may not be able to help, for example, it may mirror your local population, or you might only notice the visible differences, but it can give you an inkling into how diverse the organisation really is.

These questions are a starting point to reflect on what is happening. Is this an issue now or might it become one for the company in the future, impacting the service offered to clients or how the brand is perceived? Issue 5 | 41

EUROPE BUSINESS

Looking forward So what can work in the medium to longer term? Mentoring and coaching are great ways to connect people to both challenge themselves and their own perceptions, but also to learn and share experiences. Traditional mentoring where a senior colleague acts as a coach/door opener for a more junior one works well if access to a network or profile is what’s needed to advance. To change culture though, senior leaders can’t simply undertake a bit of consulting or networking on behalf of their mentee. Both sides need to learn more about the other and then have the time and be given the framework or skills to reflect on this. This has borne fruit for juniors from diverse backgrounds who begin to understand how they may come across and how to use this to their advantage or recognise where this might impact upon their career. Employee networks are also great, but they need careful oversight so that they remain as positive agents for change and don’t become either talking shops, or groups seen as a focus for distributing cynicism or negative perceptions. When working well, employee networks can also be a fantastic career advancement and company navigation tool for those involved. They should be win-win for the company and the group involved, even if this sometimes means more challenging conversations. Many companies recognise that at a senior level, board level skills and experience are required. Where the pipeline of diverse talent does not always exist, you can boost skills by actively encouraging your future leaders to gain leadership skills on third-party boards, charities and NGOs. Not only do these build great networks for all involved, but they also bring a different perspective and set of experiences into the company’s pool of future leaders that they can draw on over time.

42 | Issue 5

Cultural Change is not just a D&I challenge – learning from compliance? For many financial services firms, they also have the challenge of moving towards a culture of compliance, which is not dissimilar in approach. Regulators from across jurisdictions expect to see firms undertake clear action on both compliance process and cultural change. For both front and back office teams, as well as on the buy and sell-side, understanding how your teams understand their own responsibilities and the behaviours expected is similar in nature to the challenge around D&I.

Learning from both change programmes and sharing experiences between the compliance and D&I teams could be a useful exercise. Step up to the line Line managers are at the centre of any cultural change. Whilst it’s easy for the executive team or HR functions to create D&I programmes and priorities, it’s group and line managers who typically have to implement these, as well as hit their other targets.

EUROPE BUSINESS Line managers are faced with the challenges of how they can help understand, learn from and get over difficult conversations they may come across or need to have with employees on a day-to-day basis, without being patronised by any training or having to go through every different potential scenario. The key here is self-awareness. Line managers need help to become more comfortable understanding what they do and don’t know and being open enough with employees to have the conversations that both sides may find challenging.

Cultural differences around attitudes to leadership are huge - from the more typically hierarchical cultures, such as India and China, to those with more egalitarian expectations such the Nordics, the US or the UK. So line managers should be immersed in change. They need to speak to friends, colleagues and peers and begin to ask questions about what they are and aren’t comfortable talking to colleagues about. They should make a list of these difficult discussions, create some scenarios and then discuss how they might approach each before taking a deep breath and speaking to colleagues.

Embrace change Finally, on a more practical level, look for opportunities where change can easily take place. For example, if one person leaves an established team and needs to be replaced or if the team is growing, it’s the perfect time to take a step back and look around. Instead of replacing or adding like-for-like, would a different set of skills, approach or experience help challenge the team to perform better? For the long-list of candidates, whether internal or external, challenge your internal or external recruiters to cast outside of the traditional pool and see what else is out there. You never know, you might get a number of people through the door that would surprise you. Of course, all of this takes money, effort and focus. In an era of shareholder pressure to make returns, organisations may be put off by the diversity and inclusion challenge and choose to focus their energies elsewhere. No-one can afford to do this. The issues around greater diversity and inclusion won’t go away, so in order to stay relevant into the future, organisations should start with what they can change and then keep going from there. It does get easier and will bear fruit. Just set a starting point and evolve with the world around you. Before long, it will become the new normal.

Patrick Voss Managing Director Jeito Source: 1 http://www.30percentclub.org/ 2 http://www.heforshe.org/ 3 http://www.pwc.com/gx/en/issues/talent/future-ofwork/millennials-survey.html

Issue 5 | 43

EUROPE INTERVIEW

The Future of Banking Global Banking and Finance Review discuss the future of banking with the CEO of BancoBNI Europa, Pedro Pinto Coelho

44 | Issue 5

EUROPE INTERVIEW Do you think banks will be forced to change the way they do business? I certainly believe so. Most banks have always prioritized the client relationship on one hand, and the product cross-sell on the other. I believe banks now realize that client behavior is changing very fast in the way that the customer interacts with the bank. The clients want some product or service and fast. They engage more and more electronically due to convenience. On the other hand, they are less and less loyal to the bank and look for the best pricing with the tools available on the internet. Therefore, I believe universal banks will be forced to find specific niches where they can be strong and drop areas where they are not competitive. The banks will also have to close many branches due to clients not using them anymore. A few commercial outlets in visible locations will be enough to interact with the client.

On the operational side, banks will be forced to reinvent themselves by having to create flexible banking systems that can easily be adjusted to the banks needs and most operational tasks will be automated with the use of more sophisticated tools using Artificial intelligence. Do you believe the Fintech industry will be an important threat for the banking industry? I believe Fintech is here to stay and will speed up the banks transformation. A number of innovations are only possible because these Fintech entrepreneurs are able to create a new service or product without the burden of the legacy system and heavy management structure that banks have. Some of these Fintechâ&#x20AC;&#x2122;s will eventually be bought by banks; others will just create an idea easily replicable, and others will effectively be working as part of the banking ecosystem. For instance, the payment industry will be one that will be heavily disrupted. We already have a number of tech players that created payment gateways without being banks. Who will be the winners and losers? I believe both the banks and the Fintech industry will have their share of winners and losers. The future industry landscape will include just a few universal banks and more specialized banks. Banks will also continue to cooperate with Fintech partners to cover segments or products they do not have or are not competitive with. The Fintech companies that will manage to create a footprint among the different banks will create scale. For instance, P2P FX will be one area where banks will keep on losing ground for platforms that are more competitive and transparent. Credit platforms that provide a faster and more robust analysis of the credit will also grow and will support banks in segments that banks are not able to compete due to the operational costs. Other businesses, such as private banking, will be deeply affected by

robot advisors. These players will become stronger and cheaper than what banks can offer to a mid-size client, forcing the banks to focus only on the upper tier clients that require a more personalized service. Is BNI Europa prepared for these new challenges? I believe BNI Europa is ready for these challenges. It started its operations in a moment when IT costs have dropped significantly; it does not have legacy issues, and it is able to create a network of partners along its value chain. BNI Europa will be continuously looking at improving the client experience digitally and will be searching for the best partners on each business segment. This will create a very competitive offering that clients will be willing to buy. We expect to grow significantly on all the products or services where the automation process can reduce the approval time of transactions significantly. A good example is in the consumer credit. We believe that the financial products will have to be embedded in the offering of the retailers. We will be working with retailers to make the buying and financing experience as pleasant and as fast as possible. BNI Europa hopes to keep using innovation to draw the attention of clients and ultimately have a loyal customer base that will refer more and more clients.

Pedro Pinto Coelho CEO BancoBNI Europa

Issue 5 | 45

EUROPE INSURANCE

46 | Issue 5

EUROPE INSURANCE

The Insurance Act

(2015)

– Implications and Impact on Businesses? It has been a long time coming, but finally the biggest reform to English insurance law for more than a century is now in force. The Act applies to contracts of insurance governed by English law which are:

its implications and their duties, otherwise they run the risk of not having policies in place which will properly respond to protect their business and employees. Some of key changes under the Act:

•

• new agreements concluded after 12 August 2016; and • variations made after 12 August 2016 to existing contracts of insurance entered into at any time.

In theory, we have now transitioned into a more policyholder-friendly regime. Billed as good news for business, the Act addresses the imbalance between rights and remedies, which historically favoured insurers, and provides enhanced protection for policyholders who were all too often tripped up by the onerous obligations found in commercial policies. Most businesses have been preparing for these changes for a while to ensure they benefit and thrive under the new regime, although that is not the case across the board, especially at SME level. The Act fundamentally changes the way insurance is underwritten and corporate policyholders need to be fully aware of both

Fair presentation A policyholder's general obligation to disclose all material facts has been replaced with a new duty of "fair presentation". A business now has to disclose (i) every material circumstance that it knows or ought to know, or (ii) sufficient information to put a prudent insurer "on notice" that it needs to make further enquiries to reveal the material circumstances. This means that a policyholder may satisfy the duty of disclosure by doing something that falls short of actually disclosing every material circumstance. The policyholder is expected, however, to carry out a "reasonable search" for information, including a search for information held within its business structure or "by any other person" (such as the policyholder's broker or external consultants), a potentially very wide new obligation.

Issue 5 | 47

EUROPE INSURANCE The intention is to create more proactive underwriting and greater cooperation between policyholders and insurers in the disclosure process. The duty to give a "fair presentation" also entails the policyholder disclosing information in a manner which would be "reasonably clear and accessible" to the insurer. The idea here is to prevent policyholders from "data dumping" a large volume of information in order to meet their disclosure obligations.

"Basis of the contract" clauses "Basis of the contract" clauses have been abolished. They used to provide that the policyholder warrants the accuracy of answers given in a proposal form/ renewal submission or state that such answers form the "basis of the contract", enabling insurers to avoid liability where there was an innocent misrepresentation.

It is anticipated that a practical impact of these changes, coupled with the new and fairer regime of proportionate remedies, will be that insurers may be more likely to challenge claims and seek a proportionate remedy, whereas previously under the old law their only remedy was pressing the "nuclear button" of avoiding the entire insurance contract, which insurers were sometimes reluctant to do.

Implications for business? If information is not clearly presented, indexed and signposted, it may not be considered a fair presentation of the risk. Insurance brokers should be involved and consulted on the current market's expected standard in this regard. Proportionate remedies Previously under English law, even an innocent failure to disclose material information could result in the policy being voidable. The remedies for failing to comply with the new duty of "fair presentation" are more flexible; the insurer can only avoid the policy if the failure was "deliberate or reckless" or, if innocent, if it can show that it would never have entered into the contract had it known the material fact. If the insurer can show that it would have imposed additional terms or charged a higher premium, the policy may be treated as containing those additional terms, or claims may be reduced in proportion to the amount of the higher premium. Suspensive warranties Insurer's liability will only be suspended when there is a breach of warranty and, once that breach has been rectified, the insurer will be on risk again. The Act also provides that in the event of breach of certain warranties, the insurer cannot avoid liability unless the breach could have had some bearing on the risk of the loss which actually occurred. So, unlike under the old law, breach of a warranty that premises have a working fire alarm would not discharge the insurer for liability when a flood occurs. This is a welcome change to the law.

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Directors beware A fair criticism of many boards of directors is that they do not tend to engage much with the business' insurance programs, unless and until of course something goes wrong and there is a problem with the insurance responding for the company, or indeed themselves. Boards should be currently overseeing that the correct systems and controls have been implemented internally so as to collate the necessary disclosure information for insurers. If they do not, and a substantial loss occurs to the business where insurance cover is invalided or limited due to a failure to comply with the new regime, the spotlight may turn on directors. Onerous obligations Under the Act, businesses are subject to a potentially more onerous obligation to search for material information both inside and outside of their organisation. Failure to do so could result in claims failing and significant financial risk. Prudent advice to businesses is to open a dialogue and engage with insurers to seek prior agreement from them as to what information and searches will be satisfactory from their perspective – that will hopefully bind them in to an agreed process and reduce the risk of any later arguments that the policyholder failed to give a 'fair presentation’.

Finally, careful thought will need to be given by a business which is considering changing broker or indeed insurer, at least in the immediate future whilst all stakeholders adapt and settle down under the new Act. This is because one would lose the benefit of a broker's "knowledge", which may have been acquired over years of running that business' account. If a business changes insurer, it also runs the risk of losing the protection of what "deemed" knowledge the insurers will have acquired of the risks associated with the company. Subject to interpretation It is recognised that the courts will have to provide clarification on some aspects of the Act, and no doubt input on what constitutes a 'reasonable search’. It is critical that businesses have an audit trail showing what steps they took to search for information. Some insurers are keeping their powder dry by not indicating at this stage, despite requests, what they would consider to be a reasonable search. That is certainly not in the spirit of the new regime. If a policyholder proposes to their insurers how and where they intend to search for information as part of the disclosure process, and invites comments and confirmation, that would provide evidential protection in any subsequent dispute, even if the insurers fail to commit to a position.

EUROPE INSURANCE Contracting Out? With the exception of the abolition on "basis of contract" clauses, parties are free to contract out of the provisions of the Act. The only caveat is that insurers wishing to contract out must comply with the "transparency requirements" which provide that: 1.

The insurer must take sufficient steps to draw any disadvantageous term to the insured's attention before the contract is entered into; and

Any disadvantageous term must be clear and unambiguous as to its effect.

Businesses which feel they are not ready to comply with the obligations of the new regime, or indeed, which are not willing to endure any legislative uncertainties which will require input from the courts to clarify, may decide they wish to opt out of the Act for the present time. Most, however, have embraced the new regime and will on balance assess it to be significantly more favourable to their business with a more robust risk mitigation tool through insurance cover. We have already seen some insurers stating that they will be strictly complying with the terms of the Act, whereas others have committed to going

beyond the Act with even more favourable terms. Disappointingly, there is a movement in some quarters, however, to contract out of the Act's provisions. A period of vigilance is required by policyholders and their brokers to spot any attempts to deviate from the Act. For example, the Lloyd's Market Association, which represents the interests of the Lloyd's members, has published a series of model clauses which, if adopted, would exclude provisions of the new Act, such as on "proportionate remedies" and "suspensive warranties". Policyholders, particularly those in the SME market who may be offered less opportunity to negotiate terms, must be alive to the possibility that insurers will seek to contract out of some if not all of the provisions of the new Act and should be very reluctant to agree to this. The Act is designed to re-balance the playing field between policyholders and their insurers under English law which traditionally favoured insurers. Policyholders must seize this opportunity to better protect their businesses going forward.

Garbhan Shanks Head of Insurance & Reinsurance Michelmores LLP

Africa

MIDDLE EAST FINANCE

50 Issue 55 44 | Issue

AFRICA BANKING MIDDLE EAST FINANCE

How Banks and FinTech Start-Ups can

Work Together Ever after the global economic crisis of a decade ago, the world’s largest banks have continued operating much like they always have because of the belief that they were “too big to fail.” Governments for the most part seemed to go along with this reasoning. Then came the rise of the financial technology start-ups. One can compellingly argue, that FinTechs grew so fast and offered such innovative and groundbreaking products and solutions simply because of the vacuum that existed from ‘banking-as-usual’. If there is one thing the world’s consumer’s desire, it is a new and more convenient way by which they can use digital devices to pay for goods and services. My favorite example of this completely new paradigm involves telecommunications companies, which realized that they controlled an infrastructure that could not only be used for telephone calls but for financial transactions as well. Enter the M-Pesa, a mobile money platform created by Vodafone for Africa based mobile communications company Vodacom and

Kenya-based Safaricom. The entire premise of the M-Pesa is that people in emerging and frontier markets, who don’t have bank accounts, can use the platform via their mobile phones to make payments and facilitate money transfers. By some estimates, nearly 43 percent of the gross domestic product of Kenya takes place on the M-Pesa platform. The success of the platform can be seen from another perspective: entire businesses have arisen because of the ability of the consumer base to move money around. Global banks are now waking up to the economy going digital and the ability of FinTech startups to develop innovative disruptive solutions for consumers to move money. To counter this trend, a consortium of some of the world’s largest banks recently announced they were dusting off a project known as clearXchange. Although it has existed for about five years, the consortium is moving forward as a way to counter the serious challenge posed by the rise of FinTech start-ups. Issue 5 | 51 Issue 5 | 45

AFRICA BANKING

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AFRICA BANKING The attraction of clearXchange is that consumers can use the platform to make real-time payments instead of the traditional method of waiting for payments to clear. Not to be outmaneuvered, the digital payment app PayPal announced that it is now working with credit card company Visa to allow consumers who use both the PayPal and Venmo apps to access money transfers in an instant. What’s most interesting about this new battle for the hearts (and wallets) of banking consumers is that the large global banks have set aside fierce, old rivalries in order to make clearXchange work. That means a Wells Fargo customer can use clearXchange to transfer funds instantly into a Bank of America account. No middleman. No clearinghouse. No waiting. But the real challenge before large banks is whether they should continue to work in isolation, consolidating their strengths internally or whether they can realize near and long-term value in partnering with FinTechstart-ups. The opportunities are huge, and a partnership of this nature could create a new global payment system. The trend is not too easy to spot. Younger, more digitally savvy consumers are increasingly demanding person-to-person payments. So much so that the most traditional banks are taking notice. Add in the plethora of FinTech firms and even telecom companies that are innovating new ways to make payments possible for their consumers, and you will realize that we are seeing the birth of a new, global system of finance.

Dennis Gada Vice President & Global Client Partner Infosys

Issue 5 | 53

AFRICA INVESTMENT

The Circle of Wealth:

How Technology is Disrupting the Traditional Investment Life Cycle It is a statement of fact that investor appetite towards risk is typically aligned with age. The younger an investor, the greater their appetite for risk in the pursuit of higher returns, whilst more mature investors looking to supplement their retirement income will take a more conservative view. Traditionally, this has implied that more weight is tipped towards equity risk amongst a younger investor audience, whereas older investors have tended to seek capital preservation and incomegenerating asset classes. As such, throughout the investor life cycle, we can map a classic portfolio allocation between equity and bond structure which changes over time. Target date funds which automatically move allocation from equities to bonds as the ‘target date’, typically retirement, approaches are just the latest and most obvious iteration of this historic reality. However, this classic investor life cycle has operated on the assumption that bonds are a safe investment vehicle. This may all be about to change. Recent arguments – most prominently made by Elliott Management’s Paul Singer – suggest that in actual fact, the bond market is fundamentally broken, with more than $13tn worth of assets in the bond market trading negative yields. These new concerns regarding the safety of bonds have therefore thrown the conventional equilibrium between high risk equity and low risk bonds off balance, bringing to light a new paradigm in which the investment landscape for mature investors is vastly more complex.

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Combined with this is an on-going discussion around active or passive investing that has been taking place since the financial crisis. The 2008 crash and all that followed saw a realisation by investors that the hefty fees they paid to expensive managers were producing no better results than a standard tracker fund. Indeed it was felt by many that, if anything, fee drag was negatively impacting the performance on their investment portfolio. As a result, there has been a strong yet steady movement towards passive tracker funds and exchange traded funds (“ETF’s”) over the past few years. This movement, combined with the growth of technology has heralded the much lauded robo-advice industry. Based on ETFs, robo-advice is underpinning the trend towards passive investing in recent years. Target Date funds, already popular in the US, are likely to grow increasingly popular in the UK market as we play catch up on pension freedoms. Target date funds move the risk profile of an investor’s portfolio based on a future date, and therefore have proven extremely popular for the retirement market. Like robo-advice, target date funds tend to be based on ETFs, thus throwing further support into passive investing. Against this background we are also seeing a period during which more people are investing online than ever before, whist at the same time pensions freedom legislation has given more people more control over their retirement funds. This is bringing new investors to the market, and in particular new retirees who are no longer tied down to buying an annuity.

AFRICA INVESTMENT

Issue 5 | 55

AFRICA INVESTMENT

56 | Issue 5

AFRICA INVESTMENT These individuals have money to invest, the freedom to decide where that investment best suits them and the ability to do so online. In short, there is a groundswell of new investors with an investment decision to make. The question therefore stands at where these new investors look to allocate their money, if bonds are as inherently risky as recent reports have suggested and wider capital markets remain volatile. Beyond equities and bonds there is potentially a third asset class that can help to solve this dilemma: alternative assets. Institutional investors have already recognised alternatives as a valuable addition to their portfolioâ&#x20AC;&#x2122;s and have been adapting their strategies accordingly. Sophisticated investors are now starting to follow in their footsteps. Although equal weighting will never be placed on alternatives, investors can better balance their portfolio and protect from market fluctuations by introducing alternative assets as a potential counterweight to provide further diversification. Carefully selected alternative assets can on the one hand provide the long term capital growth investors may be lacking from the equity market, and on the other hand produce the income yield that is missing in the bond market. Access to alternatives is therefore becoming more important than ever. Private equity and venture capital has historically been extremely difficult for the man on the street to access directly without investing substantial cash into a fund, but technology has started to change that.

This first iteration of equity crowdfunding has been instrumental in democratising the investment landscape, but in doing so has fundamentally failed to take into account risk and investor requirements. Current platforms have not historically had sufficiently robust due diligence measures in place as might reasonably be required by sophisticated private investors allocating their personal wealth, irrespective of the size of investment. We are now witnessing an evolution of the industry which will result in more mature platforms with a more robust risk mechanism. CoInvestor, for example, is just one of a number of platforms that offers this potential, enabling private investors to build attractive alternative investment portfolios and mitigate their investment risk by co-investing alongside experienced fund managers. In this new investment landscape, the life cycle of an investor portfolio is fundamentally disrupted. Investors now have more autonomy to make considered decisions, and access to a broader range of products online. Traditional assumptions about risk appetite and asset class can no longer be made; we are entering the era of the modern investor life cycle â&#x20AC;&#x201C; where an historic equilibrium between bonds and equity has now become a melting pot of diverse investments.

Charles Owen Founder Colnvestor

Issue 5 | 57

AFRICA BANKING

FinTech Revolution:

Transforming Traditional Banking Models The rise of FinTech within banking Banks have continually adapted to external pressures. These can come in the form of changing customer demands with a need to offer new products and services, or the introduction of regulations requiring increasing control over processes and investment in systems. Changes to banking operations to cope with these pressures has created an abundance of systems, data and processes within departments. This has led to knowledge and capabilities tied up in back office silos, which has become hard to share across the organisation in a relevant way. As a result, both customers and employees have a disjointed and inefficient experience as they look to navigate their way across an organisation. This can lead to lost revenue opportunities and puts the client relationship at risk. These issues also impact the rate an organisation can change. This is a real problem for traditional banks with the rise of challenger banks, and the speed at which they are able to develop, adapt, and compete. It is vital that senior decision makers within traditional banks respond to the digital revolution to remain competitive, using technology to transform processes across the whole of the business rather than applying technology within discreet areas.

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AFRICA BANKING

Changing customer expectations There are many advantages to challenger banking models over traditional banking counterparts. Specialty providers offer the benefits of simplification, they solve real customer issues by delivering custom applications that are quick and easy to use. Banking customers now expect greater access, flexibility, price, transparency, and general convenience. These new businesses are taking advantage of digital channels that are difficult for existing market players with their legacy siloed systems. Traditional banks need to identify how to provide seamless, holistic services to keep up with changing customer expectations. Banks that have an ability to join up information, people and processes at multiple levels - transformational readiness â&#x20AC;&#x201C; will be successful businesses in the long term.

Transforming banking through FinTech FinTech development has caused a disruption within retail banking. Payment solutions such as Apple Pay, are impacting the customer purchasing experience. Traditional banks have to respond in order to retain, attract, and stay relevant to their customers. Barclays recently rolled out Pingit, its own mobile payments service, separate from legacy operations in order to compete in a digital age.

Issue 5 | 59

YEARS TEN YEARS HELPING THE ANGOLAN LIVING SAFER Global Seguros is celebrating itâ&#x20AC;&#x2122;s 10th anniversary. Ten years of life and for the life of the Angolans. Ten years of solutions. Ten years of safety. Ten years helping Angolans faicing the future with confidence. Ten years growing to become the biggest insurance company in Angola.

AFRICA BANKING

Traditional banks need to start placing a digital technology layer across their legacy systems and siloed databases if they are to update their operations. This will enable them to use all the knowledge and skills that they have available across their organisation, in a way that meets customer expectations.

devices has made it more convenient for users to check and complete transactions online - at the touch of a button.

Itâ&#x20AC;&#x2122;s not just in retail banking that these changes are being felt, the wealth management industry is also having to embrace new technology, for instance artificial intelligence in the form of roboadvisors providing investment advice to affluent and HNWI markets.

Technology platforms can be used to deliver agile applications which integrate siloed legacy systems, enabling organisations to implement rapid innovation. It is only then that banks will be able to provide all their customers with optimised products and services, allowing employees to work more collaboratively to collectively grow the business.

However, it is only when traditional banks start to tackle their existing infrastructure will they be able to truly transform their business models, and increase efficiencies.

The future is transformational readiness Technology is driving change within banking, and new regulation is also creating opportunities for technology to prosper. Customer interaction with banks has been improved through the use of digital technologies. For example, the introduction of mobile banking apps on Android and iOS

Guy Mettrick Practice Leader of Financial Services Appian

Issue 5 | 61

AFRICA BUSINESS

Kaleidoscope of Clouds Is cloud ERP right for your business? Your ERP system is the engine room of your business, supporting everything from purchasing through to the supply chain. It’s a businesscritical system and with its high status comes anxiety around the best deployment option for a new ERP platform. With a kaleidoscope of cloud options on offer, it’s hard to know which, if any, will best suit your business’ needs. Earlier this year 1Deloitte research showed 56 per cent of mid-market companies are already using some form of cloud-based services. Despite the increasing understanding and uptake of cloud by mid-market businesses, the benefits and opportunities need to be weighed up for your business. The choice isn’t as simple as ‘cloud or no cloud’ – there is a kaleidoscope of options available and the best deployment decision will be closely aligned with your business goals.

same level of personalisation should be available to you as a cloud-hosted or SaaS option. You want your business systems to work the way you do – not change the way your entire organisation works to fit with your software. The level of customisation between providers will vary so it is worth understanding not only what is possible but the impact when it comes to software upgrades and maintaining the customisations going forward. For example, working with UK communications service provider 2Comvergent Group, we’ve been able to create a personalised dashboard for individual users which is hosted in the cloud to handle complex and real time data (rather than employees updating siloed spreadsheets on individual computers). 2.

Here we explore the top five considerations when evaluating which deployment option is right for your ERP system: 1.

Having the freedom to customise

Just as you want to be able to customise and configure your ERP system on-premise, the

62 | Issue 5

Being in control of your data

Being in control of your own data is a key requirement for many mid-market businesses. There will always be costs involved in transferring the sizable database that supports an entire business to another platform but it should be made as simple and painless as it can be. Understanding this up-front is important.

AFRICA BUSINESS

Your business circumstances are constantly changing so you don’t want to be locked into a provider simply because the cost to extract your data makes moving prohibitive.

your business model and appetite for risk – be sure you fully understand the recovery terms.

To hone in on the best deployment route for you, carefully consider your company’s size and growth, governance requirements, security needs, SLAs and tenancy options. Weigh up which deployment method best suits your business, from a technical and operational perspective and then evaluate the ROI and TCO of that option across a number of providers.

Receiving the right levels of support

A good first step is to be aware of the level of support provided for both the cloud platform and the software that you’re using. Increasingly support requests are triggered by wider business issues relating to process management, staff training or the hardware devices involved. If you don’t have the business knowledge and technical capability internally to troubleshoot these kinds of issues, then you need to ensure you have a support team on hand to assist you. 4. Service levels Following on from support, check that your cloud vendor has the appropriate infrastructure to offer the level of required response. This factor was particularly important for our customer 3Future Directions, a care provider for learning, physical and mental disabilities who we supported through the process of migrating away from the NHS. This was a complex task, particularly for managing and holding sensitive patient data across multiple locations.

Weighing it all up

If cloud hosting is right for you, then you shouldn’t have to compromise. Putting your ERP system in the cloud should deliver the same level of customisation, support, performance and business confidence as any other option. Choosing the right implementation partner will help you bring clarity to the kaleidoscope of deployment options that best reflect your businesses setting you up for sustained success.

The amount of data that a whole-of-business system generates is extensive and it’s important to check that your cloud provider can handle the volume of transactions and keep pace with the drumbeat of your business. As your company grows, this will become even more important as most FDs will want to avoid starting from scratch if the cloud provider’s functionality is too basic. 5.

Back-up and recovery

Finally, should the worst happen, how well are you protected? It is pretty much a given that your system will be fully backed up as part of your cloud or SaaS package (you still should check what is in place and how this is charged). But there are variables around the point-in-time that the data can be restored back to, right through to automatically ‘hot switching’ to a back-up system so no data is missed. What is acceptable will depend on

Harry Mowat United Kingdom Managaing Director Greentree Greentree is an MYOB company specialising in ERP software for mid-market businesses

Source: 1 Mobility and the cloud in the mid-market |Deloitte US | Deloitte Growth

Enterprise Services. (2016). Retrieved September 29, 2016, from http:// www2.deloitte.com/us/en/pages/deloitte-growth-enterprise-services/ articles/perspectives-on-technology-mobility-and-the-cloud-in-the-midmarket.html 2 Andrews, D. (n.d.). Greentree connects telecoms company. Retrieved September 29, 2016, from https://www.greentree.com/erp-software-casestudies/comvergent-group-case-study 3 Andrews, D. (n.d.). ERP building future directions. Retrieved September 29, 2016, from https://www.greentree.com/erp-software-case-studies/futuredirections-case-study

Issue 5 | 63

Americas 64 Issue 5

AMERICAS FINANCE

Leasing in Mexico On the 21st of September, Mr. Rodrigo Lebois, Founder and President of UNIFIN met with Global Banking & Finance Review at the London Stock Exchange studios to discuss leasing in Mexico and the history and success of UNIFIN FINANCIERA SAB de CV SOFOM ENR (UNIFIN) Phil Fothergill: Well you've been established as an organization for at least 20 years, what would you say about the history of UNIFIN and how it came to be? Rodrigo Lebois: Well the history of UNIFIN is a really interesting story, I started the company in 1993, went almost bankrupt in 1995 when we had the tequila crisis in Mexico. Interest rates went from 8% to 120% in one month, the exchange rate went from 3 pesos to 8 pesos, no funding so we had to struggle a lot in order to keep our company afloat. That was 7 years of hard work and then we came back to business in 2000/2001 in the steady growth we have been maintaining for the last 15 years. Phil Fothergill: That is an excellent success story. Tell me what distinguishes UNIFIN apart from your competitors? Rodrigo Lebois: Well what is very interesting to know is that in Mexico banks are not really involved in the leasing business, mainly because as you know Mexico has a very low standard in the bankerization compared to other parts of the world, to other countries so, right know what our banks are trying to do is get more penetration in the normal core business like mortgages and car

finance. That's why I guess they are not right now in the leasing business very active, we think, and we hope they are in the near future, but then at the end, that's why even though competitors are there UNIFIN has been able to have the growth it has been having in the last years. Phil Fothergill: What would you say are the opportunities and indeed challenges of actually leasing in Mexico? Rodrigo Lebois: Well medium sized companies, our main sector, have been struggling through the decades in order to obtain finance. Whenever they had it like in 1976, 1981, 1987 normally, all these medium sized companies lost their assets, so they're very, very, very careful when they finance their equipment. The good thing about us is that we provide a long term solution with a fixed monthly payment in pesos, which of course they have the security what they are going to pay, it’s not going to happen when they finance them in dollars what time we have a devaluation it's not a problem that interest rate would go from 8% to 150% so those are very big opportunities, the leasing business in Mexico compared to other countries in Latin America it has a very, very low penetration. Leasing should have the ability to grow at least 10 times in Mexico in the next 5 years. Issue 5 | 65

AMERICAS FINANCE Interviewer: Why do you think that is, that leasing is not such a popular opportunity in Mexico compared with elsewhere? Rodrigo Lebois: Because it's very hard to start up a leasing company, it's very capital intensive and to get the finance is very, very hard so I guess the barriers of entry are so high that people would like to go in another easier banking system, strategy or banking business. Phil Fothergill: So why would, why would you advise customers or businesses to take a leasing opportunity? Rodrigo Lebois: Well besides, the tax advantage of deducting the payments, of course, getting the ability to finance your assets you know long term with a fixed rate, of course, is very, very appealing to medium sized companies.

Interviewer: And once you have overcome those challenges what are the advantages of leasing would you say, I know you touched upon it perhaps you could expand on that. Rodrigo Lebois: Yes, a deduction is a good point, but I think that mainly the medium sized business that takes leasing does not do it because of the tax advantages, they do it as a way to own their assets even though it's a leasing with an option at the end. It’s a way to own their assets in the long term with fixed payments and a certainty that they would be able of course to own the asset at the end of the period.

Interviewer: You did mention that about financing, how difficult is it to get financing as far as you are concerned.

Rodrigo Lebois: Normally what we do in, in UNIFIN we don't do any vendor programmes, we don't do any outside agents, all the marketing in UNIFIN is done in-house, that is the only way we can provide our customer the best quality of service and ensure that they will be the best qualities after, after the operation is done and taking care of them in the good times and in the bad times of course. Interviewer: And do the bad times which happens everywhere in the world financially, does that affect leasing services at all?

Rodrigo Lebois: It is not easy every time this year as I told you before the bankerization is really really low in Mexico still there is a lot of informal, informality in the economic, in the economy so it’s' getting better and better but yes you have to struggle in order to get some finance \ but it should become easier to get it in the near future.

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Interviewer: Now you presumably have leasing agents how do you ensure that they give your customers and business individuals the best service?

AMERICAS FINANCE

Rodrigo Lebois: Yes, it affects all banking companies but as I tell my people the first ones that get there are the first ones that are going to collect, so we are the first one to help our clients when they have struggles, we are very friendly, we have a big communication, it's not a mere, it's not just a client, a provider it's more like a partnership for the long term with the financial services. Interviewer: Well you've outlined excellently some of the services you provide there within leasing what are your plans for the future, expansion anything different? Rodrigo Lebois: Well yes as I told you before the leasing business is very under penetrated in Mexico so we plan to continue in the lines of business that we are that is car financing, factoring and leasing we we plan to keep on expanding in Mexico City and in Mexico all the regions, we have now 19 branches all over Mexico

we plan to keep on expanding our presence in the Mexican country we don't see plans in the near future through expanding the lines of services that we give, I'm not even going outside of Mexico for the moment. Interviewer: So you look very much within you own country as an operation. Rodrigo Lebois: It is. Definitely, we know it very well, and we know the struggles, and we know the opportunities that we have in the country. Interviewer: Well I hope that there will be more opportunities in the future, congratulations again on the award and thank you so much for coming to London and talking to us today. Rodrigo Lebois: A pleasure, thank you very much.

Mr. Rodrigo Lebois Founder and President UNIFIN FINANCIERA SAB de CV SOFOM ENR (on right)

Phil Fothergill, Journalist (on left)

Issue 5 | 67

AMERICAS FINANCE

Life after Basel III How the landscape for liquidity is changing for banks and corporates Cash and liquidity management is in one sense a relatively simple endeavour: making sure the right cash is in the right place at the right time. But Basel IIIâ&#x20AC;&#x2122;s introduction in 2013 has resulted in a seismic shift in the cash management landscape for banks, with complexity unlike anything weâ&#x20AC;&#x2122;ve seen before.

Justin Silsbury Corporate Liquidity & Investments iGTB

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One area that has seen particular disruption is the relationship between banks and their corporate clients. For example, the leverage ratio that all banks must adhere to makes some types of lending products less attractive for banks to offer their clients. Another contributing factor is the liquidity coverage ratios. These require banks to categorise different types of corporate deposits into short-term operational cash and longer-term, non-operational cash. Non-operational cash, according to Basel III, has to be backed by high-quality liquid assets that can be converted easily and quickly into cash in private markets in the event of a stress scenario, and the rate of return banks offer to corporate clients may therefore change.

AMERICAS FINANCE

Not only has Basel III forced banks to reexamine corporate client relationships, but corporations are having to re-assess how they manage liquidity and working capital. A number of variables are increasingly affecting the overall “value” of each bankclient relationship.

management solutions underpinning them. One crucial requirement for a solution is flexibility or the ease of customisation. Tailored to specific corporate requirements, solutions must be subject to change – whether to meet a new strategic objective or to accommodate evolving regulations or new market dynamics.

Silver Linings

and any new tools surrounding this today must be able to handle a high level of complexity. As cashflow forecasting increases in scope, banks and corporates will need to collaborate closely to ensure success and avoid any financial, timeliness and delivery pitfalls that may await. Liquidity Solutions

Cashflow Forecasting Restrictive new regulations could well have resulted in banks scaling back certain products and services, or even turning away corporate client funds. But many banks are actually turning some of the outcomes from Basel III to their advantage: “lemons to lemonade”, if you will. Driven by advances in data science, they are beginning to provide their corporate clients with new, valueadding services, replacing lost interest with new fee income. Looking at the various ways of monitoring client cash on their balance sheets is one approach that has yielded returns for banks. Rather than simply calculating whether to accept or turn away clients’ money, banks are providing more options by helping their corporate clients invest their money in investments off the balance sheet, for example by providing automated sweeps of excess cash into money-market funds. So banks are taking matters of compliance and turning them into useful products and services that also make commercial sense. By helping their corporate clients manage their cash and liquidity more effectively, banks are also benefiting by increasing the “share of wallet” of corporate client business. But it’s not all plain sailing. The industry landscape of cash and liquidity management is now at an unprecedented level of complexity. Multiple currencies, countries and regulators; the need to accommodate country-specific requirements and 24/7 operations in different time zones; and the multitude of risk dimensions all mean that any new bank products and services must have sophisticated cash and liquidity

Cashflow forecasting is one activity that will play a surprisingly critical role in helping companies reorient themselves in the post-Basel III environment. Knowing where cash is at any given time enables it to be used more efficiently, and having a clear picture of cashflow allows the most attractive investment options to be chosen. Additionally, cashflow forecasting provides a flexible way for banks and corporates to differentiate between operational and investment cash. To illustrate where a cashflow forecasting solution could come into play, one can look at the example of when companies opt for longer-term deposit products. Firms often do this to gain higher yield, and indeed banks have noticed this demand and now offer accounts with notice periods in excess of 30 days to meet the Basel III requirements on cash outflows. But to benefit from these products, a company must be able to provide assurances that it will not need that cash within the given notice period – hence, a cashflow forecasting solution. For the solution to be effective, it should enable cash to be segmented into defined, flexible liquidity or tenor buckets. This means companies can predict what their cash positions will be on specific future dates. Nasty surprises are avoided, plus it allows any necessary corrective actions to be taken in good time. Some additional integration with complementary bank services to streamline these corrective actions, and aggregation of data from multiple systems, is then required. Cashflow forecasting has long been a surprisingly tricky game for corporations,

Liquidity solutions are another way corporate treasurers can maintain or maximise cashflow. If the problem is to do with managing short-term cash, there are a number of options available – including cash concentration, notional pooling, intercompany loans, and instant access savings accounts. One way returns can be increased is by organisations using a managed earnings credit rate (ECR) as one component of a balanced compensation programme, as it allows businesses to minimise or offset banking fees against their deposits. Another option, already mentioned above is the utilisation of “sweep” accounts which invest excess money from an account, therefore enhancing a company’s earnings potential. Sweep accounts can be tailored to a company’s needs, with some designed for companies seeking maximum return on investment, and others focused on providing the maximum security or the lowest risk exposure. Collaboration The successful deployment of any solution is nevertheless dependant on banks and corporates working together closely. Companies looking to strengthen their position in the wake of global economic and regulatory changes should be leveraging their banks’ specialist market understanding, and banks should take responsibility by proactively monitoring their corporate clients’ cashflow and liquidity issues. By building cash and liquidity strategies together in this way, both banks and corporations can be positive about the post-Basel III environment. Issue 5 | 69

AMERICAS INTERVIEW

Bringing the Age of

Opportunity to Everyone

Being capable of turning any piece of information – numbers, documents, sounds, photos, etc. – into a string of zeros and ones and sharing it with the masses thanks to technology is one of the defining traits of the digital era. Increased capacity and speed, lower costs and mounting volumes of data have triggered an innovation-multiplying process that is allowing companies to generate more value and consumers to enjoy higher standards of living, thanks to

their improved ability to weigh and choose quality-price among more products, from more suppliers. And the banking industry is not immune to this transformation. According to Eduardo Olivares, Head of Digital Banking Division at BBVA Chile, an institution that is part of the BBVA global financial group, “the biggest challenge that banks face is adapting to this new scenario, and success, to a large extent, will depend on improving customer insight and our understanding of generational changes, and also on the product offering we are capable of delivering in real time, through multiple channels, with innovative contents.” Another key factor will be the way in which banks are capable of becoming light-footed players to stand up to the new agents born on the internet. For a number of years, both globally and in Chile, BBVA has been working hard – harder than almost any other player in the industry - to drive a change that is deemed both urgent and crucial: going from being an analog, efficient and profitable bank to a digital company, developing a more efficient, flexible, knowledge-based business model. And in this process, BBVA Chile has made some substantial progress: in 2015, its BBVA Wallet app, which allows customers use their smartphones to manage all their credit and debit card transactions online, was distinguished as the most innovative

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in the country by Global Banking and Finance Review. As of April 2016, the app - which is available not only in Chile but also in the United States, Mexico, Turkey and Spain – had been downloaded over 3.5 million times globally. BBVA Chile’s digital management has earned the company recognition from a number of relevant publications and organisms, such as being shortlisted as one the 50 most innovative companies in the Innovation Perception ranking published by the Adolfo Ibáñez University and Best Place to Innovate, or earning the top spot in the financial services and online banking category in the e-Commerce Awards. What is BBVA doing to lead in digital banking? BBVA has been hard at work on its digital transformation for a number of years now: after laying the foundations of the project – the platforms – and a new and more nimble structure, now it is focusing on accelerating the development process of new products and services for the 21stcentury customer. And the launch of BBVA Wallet, both in Chile and some of the other markets in which the Group is present, is part of this strategy. Our aim is perfectly conveyed in the group’s global corporate purpose; we want to ‘bring the age of opportunity to everyone.’

AMERICAS INTERVIEW And how is the bank’s digitization process going in Chile?

How has this digitization process affected the business?

Really well, with a very positive response from customers, who already see BBVA Chile as one of the leaders in digital banking thanks to our activity in recent years: in 2012 we launched one of the first native apps in Chile’s financial system; in 2013 we became the first bank to roll out a responsive website, capable of adjusting to any digital device (tablet, desktop, smartphone); and in 2014 we deployed our pioneering messaging and warning system through the bank’s app, which issues notifications to clients about service accounts nearing their expiration date, direct deposits of salaries and check deposits, etc.

In 2015, sales processed through these channels increased by a factor of 4.5. In 2016, roughly 30% of consumer products are already being sold through digital channels, 75% in the case of time deposits. On a customer level, 90% of account holders already interact with the bank through digital channels.

We also rolled out an online customer service chat to help customers with their questions and inquiries, 24 hours a day and originate digital sales. All this in addition to the launch of BBVA Wallet, which I mentioned before, the first app that allows customers use their smartphones to manage all their credit and debit card transactions online.

What future projects are you working on? We are going to keep on pushing, in both Chile and the region as a whole, the digital transformation of the bank’s services and processes, to make our customers’ lives easier and bring the age of opportunity to everyone. This strategy will help us win over new customers, satisfy their needs better, offer a better service, increase our market share and improve in efficiency and profitability.

"Our aim is to lead in digital banking and bring the age of

opportunity to everyone"

Eduardo Olivares, Head of Digital Banking, BBVA Chile

BBVA is a customer-centric global financial services group founded in 1857. The Group is the largest financial institution in Spain and Mexico and it has leading franchises in South America and the Sunbelt Region of the United States; and it is also the leading shareholder in Garanti. Its diversified business is focused on high-growth markets and it relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture. It operates with the highest integrity, a longterm vision and applies the best practices. The Group is present in the main sustainability indexes. As of the end of June 2016, the total assets of the Group amounted to €746,040 million, with 67 million customers, 9,153 offices, 30,958 ATMs and 137,310 employees, and is present in 35 countries. Issue 5 | 71

AMERICAS INVESTMENT

CFIUS Implications Participation by foreign lenders in U.S. transactions may trigger a statutory requirement to file a national security clearance process adjudicated by the Committee on Foreign Investment in the United States (CFIUS), a U.S. federal government body. While normally, lending transactions are not “covered” by CFIUS, such review may be appropriate in two circumstances: •

Where a foreign lender receives warrants, convertible debt, or other security instruments that provide such foreign party with control over U.S. business decisions; and

•

Where a foreign lender finds itself in a position of control upon the default of the debtor company.

Even if the foreign lender is one of a group of otherwise domestic creditors, but has the ability to exercise control within the creditor group, such transaction may be covered by CFIUS, and thus a CFIUS filing by the parties to the transaction may be appropriate. The result – either at the time of the initiation of the loan in the first scenario, or in anticipation or time of default in the second – is that the lender and debtor may need to apply to CFIUS to review and either clear the transaction or dictate deal terms that would mitigate the risk such foreign control would pose.

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Potential Increase of CFIUS Review of Lenders CFIUS has traditionally been associated with foreign purchases of or investments in U.S. businesses, rather than loans. As foreign lenders become more active in otherwise domestic transactions, particularly in sensitive industries such as defense, energy, technology, finance, or real estate in proximity to military locations, CFIUS interest could increase. According to the National Association of Realtors’ “Commercial Lending Trends of 2015” survey1, 20 percent of real estate clients or investors were foreign. Forbes has noted that recent legislative changes have increased incentives for foreign lenders to come to the U.S2. This increase in activity by foreign lenders, particularly if notable defaults occur, may result in heightened scrutiny by CFIUS. If the foreign lender is called in by CFIUS for a review, rather than filing voluntarily at such time as the Committee’s jurisdiction is triggered, the Committee is likely to be more skeptical when determining whether the foreign lender’s interests present a legitimate business transaction or whether national security risks are present. In some cases, foreign investors whose acquisitions were reviewed on a non-voluntarily notified basis have been forced to divest their interests3. Thus, whether as part of a workout in case of a default, or upon entering an unusual

lending deal that provides ownership rights to the foreign lender, foreign entities providing credit in a transaction should factor in a CFIUS review with their counsel as part of their due diligence. CFIUS Review The Committee on Foreign Investments in the United States conducts national security reviews of foreign acquisitions of, or significant investments in, a U.S. asset that could pose a risk to U.S. national security. A review of whether a transaction is covered by CFIUS involves determining whether there is: (a) a foreign entity, (b) that is gaining control as a result of the transaction, (c) in a U.S. business involved in interstate commerce, and (d) could impact on national security arising from the transaction. The review – usually triggered by a voluntary joint filing by the parties to the transaction - is conducted by a Committee of nine core federal agencies: Department of the Treasury (chair), Department of Justice (DOJ), Department of Homeland Security (DHS), Department of Commerce (Commerce), Department of Defense (DOD), Department of State (State), Department of Energy (DOE), Office of the US Trade Representative (USTR), and the Office of Science & Technology Policy (OSTP), with other agencies added when their sectoral expertise is required.

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The deliberations of the Committee are not public, and CFIUS has a very broad scope of review. National security does not only entail defense or intelligence issues. CFIUS reviews have included transactions in the following areas: (i) energy and other critical infrastructure, (ii) potential offshoring of a sole or limited supplier of an important defense product or service, (iii) technology, particularly with cutting edge military applications, (iv) potential for tampering with a significant food or pharmaceutical supplier, and (v) real estate located near military or intelligence installations. An average CFIUS review requires about four months including: •

4-6 weeks for legal analysis of all relevant aspects of the investor and the target, and drafting of the CFIUS filing;

•

1-2 weeks after submitting the file for the Committee to log it in and start the clock;

•

30 days for first stage review by CFIUS; and

•

45 days for second stage review (or “investigation”) by CFIUS if known or potential risks cannot be resolved at this first stage, or if a foreign government's ownership is involved.

The CFIUS review typically runs concurrently with other deal diligence and negotiations.

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AMERICAS INVESTMENT

Lending Transactions and CFIUS The CFIUS regulations promulgated in 20084 make clear that foreign lenders could be subject to CFIUS jurisdiction in certain circumstances either at the time the deal is structured or upon default. If a deal is structured so that a lender gets rights to impact management decisions, exercise everyday control over the U.S. business, the right to appoint members of the board of directors of the U.S. business, obtains an interest in the profits of a U.S. business, or similar financial or governance rights, such transaction would be of interest to the Committee, assuming the other CFIUS elements were present. If such factors exist, the parties should consider filing for a CFIUS review prior to concluding the lending transaction. Even in an otherwise traditional lending scenario, a foreign lender could trigger the “acquisition or investment” element of a CFIUS review upon the default of the US debtor if the foreign lender obtains a sole or controlling interest over the U.S. business. A foreign lender that is part of a syndicate may not trigger this element if the group is led by a US lender and the foreign entity has no rights to gain control over the U.S. business even in case of a default. But a foreign lender may trigger CFIUS jurisdiction if it controls the group of lenders or gains other rights over the debtor’s management upon default. The Committee may provide the foreign lender with the time needed to dispose of the U.S. business collateral, so long as the foreign person has made arrangements to transfer management decisions or day-today control over the U.S. business to U.S. nationals during the interim period5.

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The Securities Industry and Financial Markets Association (SIFMA) recognized that the Foreign Investment and National Security Act of 2007 (“FINSA”)6 raised such issues for foreign lenders, and thus commented on the rules at the time they were proposed.7 SIFMA recommended that the definition of control make clear that negative covenants protecting a lender against actions by a borrower that could reduce the borrower’s creditworthiness do not, in and of themselves, constitute control if the lender does not attempt to influence the borrower’s ordinary course of operations. The final rule made that clarification. SIFMA also requested that the final regulations incorporate the presumptions that: (1) bona fide lending transactions involving established financial institutions will not be reviewed by CFIUS except under exceptional circumstances; and (2) lending transactions permitted to U.S.-regulated banks or bank holding companies will not be considered to establish control. The rule, however, did not make those changes, resting instead on indicia of control by the foreign institution. What Should a Foreign Lender Do to Protect Its Interests? At the time of conducting due diligence of the transaction, the lender should include additional inquiries regarding national security factors in a transaction, including intelligence or military tenants or neighbors in a real estate deal, sensitive government contracts, and cutting edge intellectual property and research and development programs, particularly with military and intelligence applications.

If there is the potential of a default of a company involved in a sensitive industry or one with sensitive contracts, know-how or proximity issues, the foreign lender should consider structuring the deal such that a U.S. lender is party to the transaction and would have the controlling interest if a default were to occur. Alternatively, the foreign lender could consider ensuring that a U.S. party would be available to temporarily manage the U.S. business in case of a default while the foreign lender considers potential steps to minimize CFIUS exposure. If a default appears imminent or foreclosure proceedings begin, and the nature of the debtor’s business sector or location would be of interest to CFIUS, the lender should consider notifying the Committee and requesting advice regarding potential CFIUS jurisdiction and concerns. A prompt informal inquiry or formal filing would minimize delay and risk for the lender’s take over. The first rule of thumb is awareness. If a lender may obtain interests in a U.S. business that may constitute control, it is prudent to get CFIUS counsel’s review of whether such a transaction would trigger potential CFIUS jurisdiction. It is better to be informed and in a proactive position to change certain aspects of the transaction in order to avoid an additional regulatory delay or to proceed with a CFIUS review in tandem with the negotiation of the transaction. This article is presented for informational purposes only and it is not intended to be construed or used as general legal advice nor as a solicitation of any type.

AMERICAS INVESTMENT

Elana Broitman Shareholder Greenberg Traurig, LLP

Elana Broitman represents clients in New York City, New York State and Washington, D.C. on government affairs, procurement, regulatory and policy matters. She also provides specific expertise in CFIUS matters, non-profit governance, cybersecurity and sanctions. She has wide-ranging experience in government and business.

Throughout her career, Elana has also held numerous positions within the federal government. Most recently, she served as the Deputy Assistant Secretary for Manufacturing and Industrial Base Policy at the Defense Department, where she was responsible for the defense industrial base and represented the Department on the Committee on Foreign Investment in the United States (CFIUS). Before her role at the Pentagon, Elana spent a decade in Congress, serving as Senior Adviser to Senator Kirsten Gillibrand on the Armed Services and Foreign Relations Committees, and prior to that as Counsel to the House International Relations Committee. Elana managed export control, sanctions, cybersecurity and defense authorization legislation and oversight. Elana had previously served in the Clinton Administration as Senior Rule of Law Advisor to the U.S. Agency for International Development for Europe and Newly Independent States.

Elana has served as the Senior Vice President of UJA-Federation of New York where she led federal, state and city government affairs for this large local philanthropic group and worked closely with the New York delegation, the Homeland Security Committee Chair, and New York state and city leadership. She represented the organization during the bankruptcy of its largest affiliated agency, rebuilding relations with state and city governments, managing media communications, and overseeing the successful transfer of services to other agencies.

Elana spent nine years in private industry focused on intellectual property and international policy matters.

Source: 1 http://www.realtor.org/sites/default/files/commercial-lending-trends-survey-2015-05-08.pdf 2 http://www.forbes.com/sites/elyrazin/2016/03/03/does-brexit-provide-u-s-entrance-for-foreign-lenders/3/#3ef632f85bc6.The article mentions the PATH Act, which exempts certain foreign pension funds from being taxed on capital gains from investment in U.S. real estate and allows foreign investors to invest up to 10percent in REIT stocks – up from 5percent before the law was passed – without having to pay U.S. capital gains tax; as well asforeign banks not being subject to increased, capital surcharge regulations.

3 The Chinese Ralls Corporation was ordered by the President to divest its interests in U.S. wind farms it had purchased without

notifying CFIUS.https://www.whitehouse.gov/the-press-office/2012/09/28/order-signed-president-regarding-acquisition-four-uswind-farm-project-c.While Ralls successfully sued the U.S. Government on aspects of this decision, it ultimately settled and agreed to unwind its ownership.

4 Federal Register Vol. 73, No. 226, Friday, November 21, 2008. The U.S. Treasury Department, on behalf of the Committee on

Foreign Investment in the United States (CFIUS), issued final regulations governing CFIUS on November 14, 2008. The regulations implement Section 721 of the Defense Production Act of 1950, asamended by the Foreign Investment and National Security Act of 2007 (Section 721).

5 Id. 6 Public Law No. 110-49, 121 Stat. 246 (2007). 7 June 9, 2008 SIFMA Letter to Nova Daly, Deputy Assistant Secretary, Department of the Treasury. file:///C:/Users/e/AppData/Local/ Temp/5cd2c51e-d884-4b1d-a112-b97306cc30d5-1.pdf

Issue 5 | 77

AMERICAS INSURANCE

SÃ©rgio Carvalho Head of Marketing Fidelidade

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AMERICAS INSURANCE

Portugal Insurance Fidelidade is a leader in the insurance market in Portugal. Global Banking & Finance Review spoke with Sérgio Carvalho, Head of Marketing at Fidelidade to find out more about the company and the current insurance environment in Portugal. Can you tell us about Fidelidade? As the leading Insurance Company in Portugal, we have the privilege of playing an important role in the lives of more than 2 million people! This extraordinary achievement is the outcome of everyone’s commitment. We have innovative products, the best service, customized counseling and a strong, solid and trustworthy image. We have built a path of excellence that needs to be continued and be a priority for all those who work daily to make Fidelidade the reference brand for the future of insurance in Portugal. Fidelidade is the insurance company with more awards in Portugal Fidelidade acts based on a defined and continued Customer Centric Approach strategy where Customers come, effectively, first. The fact that quality of service and a

wide and innovative range of offer is of crucial importance to Fidelidade make it the leader insurance company in Portugal and also internationally distinguished. In 2014 Fidelidade was distinguished by the Efma Accenture Innovation Awards in the category of “sustainable business” with its “We Care” project, that has the purpose of supporting the correct insertion of people who were victims of serious accidents that have questioned their physical, economic and social reintegration. We are focused on customer satisfaction As the leading company, Fidelidade wants to continue to stand out for its Customer Centric Approach strategy, where Customers come- effectively – first. For this, quality of service and the wide range of products we offer are of crucial relevance. Our role as a market leader will also continue to be that of the market driver, bringing innovation and responding to our Customers’ needs for protection and safety.

Issue 5 | 79

AMERICAS INSURANCE How has the economy impacted the Insurance market the last couple of years? In a global context of increasing economic, social, environmental and even governance challenges, risk scenarios are undergoing profound changes, generating new business opportunities, but at the same time demanding a proactive role from insurance companies with a comprehensive response, credible and thoughtful to new circumstances. This attitude and this responsiveness will determine the future of the insurance market, its viability and resilience. The mission of the insurance business gives its companies the possibility to intervene in areas as diverse as climate change, natural disasters, health issues and prevention, the problems related to increased longevity, among others, leveraging behavior changes at both individuals and companies level, influencing public policy and even to gradually replace the social role of the state. In fact, the insurance industry is exceptionally well positioned to progressively occupy the space of individual protection that the state cannot fund, contributing to the sustainability of the protection model as a whole.

To achieve this will require that the industry improves current levels of efficiency, continues to bet decisively on a quality service and is truly innovative in its value propositions. What are the current trends you see taking place in the market? Entrepreneurship is a topic with international relevance, and in Portugal, this trend is ever-present and growing, as the result of initiatives proposed by large Portuguese incubators / accelerators. In this framework, we want to be an active presence in the entrepreneurial ecosystem, through a strong and consistent partnership with leading incubators in Portugal. With Insurance penetration relatively high in Portugal, what is your strategy for future success? Fidelidade acts based on a defined and continued Customer Centric Approach strategy where People come, effectively, first.

Customer focus leads us to the path of innovation. Simultaneously we never forget the issue of sustainability inherent to our activity. We strongly believe that our role is that of finding, on the path of innovation, products, and services that can bring sustainability to our Customers’ life. Products such as ‘Proteção Vital do Condutor’, ‘Seguro Proteção Funeral’ or‘Plano Autoestima’, express our positioning of offering innovative products fully focused on the needs and life of our Customers. In Health, as well, we believe we need to go beyond, reinforcing the relevance of our role in active prevention and in making available diversified solutions that fit people’s lives. The same going beyond thinking applies to savings, where we are to fostering research and introducing to society concepts as innovation on retirement. Innovation is one of the strategic assets of the Company. Fidelidade is the market leader and as such is aware that as a market driver, the path of innovation is essential.

So, because of that, we are focused on innovation and excellence in our products and services.

Issue 5 | 81

AMERICAS INSURANCE

Who really pays when it comes to cyber insurance ? As the risks from internet-based threats grow, companies may be tempted to purchase cyber insurance as a means of safeguarding them against any financial loss, despite it being a complete false economy. The concept of cyber insurance is such that companies can insure their way out of cyber threats and consequences by simply buying insurance - with the analogy being that cyber attacks are similar to threats from fire, water and earthquakes as unpredictable events that no business can protect themselves from. The market for cyber insurance is growing because the threats from cyber attacks are ubiquitous and well known. Because implementing security takes leadership and knowledge that is relatively rare, the insurance route is seen as an effective mitigation of risk without the need to make necessary investments. However, this line of reasoning couldn’t be further from the truth and organisations need to understand that cyber insurance is coverage for a specific area or scenario of IT, not a general insurance against risk.

Cyber Attacks are not Acts of God (Force Majeure) As with insurance in the real world, insurance companies will not pay out if the business or consumer has not taken normal and adequate care to secure their property against the threat. In the physical world, insurance companies will send out inspectors and require attestation by survey forms that the insured is following best practices (i.e. cut down trees with overhanging branches, remove dead plant material, clean/ clear gutters, etc.) In the case of cyber insurance, the insurers are not checking for adequate controls and only test these controls when a claim is made. Unfortunately, most businesses that buy cyber insurance have elected to not take normal and due care and instead merely purchased the insurance to just make sure they are covered. The usual outcome is that the insurance company will not pay off on the policy because the insured has not taken reasonable steps to secure their environment.

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A Cycle of Fraud In effect, the general nature of the cyber insurance industry is two parties committing fraud against each other and hoping that a claim never occurs. The company does not protect their resources and buys the policy hoping the insurance company will be dumb enough to pay off in case of a loss. The insurance company knows the insured is not protected because they rarely test the security of the insured and will simply not pay off in the case of a loss. It is only then that they will test the internal controls, when it is too late. Essentially, both parties commit a fraud against each other and hope there is no reason to payout; and so the fraud continues.

A False Economy Virtually every government agency, company and individual is subject to cyber attack and losses every day without a let up, so while the total addressable market may seem like pretty much everyone, the cost to service a claim is high (mostly to deny claims). Therefore, this type of insurance is generally only available to companies with very large premiums where litigation is anticipated in most cases. For the shareholders and the management of a company, they can show a better short term ROI from buying insurance, but in effect this is burning your furniture to get heat for your home in winter.

Taking Control In reality, cyber insurance will never pay off for the purchaser because it does not replace proper security and working internal controls within IT. For example, our company makes solutions to control access to privileged resources and accounts known as privileged identity management.

AMERICAS INSURANCE

The fundamental control as to who has access to the keys to the kingdom would seem to be a no-brainer just as controlling the keys to offices and to cash. In most companies the passwords to most sensitive systems never change, are in public view for the IT people as a matter of convenience for them, are shared, and when an attack occurs, the attacker can generally get access to the most sensitive information and potentially destroy it with little problems. This fundamental control is core to all security frameworks, yet most companies will not purchase a solution such as this to solve this sort of problem.

The cost of the technology to mitigate risks down to the point of negligible losses is generally not a matter of the technology purchase process. Most of the work in reducing losses is a CEO and board level set of decisions. The board and senior management team must generally override business unit policies and practices that are unsafe. Especially as it could lead to massive losses due to poor technical decisions based on the convenience of the IT department vs. the resilience and risks to the company.

In the example of privileged identity management, it is interesting to learn that most customers who use the technology don’t purchase insurance because they are too large or too high profile to insure and have to self-insure. In the case of no third party insurance, these companies are either forced to implement fundamental controls that work and take regular acceptable losses, or simply “go naked” which generally results in regular horrific losses that in many cases are hidden or buried.

The power of the CEO has to be brought to bear to implement cybersecurity policies that are completely analogous to simple and well-tested concepts in the physical world: know who has the keys, keep an eye out for internal and external theft, and make a decision as to how much extended risk you want to take such as on credit granting or access controls of IT systems for contractors. The IT world is no different than the cyber world from a risk and mitigation perspective, and concepts such as force majeure still apply; however, insurance cannot make up for inadequate leadership, business design/redesign and investment.

Centers of Excellence Ultimately, the companies that have invested in a building their own “Security Centers of Excellence” and have implemented strong cyber-defence controls, almost universally see an excellent return on their cyber-defence investment, but it does require leadership and vision to make these investments. In building competency, losses are generally negligible and in fact, cyber-insurance will pay claims to such a company; however, the chance of losses rising above the deductibles is a poor bet.

Back to Basics

Instead of paying the cyber insurance premiums and hoping for the best, it’s time organisations take back control and lead from the top when it comes to cybersecurity. After all, there is no substitute for the classic time-tested approaches of investing in people, proven technology and good management.

Too Big to Insure? As with the situation of needing to borrow from a bank, those that truly need the money as a matter of desperation are generally not given the money, and those with sufficient assets have no problem getting a loan. Here, those that buy cyber insurance and have inadequate control for something as simple as password management will find that their payment of premiums was a bad investment.

Philip Lieberman President Lieberman Software

Issue 5 | 83

AMERICAS BANKING

Digital Banking in Chile Global Banking & Finance Review discuss digital banking in Chile with Rodrigo Tonda Mitri, Division Manager at Banco de Chile. When did Banco de Chile create its digital banking area? What is its main work philosophy? The digital banking area at Banco de Chile began to operate in the late nineties in response to the need to be closer to our customers and give them access to information anywhere and anytime. With these objectives in mind, our bank has developed its digital channels over the years to address our customers' evolving online needs, such as the ability to check balances, pay for products and services, transfer funds and make investments, etc. Today, the digital banking area is a key part of Banco de Chile. It responds and innovates through different initiatives that add value for our customers with quick, user-friendly solutions. What are the main products and/or services offered by the digital banking area? Our digital channels respond to a large number of needs for products and services available 365 days a year. Our customers use these channels to conduct transactions or business without having to visit one of our branches. Banco de Chile's digital banking platforms allow customers to check balances and transfer funds. Customers can also use these channels to apply for consumer loans that are directly deposited into their accounts, buy insurance, make or sell investments and pay for services and mandatory social security deposits. Security is a key element in each of these functions. Our bank uses stateof-the-art devices and security software for our customers' computers and mobile phones. We also offer a variety of easy-to-use, fast and secure mobile applications that meet specific customer needs. The application “Mi Banco” allows Banco de Chile customers to check balances and recent movements, transfer funds between accounts and to third parties, add minutes to prepaid mobile phones and several other functions. The application “Mi Cuenta” lets customers pay and manage their bills quickly and securely. The application “Mi Pago” facilitates collections and payments from friends and family. For example, if a group of friends goes out to dinner and one person pays the bill, customers can quickly transfer their portion of the bill to the friend that paid.

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Finally, we recently launched a one-of-a-kind application in Chile: “Mi Seguro” allows customers to access online assistance (travel, home, auto) or submit an insurance claim from the site of the accident. Customers can also use this application to purchase travel insurance packages in three simple steps. What differentiates the company from its competitors? We have implemented a new work methodology that encompasses not only technology but also work standards and equipment that enable us to offer consistent services with a competitive response time. Our value proposal includes digital services in all segments, which is especially important for younger generations. What are the area's main innovations? One of the biggest initiatives recently implemented is the “Mi Pass” application. This replaces the former Digipass for mobile transfers and transactions. In the future, it will be integrated into other channels. It works by generating a unique, dynamic password to validate each transaction. Backed by a registration process with three authentication factors, the application makes for a safe and easy-to-use device.

AMERICAS BANKING

What challenges does the market present? Chile has high smart phone penetration and broad telecom coverage; the quality, functionality and security of the applications that we have been able to generate and the fact that they were well received by customers of different ages motivate us to continue to move forward in this area. At Banco de Chile, we are always searching for innovations that improve service quality and help our customers conduct highly secure transactions. Projects under Development We are working on a series of initiatives that enable us to deliver new, high-quality, fully digital products and services on time, enabling our customers to meet their financial needs safely, comfortably and quickly. In 2016, we expect to deliver new Internet-based services and continue to offer increasingly more mobile banking features.

Rodrigo Tonda Mitri Division Manager Banco de Chile

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AMERICAS TECHNOLOGY

Understanding the Importance of ID and Verification As two very closely linked concepts, Identity and verification (ID&V) play an increasingly critical role in consumersâ&#x20AC;&#x2122; day-to-day lives. Verification systems confirm that an individual is who they say they are by checking details against those already held, in a different way identification systems identify an unknown person. Genuine passport or driverâ&#x20AC;&#x2122;s licenses, which are designed to be difficult to fake, are examples of identification devices; whereas a password is a common method of verification.

Indeed, 55% of all traffic into leading US websites now comes from mobile devices3 (i.e. unsecured touchscreen devices such as mobile phones and tablets). The ability to shop and carry out transactions on the go is now something we almost take for granted.

They are familiar to us in our everyday lives. From showing our passports when entering a country to showing proof of address and identity when applying for a financial product, itâ&#x20AC;&#x2122;s something we all do. What these methods all have in common is that they require the presentation of a physical document. Yet, in the digital economy, with its emphasis on speed, convenience and remote interaction and fulfilment, physical methods of ID and verification simply do not have the same utility.

Digital transactions all require some form of ID&V. Online shopping might require the entry of a password to access an account or shopping app.. For financial products, bound by a need to comply with know-your-customer and anti-money laundering legislation, there is the need for stronger ID&V process. But, with none of these online transactions involving face to face interaction, and with ever more data breaches, how can ID&V be properly managed remotely?

Adapting to the Digital Economy It is safe to say that the internet has made a critical change in the way consumers shop. With an estimated 1.61bn online shoppers1 globally, and $397bn forecast to be spent on e-commerce in the US in 20162, the last decade and a half has seen e-commerce grow into a well-established, even dominant, method for business and commerce. And within this growth, mobile is rapidly winning the race to become the dominant platform.

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Yet, this convenience and growth has come at a significant cost and this cost is the challenge of managing ID&V online. And the race is on to be the first to successfully solve this puzzle.

ID&V and the challenges in the Digital Age Indeed, remote ID&V is neither a new concept not a new procedure. Consumers have carried out transactions by mail or telephone (MOTO) for decades. However, the ID&V required for these transactions were simple addresses and ZIP code. As a result, the fraud in this channel is generally higher than others, but the decline in transaction volume helps to limit the overall effect/cost. This has driven a need to develop new methods of ID&V with both customers and businesses having to adapt to the new business realities.

AMERICAS TECHNOLOGY

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AMERICAS INTERVIEW

The most obvious of this is the password, which comes with its own drawbacks. Having to come up with a secure, eight-character password which includes a capital, a number and a symbol can be a challenge, especially if you can’t use the last five variations. This has led to consumers, fearing their capability to recall complex keywords, taking shortcuts and using simple passwords which are easy to hack. By pushing consumers into creating hard-to-hack passwords, companies are, in fact, causing them to use easy-tohack passwords. This, in turn, leads to the paradox at the heart of digital commerce. By adding on layers of obtrusive security, merchants are damaging the very convenience that attracts consumers to digital commerce. As a result, the industry is continually looking for new ways to improve the ID&V experience without it impacting negatively on the user experience. Currently, the hot talking point is biometrics.

Biometrics Biometrics are any means by which a person can be uniquely identified by evaluating one or more distinguishing biological traits. There are a variety of different forms being currently trialled: Voice recognition – Voice recognition can verify someone in around 15 seconds, quicker than passwords4. Yet questions remain about the accuracy of this method. What if someone is in a crowded room or restaurant? Could the technology cancel out the background noise? Facial recognition – Also known as “selfie” authentication. For this to work, the lighting of the photograph will need to be of sufficient quality which isn’t always guaranteed.

Fingerprint recognition – It’s widely used, it’s trusted, it’s easy, but it is not perfect. Fingerprints can be copied by fraudsters using easily obtained chemicals. If a fraudster has your phone and wants access to it, they can obtain it. Biometrics, though, should not be seen as a panacea. ID&V is at its strongest when part of a multifactor security system, a collaboration of methods. This means adding another layer to the biometrics in the form of a password or PIN. Done properly, this should maintain consumers’ information and money secured without being obtrusive or detrimental to user experience.

Moving forward ID&V is a part of our lives and while there might be complaints about the inconvenience that obtrusive security plays in digital commerce, it saves consumers’ time and money on the long run when compared to dealing with the consequences of a fraudulent transaction or breach. Despite some issues around biometrics, it must be remembered that this is still a developing technology that will continue to evolve.. Combining biometrics with other methods of ID&V should provide the ability to determine an appropriate level of ID&V to be available, relative to the transaction risk, and create a safe and simple experience on all platforms, including the dominant mobile platform. While mobile continues to grow in global popularity, consumers will have a finite amount of patience for clunky and obtrusive methods of ID&V. So the onus is on the whole industry to strive towards creating a universally trusted and accepted method.

David Poole Head of Growth MYPINPAD Source: 1 https://www.statista.com/statistics/251666/number-ofdigital-buyers-worldwide/

2 https://www.statista.com/statistics/272391/us-retail-ecommerce-sales-forecast/

3 http://www.huffingtonpost.com/michael-lazar/click-buydone-these-m-co_b_11657372.html

4 http://www.chinapost.com.tw/taiwan/

business/2016/05/18/466489/Citibank-launches.htm

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AMERICAS INVESTMENT

SEC Proposes

Business Continuity and Transition Plan Rule for Investment Advisers On June 28, 2016, the Securities and Exchange Commission (the "SEC") proposed a new rule (the "Proposed Rule") that would require SEC-registered investment advisers ("RIAs") to adopt and implement written business continuity and transition plans ("Continuity Plans") reasonably designed to address operational and other risks related to a significant disruption in the RIA's operations. 1Additionally, the Proposed Rule has certain annual review and recordkeeping components, as summarized below. While the SEC recognized that many RIAs already have plans in place to mitigate business disruptions, the SEC has found weaknesses in these plans, particularly with regard to widespread disruptions, alternate locations, vendor relationships, telecommunications and technology, communications, and review and testing.

Business Continuity Planning2

Transition Planning3

Under the Proposed Rule, an RIA's Continuity Plan would be based upon the risks associated with the RIA's operations and would include policies and procedures designed to minimize material service disruptions and any potential client harm from those disruptions. In particular, the Continuity Plan would be required to address:

The Proposed Rule provides that the transition planning component of the Continuity Plan would include:

•

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•

policies and procedures intended to safeguard, transfer and/or distribute client assets during transition;

•

policies and procedures facilitating the prompt generation of any clientspecific information necessary to transition each client account;

•

pre-arranged alternate physical location(s) of the RIA's office(s) and/ or employees;

information regarding the corporate governance structure of the RIA;

•

communications with clients, employees, service providers, and regulators;and

the identification of any material financial resources available to the RIA; and

•

an assessment of the applicable law and contractual obligations governing the RIA and its clients, including pooled investment vehicles, implicated by the RIA's transition.

maintenance of critical operations and systems, and the protection, backup, and recovery of data (including client records);

identification and assessment of third-party services critical to the operation of the RIA.

AMERICAS INVESTMENT

According to the Proposed Rule release, these proposed components are designed to help RIAs be well prepared so that they can act quickly and in their clients' best interests if and when a transition occurs. The SEC believes that the transition plan components of an RIA's Continuity Plan generally should account for transitions in both normal and stressed market conditions, and should consider each type of advisory client, the RIA's contractual obligations to clients, counterparties, service providers and the relevant regulatory regimes under which the RIA operates. Annual Review and Record Keeping Under the Proposed Rule Under the Proposed Rule, RIAs would be required to review their Continuity Plans annually and retain records of their reviews. The Proposed Rule would also amend Rule 204-2 under the Investment Advisers Act of 1940, as amended, to require RIAs to make and keep any Continuity Plans that are currently in effect or were in effect during the last five years, as well as records of their annual reviews. RIAs should review their current business continuity plans as the development and implementation of new Continuity Plans meeting SEC requirements may take a substantial amount of time.

Jamie Nash

Eric Wagner Chairs the Cortorate Departments Kleinberg Kaplan

Partner Kleinberg Kaplan

Eric Wagner chairs the Corporate Department at Kleinberg Kaplan. Eric focuses his practice on the financial services industry, specializing in advising both start-up and seasoned private investment funds, SEC registered investment advisors, family offices, commodity pool operators and commodity trading advisors on regulatory and strategic issues related to their formation, operation and investments. He has extensive experience in structuring management company ownership agreements and seed capital arrangements, as well as advising clients with respect to marketing agreements,

Jamie Nash is a partner at Kleinberg Kaplan where he focuses his practice on the investment management industry.Â Jamie advises start-up and mature private investment funds and investment advisors on issues related to their formation, structure and operation.Â He also advises clients with respect to management company operating agreements, seed capital arrangements, employment and consulting agreements, general securities law matters, commodities issues, third-party marketing agreements, softdollar arrangements and blue sky compliance. Jamie also spends a significant portion of his practice advising investment advisors with respect to establishing, implementing and monitoring compliance programs, as well as counseling clients through SEC investment advisor examinations

employment matters, and general securities matters.

Source: 1 "Adviser Business Continuity and Transition Plans," Release

No.IA-4439; File No. S7-13-16 (June 28,2016), available at: https://www.sec.gov/rules/proposed/2016/ia-4439.pdf. 2 Business continuity planning involves implementing procedures to mitigate the operational risks arising from internal or external events, which disrupt service to RIA clients, resulting in potential harm. Such events include natural disasters, cyber-attacks, terrorism, technology failures or 3 other physical business interruptions. Transition planning involves implementing procedures to transition clients to other RIAs should the situation arise where an RIA is winding down its operations orisno longer able to provide services.

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AMERICAS INTERVIEW

BMO

Capital Markets in the

USA

BMO Capital Markets is a leading, full-service North American-based investment bank, with approximately 2,200 professionals in 29 offices across 5 continents. In North America, BMO Capital Markets has 15 offices offering corporate, institutional and government clients access to a complete range of investment and corporate banking products and services.Â BMO Capital Markets is a member of BMO Financial Group (NYSE, TSX: BMO), and is one of the largest diversified financial services providers in North America with total assets of CDN $681 billion and approximately 45,000 employees as of April 30, 2016.Â

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AMERICAS INTERVIEW

Global Banking & Finance Review spoke with Debbie Rechter, Managing Director, Co-Head US FICC Sales about BMO Capital Markets operations in the USA and what the year ahead in Forex looks like. I’d like to speak today about BMO’s Global Fixed Income, Currencies and Commodities business in the US market. The last two years were quite active for you. What are the benefits on the corporate side as well as the investor side? The Global Fixed Income, Currencies & Commodities (FICC) team is led by Chris Taves and C.J. Gavsie. FICC is centered on four pillars- Trading, Sales, Origination and Strategy. This structure facilitates increased coordination across product lines and allows us to service our clients based on their coverage preferences and product needs. Sales teams are aligned by Investor and Corporate coverage streams to provide opportunities for highly coordinated service and solutions for multi-product accounts. Product specific specialists are in place to best serve our clients with focused product needs, while in other cases a more generalist approach delivers a cross-FICC product suite with cross-FICC coverage staff. Our origination teams are also aligned to provide our clients with broader solutions and structuring. For investor clients, our FICC team provides service to asset managers and other types of investors in all regions of the world. Through sales centers located in three continents, and with the support of our 24-hour trading operation, we pride ourselves on providing investors and issuers with seamless coverage. Ultimately, this structure is client-centric and serves clients’ comprehensive needs across all FICC products, delivering clean execution and timely market intelligence. For corporate clients, our Corporate Sales and Structuring team offers a full product suite including foreign exchange, interest rates, commodity products, and derivatives, to support the capital, funding, liquidity and risk management needs of our clients. This enables us to leverage our global footprint and expertise in a broad range of markets and products, to provide our clients with top tier, customized, risk-management solutions.

In the USA, who are BMO Capital Markets clients? BMO Capital Markets is organized around corporate and institutional investor clients. Corporate clients covered in the U.S. include U.S. mid-cap companies, targeted multinational and international companies, international financial institutions, and equity sponsors. Investor clients include mutual funds, pension funds, asset managers, hedge funds, sovereign wealth funds and international government institutions. What products and services do you offer? BMO Capital Markets offers equity and debt underwriting, corporate lending, project financing, mergers and acquisitions advisory services, securitization, treasury management, market risk management, debt and equity research and institutional sales and trading. Within FICC, BMO Capital Markets provides fixed income, foreign exchange, commodities as well as strategy and economics. Fixed income includes primary issuance and secondary trading in government & corporate debt, ABS and leveraged finance. We have built significant expertise in the Sovereign, Supranational and Agency sector (SSA) and we were recently named the “Coming Force” in SSA Banking by GlobalCapital. Our interest rate products group provides advisory and execution services in the over-the-counter derivatives marketplace, offering tools to help clients manage their interest rate exposures and has an outstanding track record in leading and managing syndicated transactions across industries and client capitalization sizes. In foreign exchange, we offer a full FX product suite with 24-hour access to the spot, forward and options markets. We are honored to have been voted the “Best Forex Provider North America” by Global Banking and Finance Review for the sixth year running. We are also proud of our dominant position in the Canadian Dollar foreign exchange market and have been consistently ranked the “Best Bank for the Canadian Dollar” by FX Week for the last five years. In addition, BMO is a full-suite participant in China’s onshore and offshore FX market and has been voted the “Most Popular Market Maker, Best Non-USD Currency Pairs Market Maker, and Best G7 Market Maker” by the China Foreign Exchange Trade System for the last eight years.

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AMERICAS INTERVIEW

Can you tell us more about the success and growth you’ve had on the investor side? The growth in our platform and the resulting recognition is due to a number of factors. First, BMO is dedicated to growing our U.S. platform as evidenced by the consistent buildout in every area that we compete in over the last twenty years. Second, we are a highly rated trading counterparty (long-term debt ratings of Aa3 (Moody’s), A+ (S&P), and AA- (Fitch) ) which is extremely important to our investor clients who are keenly focused on counterparty risk. Last, we deliver not just an extensive full suite of product offerings with competitive pricing, but also exceptional client service through all stages of a deal, including origination, structuring, documentation, execution and posttrade support. Our client service model includes the support of our award-winning strategy and economics teams which provide daily and weekly market color, trade ideas, and analytics as well as high-quality publications. What does the year ahead in FX look like? The three key trends in FX right now are uncertainty, volatility and illiquidity.

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The UK’s Brexit vote is a key source of uncertainty and volatility in 2016. In addition, Central Banks continue to confound markets. As a result, many FX investors have incurred losses and scaled back their activities. Regulation was already causing FX dealers to retrench, so the declining investor activity has left FX markets illiquid and therefore ripe for even more volatility. There are bound to be surprises. The FX market still has mixed expectations regarding Fed hikes this year, and the expectations regarding Brexit are still widely uncertain. The extent of inclusion of the Chinese renminbi in the IMF’s SDR basket will also be announced and then implemented. And speaking of uncertainty, we still have the US election and potentially significant shifts in US tax and trade policy that could result. Volatility creates risk, but it can also create opportunity. We see a lot of opportunity ahead in the remainder of 2016. Our Global Fixed Income, Currencies & Commodities structure builds on BMO Capital Market’s longstanding ability to serve our customers. Our comprehensive product offerings, delivered in an integrated coverage model, allows us to add significant value to our clients during these challenging times and markets.

BMO Capital Markets Chicago trad 37th floor of the BMO Harris Head

ding floor located on the dquarters on LaSalle Street

AMERICAS INTERVIEW

Debbie Rechter Managing Director, Co-Head US FICC Sales Bank of Montreal

Debbie Rechter joined Bank of Montreal in 1993 and is a Managing Director in Global Fixed Income, Currencies and Commodities. Debbie Co-Heads sales teams in NY, Chicago, Milwaukee, Boston and San Francisco, which are responsible for the marketing of FX, Rates, and Fixed Income products to clients ranging from corporates to large institutional accounts, hedge funds and money managers.

Issue 5 | 95

Middle East

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MIDDLE EAST TECHNOLOGY

From Basel to Blockchain

â&#x20AC;&#x201C; the D aw n of Digitisation

David Hennah, Head of Trade & Supply Chain Finance Products at Misys, explores industry developments over the last 12 months â&#x20AC;&#x201C; from the dominance of regulation to a focus on digitisation and the potential of blockchain. At Sibos Singapore last year there was a noticeable sea change in the behaviour of conference delegates. Ever since the credit crisis of 2008 our daily lives have been dominated by the doom and gloom of unintended consequences arising out of a tumultuous sea of regulation and compliance. Foremost in the regulatory maelstrom has been Basel III, not only forcing up the cost but also indirectly limiting the availability of trade finance. Inevitably those at the lower end of the food chain, the small and medium sized enterprises, have been the ones to suffer most from the shortfall in investment. But at Sibos 2015 the agenda was no longer dominated by the three necessary evils of regulation, regulation and regulation. Suddenly we were witnessing the dawning of a new age, that of digitisation and a new phenomenon, at least new to most of us, called blockchain. Since then, another year has flown by and thankfully the industry is still focused on the upside potential of new technology rather than the detrimental downside of directives and guidelines.

An opportunity to innovate Digitisation is seen as a force for good, opening up new opportunities for differentiation through the deployment of corporate channels that support both automated processing and an integrated platform for trade, supply chain, cash, foreign exchange and lending. Market research has confirmed that existing transaction banking models have failed to meet fundamental customer requirements for aggregated information, integrated delivery, more selfservice capability, and real-time or near-realtime payment services and information. Banks' customers are demanding that new services be delivered as part of the cash management lifecycle and that these services be aligned with financial supply chains. Whilst digitisation is undoubtedly disruptive, it also represents an opportunity for innovation as well as somewhat ironically delivering a sustainable solution in response to compliance and regulatory reform. Arguably one of the most interesting consequences of the global financial crisis is that it has accentuated the power of data analytics. Issue 5 | 97

MIDDLE EAST TECHNOLOGY In an increasingly competitive world in which data is the new collateral, analytics have come to play a pivotal role not only in the fulfilment of strategic goals but also in complying with the complex management of relationships, regulation and performance. Financial institutions need to learn how to do more with less which means having the analytical authority and aptitude to measure and evaluate liquidity, profitability and risk. In reality, many financial institutions have long been burdened by the legacy of incompatible systems confining analytical capabilities to business silos, coupled with an inconsistency in the use of associated data definitions and taxonomy. Consequently, the art of data analytics has been rather more ‘descriptive’ than ‘predictive’ in nature. Whilst descriptive techniques can be used effectively to identify historical trends, predictive analysis allows us to challenge the “so what”? With increased pressure on margins, there is a widespread recognition of the fact that digitisation offers the means of achieving increased costeffectiveness and operational efficiency whilst reaping the benefits of stronger customer insights and the ability to leverage new business models. The financial services sector is now fast leading the way as the most digitised industry in the developed world. Technological transformation through digitisation It is often said that true digitisation is more that automation. It extends to new ways of acquiring and processing vast amounts of socalled ‘big data’ that are said to be increasing in complexity at a rate of 1000% per decade. The cross-border movement of goods and services has reached unprecedented levels with global flows approaching US$ 30 trillion, or 40% of global GDP. One-third of goods produced are traded cross-border. In the next decade, global flows are widely predicted to exceed US$ 50 trillion as growth in the emerging economies continues to displace traditional trading relationships. Developing markets already account for almost 40% of global flows. Socalled south-south trade between developing markets has grown to almost US$ 5 trillion today. Not only has the volume of data grown exponentially but there has been phenomenal growth in the variety and velocity of data to be processed. The upsurge in digital technologies has also enabled even the smallest of companies – the micro-multinational – to source and to sell cross-border. The market now offers many more entry points to many more players.

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MIDDLE EAST TECHNOLOGY Digital technologies have the power to transform flows not only through the creation of digital goods and services but also the use of digital “wrappers” and digital platforms. A paper-driven and labour-intensive business such as trade services is ideally positioned to take advantage of technological transformation through digitisation. In the digital age there has been an inevitable upsurge in demand for dematerialised documents, data processing and data matching. However, data that arrives at the bank electronically is often subject to a myriad of internal touch points that still require a high degree of manual intervention. Lack of standardisation has made it difficult to scale operations and reduce costs. Compliance tasks, for example, can include sanctions screening on the names included in a trade document or a vessel check to ensure a ship hasn’t stopped at a sanctioned country. Most banks are doing compliance manually. Electronic alternatives have not yet gained much traction. As banks perform those checks, the wheels of commerce are turning much slower. Ultimately, the changing market dynamics and increasing costs for banks will inevitably lead to much higher costs for corporates. The electronic exchange of data and communications across a common platform can provide significant business benefit in the form of reduced administrative overhead, re-use of data, increased accuracy and speed of turnaround. Convergence of standards Banks are now deploying new Web design tools to define the next generation of online banking. It is an increasingly competitive area in which dedicated roles are being created to enhance user experience. Tighter integration will eventually encourage wider market adoption of new messaging standards such as MT798 and the ICC Bank Payment Obligation (BPO) which as yet have not been swiftly embraced. Banks can further extend their role by driving the use of electronic signatures to streamline supplier on-boarding and providing a more complete range of solutions in the management of the supply chain. As more and more corporates have come to favour the use of multi-bank channels to mitigate counterparty risk and

obtain more competitive pricing on their transactions, so there is increased pressure on the banks to work across third party platforms in a multi-banking environment. The necessary convergence of standards and protocols has led to advances in connectivity, in particular adoption of open standards such as ISO 20022. By moving away from proprietary standards, it becomes possible to simplify information exchange and systems integration as well as to consolidate and switch banking relationships as necessary. The explosion in the use of mobile technologies is also driving bottom-up innovation, most notably in emerging markets where mobile adoption is outpacing developed markets. The challenge to the financial services industry will be how to unlock the full potential of digitisation whilst improving data quality and preserving data integrity. Transparency and accessibility are essential constituents of a digital transformation. Whilst much of the debate surrounding big data references advances in the use of technology the true value of big data is about gaining the strategic insights to re-shape interactions with the market and increase the value of relationships. Which data is required, who needs it and how often are key pieces of the big data puzzle. Exploring the case for blockchain in supporting trade There is no doubt that digitisation is one of the most important trends ever to impact financial institutions and their customers. But what about that other buzzword… ..‘blockchain’? Over the past year or so I have spoken with many senior trade bankers, some of whom are enormously excited by the potential of blockchain without necessarily knowing exactly why. Others remain quite indifferent. Indeed, there is a widely held view that blockchain is nothing more than a solution looking for a problem. To date, the best known use case in this area is that of duplicate document detection, as pioneered by Standard Chartered Bank and Development Bank of Singapore. Other potential use cases which have been mooted but not yet put to the test revolve around dealer financing and the Bank Payment Obligation. Whilst there is tangible evidence to support the argument that blockchain will be of value to other parts of the financial services industry, including payments and

reconciliation, lending and capital markets the blockchain evangelists still have some work to do to present a compelling argument in trade. At the first ever World Trade Symposium, co-hosted in London in June by Misys and the Financial Times, a number of working groups were established to consider the linkages and the gaps between trade policy, trade finance and fintech. These days it is hardly possible to talk about one of these areas without referencing the others. There was a broad consensus regarding the need for greater collaboration between stakeholders, including corporates, financial services providers, regulators, government and technology providers in order to facilitate the growth of international trade. The Symposium concluded that there is clear evidence of growth being impeded by a combination of complex regulatory processes and an often inconsistent application of the rules at national/ regional level. In addition, failure to take full advantage of advances in technology is an impediment to growth, limiting the economic benefits of trade and the establishment of new trading relationships. In the fintech stream a group was dedicated to the subject of blockchain. Led by Enrico Camerinelli from Aite Group and Nic Carey, the co-founder of Blockchain, the group will continue its work to put some clearer definition around the blockchain concept and to identify the real opportunities for added value.

David Hennah Head of Trade & Supply Chain Fiance Products Misys

Issue 5 | 101

MIDDLE EAST BANKING

The bank of me – why banks need to be totally customer centric It wasn’t all that long ago that a bank manager was more than a person who ran a branch. They were financial advisors, mortgage brokers and trusted confidants. They held a personal relationship with their customers – they would be consulted by customers on many important life decisions from funding weddings, purchasing a car, planning for children or buying a home. Then, over time, the branch manager transitioned to more of a salesperson than an advisor. The personal relationship customers once held with their bank has been reduced even further through the rise of digital banking – although it has given customers more flexibility in how they engage. While a seamless digital experience is vital for a modern bank, customers still appreciate that human touch, and it remains key to

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forming relationships with customers and building loyalty. This presents an opportunity for banks that can strike the right balance between delivering great digital experiences and being a trusted advisor again. For this to occur, banks need to shift their focus from product-based, transactional interactions, to a model that is more customer centric. In the last year alone, more than 600 bank branches were closed in the UK1. Branch closures are not just a trend in the UK, in the US the number of bank branches has reduced by six percent since 2009, and is now at the lowest level in more than a decade2. The decline of the branch is being driven by increased demand for digital services, and improvements to online banking platforms. It is understood that

banks need to harness the power of these digital tools to offer more personalised service and build customer engagement. But, now they need to put the customer at the heart of everything they do – designing and offering products and services around the customer need, not products and banking infrastructure. With reduced interchange fees impacting revenues and thus the ability for credit cards to offer rewards as they may have in the past, and emerging new ventures disrupting the market, banks must change to meet customer expectations or risk reduced customer engagement and even custom. Being customer centric is not just about listening to how customers want to interact with you, it’s about recognising what they value beyond your products

MIDDLE EAST BANKING

and services, so you can identify the total worth of the brand-customer relationship. Many fintech firms disrupting the sector have built their businesses from an enduser’s perspective rather than a product perspective. This is what gives them their competitive advantage. Customers now expect to have an experience tailored to their individual needs. Our global study of more than 6,000 affluent middle class customers found that over half (56 percent) feel more loyal towards brands that know who they are and treat them differently and nearly three in five expect their bank to proactively offer products and services that meet their needs. Furthermore, the research found 65 percent of bank customers expect to be rewarded for

staying, and 67 percent actively want a choice of rewards and benefits to best suit their tastes and interests. Banks have the potential to use data to both improve the customer experience and to build a more personal and emotional relationship. Financial service organisations can use customer insights to become a customer’s ‘financial friend’ and trusted advisor. For example, banks could analyse spending behaviour to identify key moments in a customer’s life such as getting married, starting a family, or booking an extravagant holiday. Data collection and analysis—at transactional, behavioural, and attitudinal levels—is what drives this insight and creates opportunity, and should be better used to deliver tailored offers and services that customers truly value.

To seize this opportunity, banks must offer solutions that help serve customers broader lifestyle needs. When polled, 72 percent of global affluent middle class customers highly value health insurance, 66 percent travel insurance and 63 percent lost cards assistance. Indeed, all of the following services were rated highly valued by over half the 6000+ respondents: motor breakdown recovery, identity theft protection, discounts or offers with partner retailers, purchase protection insurance, SOS travel assistance, home emergency/ boiler cover, and airport lounge access. Customer demand for these additional services creates an opportunity to build bank wide loyalty and significantly improve both customer value perception and the customer experience.

Issue 5 | 103

Solutions Suited to your Needs

Service Oriented Architecture (SOA)

Business Oriented

Scalable & Modular

Thin Client

MultiLanguage

Innovative

Cloud Ready

CMY

Straight Through Processing (STP)

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MIDDLE EAST BANKING

Mark Roper Commercial Director Collinson Group Source: 1 http://www.bbc.co.uk/news/business-36268324 2 http://www.reuters.com/article/us-usa-banks-branchesidUSKCN10X0D6

Research indicates that customers would value a one-stop-shop for all their financial services products, rather than spreading their current account, home insurance, mortgage provider. But currently, there is no incentive for them to do so. By analysing customer data to capitalise on key life events and providing relevant, tailored offers off the back of this insight, banks can deliver incentives to encourage multi product purchases. The end result is bank wide loyalty, engaged customers and increased profit. Focusing on customer needs as central to business strategy brings the ‘human’ touch back to the banking relationship, even across digital channels. However, for this to work successfully, banks would benefit from collaboration with partners, and by adopting an open API approach to facilitate greater levels of data enhancement. By aggregating their own data with that from third parties, brands can paint a picture of their customers across multiple touchpoints. This would include granular

detail about unique customer journeys, preferences and behaviour to deliver relevant and seamless customer servicing and experiences on digital channels and others. Ultimately, financial service organisations need to set very clear goals and objectives for customer engagement and align their investment against these to build functionality that facilitates key customer actions effortlessly. Be this repeat purchases, purchasing of additional services, or accessing incentives and rewards – the experience should make the customer feel in control. In most organisations this requires an organisational shift to better align processes and resources, and to better connect marketing and customer service departments. While this sounds challenging, there is a significant pay off for those that get it right. We are seeing this happen already in growing markets with high levels of wealth. In the UAE, bank-wide loyalty initiatives are driving increased customer satisfaction, and

increased engagement. Our research into the UAE affluent middle class found that participation in bank loyalty programmes increased 56 percent in the past year. Once banks reward, incentivise and engage customers, it becomes easier to cross-sell other products and services. This could include savings and loans to protection and experience products. A single customer view lays the foundation for bank-wide loyalty initiatives to be developed and funded—something that will drive incremental revenue for the sector and allow customers to be invested both emotionally and tangibly in their bank. The rapid increase in demand for digital services provides financial services brands the opportunity to develop deeper meaningful relationships with customers by optimising and integrating data, interactions and offerings. The provision of more self-selected and tailored products and services, could herald a new era for the role banks play in the lives of consumers now and in the future. The bank of me may not be that far away after all.

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MIDDLE EAST FINANCE

Making the Case for EPM: Musical Chairs, Revolving Doors, and Economic Uncertainty 106 | Issue 5

That palpable feeling of uneasiness in the air is not your imagination. Nor it is your colleagues’ imagination. It’s everywhere. The whispers of a recession are getting louder, especially on the heels of the recently released annual Internet Trends Report1 that pointed out economic growth is slowing. Also, M&A activity this year is erratic. It’s slowing in some regions including the U.S. and LatAm, but remains healthy in EMEA and Asia Pacific, according to the Intralinks Deal Flow Predictor2. Meanwhile, taking a closer look inside the finance department, it’s clear that roles are shifting as CFOs take on more strategic responsibilities that extend into other pockets of the organization including responsibility for IT and operations budgets. How does economic uncertainty, potential M&A, and the evolving CFO’s role impact today’s finance professional? Essentially, you need to prepare for change.

MIDDLE EAST FINANCE The Impact of External Forces and Internal Decisions On Finance Change is inevitable regardless of the economic climate. However, it’s likely the next several months will bring more than usual activity in the finance department. As a finance professional, you have two options: act or react. More to the point, you can wait until action is forced upon you – staff reductions, an acquisition, or new responsibilities – or you can plan for it now. Proponents of waiting would argue that preparation for unforeseen circumstances incurs unnecessary costs. On the other hand, waiting to take action – reacting – often results in hasty and costly decisions. For example, what if you found out today that your organization was making an acquisition in 60 days? Factoring in the merging of global companies, some that might be publicly traded, are you confident that your financial systems and business processes could easily and quickly integrate that new company? While M&A integration comes with its own set of unique challenges, it’s no wonder that roughly half of all M&A deals fail to create shareholder value, according to Boston Consulting Group. Another scenario for consideration is the impact of a recession. While everybody likes to think they can see them coming and are prepared, many organizations are often caught by surprise. Making smart, strategic decisions for the long-term health of your organization requires visibility across the company to plan and respond to bull and bear markets. Without that visibility, challenging economic situations can prompt knee-jerk reactions that have long-term effects. While major external and internal forces such as a recession or acquisition often bring to light the fragility of the IT infrastructure supporting finance, it shouldn’t come to that. This is where enterprise performance management (EPM) comes in. EPM: A Sound Infrastructure for M&A And Beyond EPM has been popular in finance circles for some time now. It emerged from the frustration with the limitations of ERP systems, the laborious process of collecting

and reconciling data via spreadsheets, and the growing need for a more comprehensive view of the organization’s performance across lines of business. To make sure we’re all on the same page when it comes to understanding EPM, which sometimes goes by the moniker of corporate performance management (CPM), here’s Gartner’s definition of it: EPM is the process of monitoring performance across the enterprise with the goal of improving business performance. An EPM system integrates and analyzes data from many sources, including, but not limited to, e-commerce systems, front-office and back-office applications, data warehouses and external data sources. Advanced EPM systems can support leading performance methodologies such as the balanced scorecard and activity based costing. My company, HEAT Software, initially implemented EPM from Host Analytics to support a merger. Among the various challenges, our top priorities were: •

Establishing a single infrastructure that would support global business operations.

•

Satisfying complex headcount planning and modeling requirements.

•

Streamlining volumes of unmanageable data. Measuring results by different attributes, such as department and location.

•

Standardizing and unifying our planning and budgeting system.

•

Accurately reporting on financials from around the globe, factoring in 10 currencies.

The process took about 90 days, with between 80 to 90 percent of the work being completed in the first 60 days. We were able to accelerate the implementation because we deployed our EPM platform in the cloud. As a result, my team has realized many benefits such as our move away from the restrictive columns-and-rows format that are synonymous with relational databases. Instead, our multi-dimensional view of data gives us visibility across the company as well as our products and our customers. We’re also able to drill down on key metrics. We can streamline, automate, and secure the administrative functions that govern

operations and adhere to complex currency conversion and reporting requirements. So between getting the big picture view of the organization’s performance, as well as granular details, we’ve become a more nimble organization. Part of this is because we were able to get our team quickly up and running on our EPM platform. In fact, our users were able to build reports after just a single day of training. This is a due to the option of viewing data in a familiar Excel-driven interface. Because of our EPM platform, more strategic initiatives are underway. These days, our team spends less time sifting for data and more time using it to drive business decisions. Our solid EPM foundation also enables us to more effectively anticipate, plan and manage change. While the merger accelerated our adoption of EPM, the benefits extend far beyond that. Specifically, uneasiness might be reaching a collective groundswell as many of us feel the uncertainties of the current economy. Yet at my company, we’re confident that we have the visibility to continue to grow fast and responsibly with an infrastructure that will support us when that inevitable change comes.

Charlie Wickers Director of Financial Planing & Analysis HEAT Software

Source: 1 http://www.kpcb.com/internet-trends 2 https://www.intralinks.com/resources/publications/

deal-flow-predictor-2016q3?utm_source=forbes&utm_ medium=blog&utm_campaign=18166+amerideal+flow+predictor-q3+2016

Issue 5 | 107

MIDDLE EAST BUSINESS

Coming Together How to get the people side right when two companies merge

The most recent ‘Mergers & Acquisitions’ M&A Conditions Index’ (MACI) suggests that some of the obstacles that have stalled M&A activity in the first half of this year are now being overcome. August was the third consecutive month of growth and the index highlights new transaction leads, letters of intent and completed deals. We have also seen some big acquisition announcements in recent months, including Verizon announcing its plans to acquire Yahoo’s internet business for $4.83bn and SoftBank announcing plans to buy the UK’s Arm Holdings for £24.3bn. In the finance sector, the State Bank of India (SBI) has just announced it will merge with five of its associate banks to create a “mega bank,” which will also make it one of the world’s 50th largest banks.

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But law firm Allen & Overy[ii] highlighted that in spite of the planning that goes into preparing an M&A transaction, as few as 20% of deals achieve the benefits a buyer expected. One of the biggest challenges for companies going through an acquisition is merging two workforces and many companies underestimate the complex HR and employment issues involved in two companies coming together. In most post-merger situations, companies will typically only have records about the training and development employees have undertaken, as well as historical appraisal information. Most won’t have accurate, up to date information about people’s competence, their (likely & observed) behaviour, their confidence and attitude at work and how well they actually perform in their jobs. Equally, they are unlikely to have data

MIDDLE EAST BUSINESS

outlining what people don’t understand, where their skills gaps lie and their specific development requirements. We have evidenced through our insight and analytics over the past 20 years that typically 30% of a workforce misunderstands some aspect of their role and continuously make the wrong decisions because they feel confident they are actually right. A further 50% of people have specific gaps in their knowledge, but organisations typically don’t know what these gaps are so they cannot remediate them effectively through training and intervention. Without accurate information, it’s impossible to know if people are in the right roles and for managers to make informed, evidenced-based decisions about how best to use their workforce talent and skills. To tackle this situation, a good first step is for HR is to invest in an initial diagnostic that will provide a baseline of likely employee behaviours, confidence and understanding against each specific role or function. This will uncover what people truly understand, how confident they are in their knowledge and how they apply their knowledge at work. Managers will be able to see at a glance their top performers and those in need of development and support, and their specific training needs.

Then they can provide personalised and cost effective learning tailored to individual needs rather than a one-size fits all approach to training which is costly and can be ineffective. It’s not just acquirers who will benefit from this kind of people-centred data. If a company hopes to attract a potential buyer – the ability to audit the competence, capability and compliance of staff and demonstrate the value of a workforce in real time will make them a more attractive proposition. KPMG supports this view. Tim Payne, ‎Head of KPMG's People and Change Practice said: "Particularly when acquiring businesses with high risk or highly regulated activities, acquiring managers need to get comfortable that what they've bought is safe, quickly. Cognisco's approach allows a rapid identification of high risk people issues." Bloomberg suggested in July that there are glimmers of financial industry consolidation starting to emerge, which could indicate future growth in M&A activity. Whether a company is buying or selling, having clear people-centred data of the workforce will enable a company to make the right decisions about its people and their development and underpin the success of any merger.

Mary Clarke CEO Cognisco

Issue 5 | 109

MIDDLE EAST TECHNOLOGY

WHY FRAGMENTATION IS THE SILENT KILLER IN THE FINANCE INDUSTRY Financial institutions are key targets for cybercriminals, who are getting faster, better and more efficient at compromising IT systems. In 2016, Verizon issued its annual Data Breach Investigations Report (DBIR), a collection of real-world breaches and information security incidents from the prior year. Almost a third of incidents in the financial services industry were discovered in days or less, but more than one in ten remained undiscovered for months or more, giving attackers ample time to find the lucrative data they were looking for.

The problem with a reactive defence

After more than a decade of research, innovation and investment in the cybersecurity industry, the ‘detection deficit’ between attackers and defenders is nearing an all-time high. The gap between the time to compromise and the time to discover an attack is getting wider. The detection deficit isn’t closing, it’s getting worse. Extreme fragmentation of enterprise security people, processes, and technologies is at the heart of the problem. What’s required is a unified and intelligent approach to process and security, which will cut the detection deficit.

Security tools and controls are vital to the protection of any organisation. Yet savvy adversaries are evolving their methods to bypass technology. They simply employ another technique, whether it’s spear phishing, spam, ransomware, or stolen passwords, navigating the strata between technologies and teams and gaining access.

Yet the industry is showing signs of positive change. As of February of this year, SWIFT, the global financial messaging system has been pushing banks to implement new security measures after $81 million was stolen from Bangladesh Bank. These include stronger systems for authenticating users and updates to its software for sending and receiving messages. More recently, eight of the largest US banks have banded together to tackle cyber threats with shared intelligence. This is a crucial step towards building a strong culture of information sharing among financial organisations, but there is still much to be done.

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Most breaches happen not because a service doesn’t work or is inefficient, but because hackers find gaps in between the very tools and teams that have been put in place to keep them out. Financial institutions tend to react to new threats and breaches by adding another device or team member and exacerbating fragmentation. This leads to holes in networks, offering easy access to intruders.

Slow communications The fragmented enterprise landscape is further complicated by a market that is awash with information security technology and vendors each with a point solution to fix problems within the financial services industry and beyond. Infrastructure security, endpoint security, application security, IoT security, threat intelligence, cloud security, risk and compliance are just some of the areas that are marketed and each of these functions are limitless. Within financial services, today’s infrastructures are made up of multiple vendors, whose systems rarely work seamlessly together. Trying to make them interact, interplay, and integrate together is no easy task. This was highlighted by UK financial regulator Andrew Bailey in July, who mandated that financial services organisations modernise their infrastructure.

MIDDLE EAST TECHNOLOGY

Another way that these threat actors bypass controls is to infiltrate assets. For example, an adversary may take over a trusted web server and access data that way. Again, despite controls, which they’ve barely touched, they’re in. Financial services organisations struggle to share information fast enough to identify and stop hackers in real time. These same issues plague external intelligence sharing – making for a slow and inefficient process that hampers defence. Integrated security systems and comprehensive analytics Tackle fragmentation head-on by creating a more collaborative cybersecurity environment within the organisation. Create clear roles and responsibilities and centralise knowledge and workflow. This is ultimately what’s going to crack the nut of defragmented people, processes and technologies. Breaches happen at the seams between tools and teams, so the best way to cut the detection deficit is with a cohesive, intelligent defence that unites an organisation. Without it, fragmentation will continue. When nothing works together and an array of discombobulated processes and technologies are thrown together, the lines between defenders and attackers will never converge. The disparity between the time taken to compromise systems and ability to discover and act on a breach will continue to widen.

Adam Vincent CEO ThreatConnect

Issue 5 | 111

YEARS

BC Moldova Agroindbank SA puts up for sale newly-issued first-class ordinary nominative shares Pursuant to Decision No. 157 of the Executive Board of the National Bank of Moldova dated 23.12.2015, Decision No. 43 of the Executive Board of the National Bank of Moldova dated 02.03.2016, Art.156 para.(3) of the Law on Financial Institutions No. 550-XIII dated 21.07.1995, decision No. 15/2 of the National Commission for Financial Market dated 0 7.04.2016 on stages, terms, ways and procedures of cancelling shares and issuing new shares of BC Moldova Agroindbank SA and Decision No. 470 of the Management Board of the bank dated 15.09.2016, BC Moldova Agroindbank SA announces the decision to put up for sale, through the regulated market of the Moldovan Stock Exchange: 1. A single block of 36,605 (thirty six thousand six hundred and five) newly-issued first-class ordinary nominative shares, for a period of 90 days, at the initial price of MDL 1,064.02 per share. The tender period is from 26 September 2016 through 26 December 2016. 2. A single block of 389,760 (three hundred eighty nine thousand seven hundred sixty) newly-issued first-class ordinary nominative shares, for a period of 90 days, at the initial price of MDL 1,054.71 per share. The tender period is from 28 September 2016 through 26 December 2016. Pursuant to point 5.2 of Decision No. 15/2 of the National Commission for Financial Market dated 07.04.2016 on stages, terms, ways and procedures of cancelling shares and issuing new shares of BC Moldova Agroindbank SA, the newly-issued shares can be purchased only by persons having the prior written permission of the National Bank of Moldova.

2016

Award Winners 1.

Mr. Bui Trung Kien Deputy General Director ABBANK

Sylvain ThĂŠriault

President Desjardins Private Wealth Management

Angela Gruzdova Head of Affiliate Network, FBS Julia Ivanova Chief Operating Officer FBS (left to right)

Call For Entries INVITING BANKS

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Submit your nomination today to awards@gbafmag.com OR Submit Online at GlobalBankingAndFinance.com

2017

Melvin Tan Chief Executive Officer Tradesto Corporation Samuel Law Executive Director Global Head of Risk Management Tradesto Corporation (left to right)

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

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Dr. Lance Mambondiani

CEO Steward Bank

Mr. Hassan Abdalla

CEO and Vice Chairman Arab African International Bank

Mr. B Chandrasekhar

CEO AFS Arab Financial Services

Asia 118 Issue 5

ASIA INTERVIEW

Banking in the

Philippines By 2018, LANDBANK aims to be the top universal bank that provides inclusive growth and improves the quality of life in the Philippine countryside where there is a special emphasis on agricultural and farming support through the delivery of innovative financial and other services in all provinces, cities, and municipalities. In June of this year, then President and CEO Mrs. Gilda E Pico, spoke with Global Banking and Finance Review’s Phil Fothergill at the London Stock Exchange TV Studios to discuss banking in the Philippines and LANDBANK’s success. Mrs. Pico ended her commendable 10-year term as President and CEO of LANDBANK on July 14, 2016. Mrs. Gilda Pico, welcome to London. I know that there are many issues that perhaps you'd like to discuss about LANDBANK if we may. One of them is of course that you do take it terribly seriously the corporate social responsibility that you have. Why is that so important to LANDBANK would you say? Mrs. Gilda Pico: LANDBANK’s commitment to corporate social responsibility is rooted on the bank's mission and vision, which is promoting inclusive growth and improving the quality of life of our stakeholders, especially in the countryside. More than a bank concerned with profit, LANDBANK's operations is anchored on our social mandate of helping communities, empowering people from the ground up, and also contributing to the government's thrust of growing our nation.

So those are some of the important elements. Tell us about some of the current CSR or corporate social responsibility projects that you have underway at the moment. Mrs. Gilda Pico: Our corporate social responsibility strategy is guided by 5 sustainability cornerstones. These are enterprise development, community development, environmental protection and management, customer service, and of course employee development. These cornerstones are the foundations upon which LANDBANK builds its efforts to promote sustainable development within the organization, trickling down to the communities and individuals the Bank serve. To ensure that our CSR programs remain relevant with these cornerstones and our vision and mission as an institution, we focus on four key areas which we call LEED or livelihood, education, environment, and disaster response. These are areas that are all vital in achieving inclusive growth and sustainable development and where we as an institution can truly make an impact on. We also make sure that, while there are different initiatives for each component, all programs are integrated and ultimately align with LANDBANK’s goals of creating sustainable livelihood; building empowered communities; preserving the environment; and nurturing a culture of volunteerism and involvement among our employees and stakeholders.

Issue 5 | 119

ASIA INTERVIEW How do you actually go about selecting a suitable CSR project? Mrs. Gilda Pico: CSR projects are really very challenging because sustainability should be of utmost consideration. There are a lot of elements in our corporate social responsibility, but two of the most important are- relevance to our business and also stakeholder’s engagement and communication. We believe that these are the two important factors because corporate social responsibility should not be done for the sake of doing it. There should be a clear strategy and the programs should reflect what the business is and what it stands for. Stakeholder engagement and communication is also important to ensure that programs and the overall CSR strategy remain relevant and responsive to the needs of all our stakeholders.

Mrs. Gilda Pico: The Philippine economy has been growing steadily. As a matter of fact, our growth for the first quarter is 6.9, making the Philippines the fastest growing economy for the quarter in the South East Asia. So, we are looking at another solid year for the banking sector because of the steady growth of our economy, the heavy capitalization and the asset quality of the Philippine banks. Of course, there will continue to be internal and external challenges. There are structural and other reforms that are being made by our regulatory bodies, and of course the ASEAN integration. The coming in of bigger banks will stir greater competition for the

Now, I know that LANDBANK actually is the largest government bank in the Philippines, and obviously, it's vital that you sustain viability when you are doing these projects. How do you go about balancing what is economically viable with your social responsibility? Mrs. Gilda Pico: Well, for the last 52 years, we have been very successful in balancing our dual role as a catalyst of progress in the countryside and at the same time maintaining commercial viability. We do this by focusing on our 3 business goals – pursuit of mandate, financial viability, and customer service – which serve as the pillars of our operations. We make sure that our commercial activities will generate enough revenue so that we can support, implement, and sustain our developmental projects. LANDBANK’s successful balancing act proves that development banking can be viable and profitable; seeing how it has maintained its rank among the country’s biggest and most profitable banks, even when more than 88% of our total loan portfolio is lent to our priority sectors – most of whom are typically considered unbankable by most commercial banks. That obviously is excellent and we'll come on to that a little bit more in a moment if we may? What are some of the challenges and indeed opportunities in the banking sector within the Philippines at the moment, would you say?

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Phil Fothergill, Journalist

local banks and of course, the net margins of the local banks will be affected. So, local banks should shape up and look for other sources of revenues and of course expand in areas where they think the foreign banks will not go into. In the case of LANDBANK, we are looking at expanding deeper into the underserved areas because we believe that these big banks will not go into these areas. Because it's such a large country with many islands, there's a challenge of course for all banks including yours. Mrs. Gilda Pico: Yes.

ASIA INTERVIEW Now, if we may talk about you for a moment, you are indeed the first woman President and CEO of LANDBANK. Since you took office in 2006, there has been considerable growth. One of the country's top 5 universal banks, currently ranked 4th in terms of assets, loans, and deposits, what you do actually attribute to that success, do you think? Mrs. Gilda Pico: As CEO and President, it's really a challenge to keep all the bank units aligned with the vision and mission of LANDBANK, especially given its very unique social mandate. Fortunately, being

a homegrown Landbanker has equipped me well enough to articulate and drive the organization’s vision and also to inspire our employees to work and attain the Bank’s corporate objectives. Our employees are very passionate and dedicated and it doesn’t take much to motivate them because the public service mindset is embedded deep within the culture of the organization. Our employees also understand their role in terms of fulfilling the bank’s mandate. We likewise continue to nurture a customer centric and highperformance culture to promote excellence and professional growth.

Finally let’s look at the objectives of LANDBANK, looking ahead perhaps up to 2018. What are your plans for expansion and sustainability? Mrs. Gilda Pico: More than being one of the country’s largest and most profitable banks, what we hope to be is the Filipino people’s go-to partner for growth, especially in rural areas. To do this, we continue to work towards a set of objectives along five different perspectives. First is learning and growth, wherein we want to make sure we have a high-performance culture in the bank. Second, we want to improve our internal processes, so we remain competitive. We will continue to innovate to make sure our clients are satisfied and delighted with our services. These include improving our products and services, accelerating new product and channel development, and investing on technological solutions to enhance operations and improve service. The third set of objectives focuses on stakeholders and customers because we want to make sure that our services are responsive to their needs and wants. Another is, of course, the financial aspect. We have to make sure that the Bank is financially stable so we can support our developmental programs and projects. The last key objective is our social economic impact. We will continue to make sure that our priority sectors are given attention. These are the small farmers and fishers, micro, small, and medium enterprises, other agri- and aqua-businesses, and of course government projects like housing, schools, and hospitals. These are the priority programs of the bank and will remain the core of our operations. Challenging times ahead. In the meantime, thank you so much for coming to London and talking to us.

Mrs. Gilda E Pico President and CEO (2006-2016) Land Bank of the Philippines

Mrs. Gilda Pico: Thank you very much. While we take pride in what LANDBANK has accomplished so far, we acknowledge that we have a long way to go in realizing this vision. We thus continue to move onward with solid commitment and purpose to grow the dreams and aspirations of the Filipino people.

Issue 5 | 121

ASIA BANKING

Mr. Vo Tan Hoang Van Member of the Board of Directors CEO Sai Gon Joint Stock Commercial Bank

122 | Issue 5

ASIA BANKING

Current

Banking Trends We caught up with Mr. Vo Tan Hoang Van, CEO of Sai Gon Joint Stock Commercial Bank (SCB) to discuss bancassurance, current banking trends and the future plans for development. What are the current trends you see taking place in the banking sector in Vietnam? After 5 years of a comprehensive restructuring, thanks to a series of proper and decisive measures from the State regulators and the banks, the restructuring process, up to now, has gained positive results. The acquisition and merger of weak and liquidity-unqualified banks have been on the right track directed by the State Bank of Vietnam to narrow down the total number of banks to 15 â&#x20AC;&#x201C; 20 banks in 2020. The restructuring process has basically solved two critical weaknesses - liquidity and asset quality. At the moment, the liquidity of banking system has recovered its stability and safety ratios of banks have meet regulatory requirements. As for the asset quality and bad debt settlement, the State Bank of Vietnam has used a number of solutions, in which, notably is the approval of the purchase of bad debts of banks by the Vietnam Asset Management Company (VAMC). As a result, the bad debt ratio has been positively improved (as of June 2016 stayed low at 2.58% according to the data from the State bank of Vietnam). Besides, the positive macro-economic indicators in the first half of 2016 have been reflected in the business results of commercial banks. In general, the total assets and asset quality of banks have been strengthened, the safety ratios have been ensured and the State bank of Vietnam has outlined a roadmap for the implementation of Basel II standards in the risk management in commercial banks. The application of technological advances becomes a significant move in developing

banking products and services. Given the approach to modern technology in regional and global banking sector, Vietnamese banks have put technological application into their products, services and operation. This has helped to introduce the banking products of more convenience and highest security to a wider base of customers, especially the personal customers an important focus targeted by many banks in the future. Another trend is the continued opening of Vietnamese banking market. The lessening of regulatory limits on the foreign ownership in Vietnamese financial institutions is under consideration to increase the ownership ratio of foreign parties. This is inevitable trend of financial markets in emerging countries, helping make the best use of investment capital, technology, managerial experience and professional workforce of international financial institutions.

SCB has secured to strong partnerships to provide bancassurance services to customers. Can you tell us more about these partnerships and the advantages they offer? Although bancassurance has newly been introduced into Vietnamese market, the partnerships between commercial banks and insurance companies via bancassurance have strongly taken off. Realizing bancassurance as an area of great potential, SCB established strategic partnership with Manulife - a leading insurer - to provide a wide range of banking and insurance services, to cross-sell products and increase the utilities to customers.

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ASIA BANKING

The first year of partnership has even brought about a fruitful result when the bancassurance turnover, as of the 3rd quarter of 2016, exceeded 200% the planned target. Following our partnership agreement (September, 2015), 5 other similar partnerships between banks and insurers have been formed and bancassurance is forecast to become a new and sustainable trend in upcoming years. Along with our strategy of development of retail banking, bancassurance will be adopted as one of our new and appropriate solutions to implement such strategy. As a dynamic emerging market with a young population responsive readily and quickly to advanced technology and services, Vietnam is considered as a potential soil for bancassurance products in retail banking. The combination of SCB’s widespread network and the Manulife’s reputation as a leading insurance provider has strengthened our diverse portfolio of bancassurance products. Although our partnership is still in the early stage, we have initially gained satisfactory results, reinforcing our belief in the success of this partnership. Along with the offering of bancassurance, what additional products and services have been created to meet the needs of customers? In addition to bancassurance, SCB has also emphasized the development of traditional banking products and services on which SCB brand-name has been built so far. To implement the year 2016’s target of promotion of retail banking, SCB rolled out a wide range of deposit products, debit cards, international credit cards, retail credits, personal remittance, etc. Such products are cost- efficient, flexible and convenient in transaction. SCB’s personnel always proactively approach customers to provide them with all-out and timely consultancies on appropriate financial products and solutions. Recently, SCB has improved processing procedures to minimize the transaction time. In addition, SCB has applied technology of mobile banking, internet banking, tablet, social networks to facilitate the accessibility to banking services and transform traditional banking into web-based banking. Significantly, SCB has always paid much attention to the customer servicing. A call center of 24/7 service has been set up to quickly receive and reply to customers’ feedbacks and queries. How do you ensure service quality for new and existing customers? With the motto “Perfection for customers”, SCB is always committed to the interests of customers, the service quality for all customers - existing and new ones, personal and corporate ones.

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Being aware of the increasing competition in the market and the importance of the service quality in attracting customers, SCB has been developing policies and tools for best servicing customers for years. It is always in our philosophy that SCB makes every endeavor to provide our customers with services of the best quality and in the interests of our customers. Every discrepancy between customers and SCB should be promptly handled to ensure the interests of customers. SCB highly values the relation with established customers and regards them as reliable partners of SCB. To promote this win-win relation, it is required that SCB and customers should share mutual understanding, trust and goodwill. These are also our customer servicing principles. What are your current development plans? After a comprehensive stage of restructuring from 2012, SCB has positively harvested many financial and nonfinancial achievements and well-prepared for a next stage of sustainable development. Here are our development plans for the upcoming time: -Expand the operational size, increase the customer base by 30% in 2016 and 25-30% in the next 3 years. -Increase the customer base of young ages by providing the technology-based products and services. -Develop products based on technological applications such as internet banking, mobile banking, international and domestic cards, remittance, etc. -Promote the quality of risk management towards international standards of risk management such as Basel II, reinforce and enhance the internal supervision. -Increase capital to reinforce financial capacity for the new stage of development by seeking strategic foreign investors. The above plans have been outlined to support SCB in achieving the long-term targets, including expanding the operational size, enhancing the service quality, being in Top 5 Vietnamese commercial banks in terms of total assets and network. In financial aspect, SCB is determined to maintain financial ratios, safety ratios and regulatory limits set out by the State Bank and to keep up with the international standards under Basel II.

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Add: 927 Tran Hung Dao, Ward 1, Dist. 5, HCM City, Vietnam - Tel: (84-8) 39 230 666 - Fax: (84-8) 39 225 888 Hotline: 1800 5454 38 - Website: www.scb.com.vn - SWIFT Code: SACLVNVX

ASIA INTERVIEW

Trading in South East Asia Recently in London, Global Banking & Finance Reviewâ&#x20AC;&#x2122;s Phil Fothergill spoke to Melvin Tan, Group Chief Executive Officer of Tradesto and Samuel Law the Executive Director Global Head of Risk Management at Tradesto to discuss the company's success and trading in South East Asia. Tell us a little bit more about Tradesto and what it stands for and indeed why you think it stands apart from the competition? Melvin Tan: Tradesto was a company that we started about 4 years ago, or more than 4 years ago. It had very very experienced shareholders, basically ex-bankers, top lawyers, and people that really were very passionate about the forex industry. We came together to sell this company. We were very amazed at how much we had achieved over the last 4 years. I think we are very focused. Tradesto aims to be one of the largest brokers in South East Asia and in China. We would like to target people who are English speaking and Chinese speaking across this part of the world. Now, your actual operation has a business strategy, I'm sure. Tell us a bit about what that is in South East Asia. Melvin Tan: South East Asia is something that has been very exciting to me. Even when I was a young banker, I basically joined banks that were focused in South East Asia. I was formally from CIMB Bank and Maybank, which is one of the top 5 banks in South East Asia. That explains why I choose this strategy because I've been there and I've been flying around, and you see immense potential across this continent. You have a population of probably 600 million people out of reach since I was born in the 1980's. The population has grown by more than 50%. Young working population and very very versatile, I flew into almost all of the 10 countries, minus Laos, which I hope to visit Laos this year. You can see, you can see that people are very interested in trading currencies amongst other products. We made a very distinct strategy to in the next 3-5 yearsâ&#x20AC;&#x2122; time; we must have a presence and an office I mean in all 10 South East Asian countries and China. Obviously, a massive area to cover and a large population as you just mentioned there. Let's look at your own team now. How do they actually support your clients and give them the best kind of service?

Melvin Tan: Well, how we basically fight to reduce our costs and actually leverage on the economies of scale is that we have chosen to set up our operation's office in Malaysia, Kuala Lumpur. The reason why I think the cost is modest and we are able to find talented individuals in the forex broking space that are both able to speak in English and also in Chinese. We've been very lucky to find in the last years also is that these people who can speak English and Chinese can also speak some Chinese dialects like Cantonese, Hokkien, Teo Chew, and even Bahasa Malay. That has been very helpful because we have staff that can speak 5 or 6 languages and you're able to fly them to other places to conduct business development activities and events, etc. So, with that being said, we have a strong middle office and back office that can support the other regional officers. We have already won half the battle. We don't have to replicate this middle office, and back offices in those countries, and that always saves a lot of costs. This cost savings can be transferred to our clients. That's why we've been able to compete very aggressively in certain spaces, and our competitors have been scratching their heads. How come Tradesto can do it? Now, the next part is that we must be able to find what I call champions or heroes in those individual countries. So, if we intend to go to Vietnam or intend to go to Myanmar, then we have to find a very strong Burmese partner, if not a hero champion that we have to groom in those countries. Having this entire spectrum covered, we then have now a very strong office in Kuala Lumpur that can support that regional offices and those regional offices then become front facing, front officers, business development centers, client services centers, that we'll be able to expand in our plan to grow regionally. Well, I think if they can speak five languages, they're all heroes actually. Very impressive. Obviously behind that, behind the people, you have the technology, and that's a very vital part of banking and trading in this day and age. Tell me a little bit about the technology platform that you have. Melvin Tan: You're absolutely right. I think in this day and age; we have spoken so much about think-tank. The think tank has contributed a great deal to how the entire forex industry, especially the retail forex space in the last 6 years. Therefore, Tradesto takes pride in building a very strong foundation, and this foundation comes from our backbone, which is IT services. I call it the SHED, integrated IT services. Issue 5 | 127

@TRADESTO

ASIA INTERVIEW

Not really in terms of network and infrastructure or how fast our service is, which is very important to clients. The integrity of our service, being able to keep our service up and running and making sure there's no down time. We also have to invest in research and development and technology improving to ensure that we are at least on the benchmark of industry or if not even better. So, what we have done is we have structured out another separate company within the Tradesto group family to basically do research and development and develop state of the art technologies that we all will be proud of to bring our company into the future. So, we have to be always 3-5 years, if not 10 years, ahead of the game. If not, we will be extinguished. It is as simple as that. I've seen many companies in the last 6 years disappear because they're not being able to compete on technology and therefore the company that we created that has the product called Spero or OneSpero, this product basically fits the Asian market that we are targeting, basically South East Asia and China. Their demands, their needs are very different from the American and European markets. I'm proud to say that in the last 2 years since inception, we have many many white labels, many many introducing broken that have been very happy with our product. You mentioned white labels, that's obviously one of the vital parts of your technology. What exactly is that and tell me more about white labeled. Melvin Tan: White label is something that people use very loosely, you know, in the forex industry. Basically, when someone, people think that if you take a brand and then you just use that brand's technology, and then you just put your brand on that technology, you become a very successful white label. No, actually that's not true. I've seen cases whereby white labels are not careful. They choose the wrong technology. They choose the wrong partners to work with and eventually the clash over a certain period of time, or they give up. One of the reasons why is because of the white label

Melvin Tan Chief Executive Officer Tradesto

provider and the client, which is the white label itself. They are not aligned. They are not aligned. Therefore, I've reminded the entire company, my staff, I've reminded them many times that when we bring on board the white label, we are partners for life. We are here to see them grow and grow and grown and become a successful full fledge broker. Our clients find tremendous value in us because our goals are aligned and we want them to be successful because their success means Tradesto success. That's pretty excellent. Very good overview there. Obviously training a very vital part of the operation and perhaps we can come on to that while talking to one of your colleagues a little later. Also, though, looking ahead to the future, because you've been talking about now, what kind of plans do you have? Any exciting developments that you can share with us looking into the future?

Melvin Tan: Yes, indeed. We believe strongly and earnestly working with key partners, and we are not afraid to share. When we go into other people's country, we know that we are not the boss. They are our boss. So, with this shared vision in mind, we want to find right partners that are strong enough, that are capable enough to take Tradesto to the next level in those various individual countries. Therefore, we have made a commitment to find at least 3-5 partners in the next 2 years that we believe can bring our band to the next level in those countries and we have made a commitment to open up offices in those countries and also make the commitment to allocate the necessary resources including money to those countries that we want to expand in in the next 1-2 years. In the next 1-2 years, we want to be in 3 countries. We want to be in Vietnam. We want to be in Myanmar. And last but not least, we want to be able to set up a full fledge office in China. Issue 5 | 129

ASIA INTERVIEW Mr. Law, what is your evaluation of the trading market in South East Asia. Samuel Law: Well, South East Asia is a peculiar market in a sense that it ties into two main elements where it affects market growth. First of all, it would be about broadband penetration and second of all will be mobile penetration. I need to explain

myself that way. As you can see, South East Asia is made up mostly of third world countries, right? We have Singapore being the leading country in terms of technology. I guess it's about 90% broadband penetration. Malaysia, the next county is almost reaching about 80% penetration, and Thailand and Vietnam and Indonesia, the governments, have put immense investment into this infrastructure. It does immediately give that positive affect to us, to our brokers. Why? Because broadband penetration will allow traders to trade anywhere they want. Now broadband penetration will also improve the education aspect as well as marketing aspect. So basically you just opened the forex market

Samuel Law Executive Director Global Head of Risk Management Tradesto

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to more people. Yeah. Next would be mobile. Everybody is living on their mobile phone today. Most countries in South East Asia, except for Myanmar, Cambodia, have Internet 4G. So, 4G itself would enable traders to trade faster on their mobile. How would you describe the market trends in your trading area at the moment? How are they developing? Samuel Law: Well, there are few evolved trends, trends that have evolved over the years. I remember in 2005, 2006, there was a lot of really green pasture, green time. For those older brokers who have come into our market, at that time they were riding on the rising infrastructure broadband penetration, right? A lot of Gen-Y and Gen-X started experienced Internet and then forex education online, and a lot of these market trends were focused on education at a time. Everybody was trading from their desktop, ok? And most of the trading was done manually. Then, as the trade evolved, after that, after the Lehman Brothers case, volatility has risen a lot. You're talking about some pairs, actually move a few hundred peeps, even 1,000 peeps a day. Now, with that kind of volatility, clients got burned, and they were searching for the next Holy Grail, you see? So, the next Holy Grail would be robots and stuff like that. They were looking for the next guru to guide them. That is perpetually the trend. It has become more and more evolved into automative trading, social trading, stuff like that. Mostly, as of today, market trend has evolved into more of automative trading and demand on execution is getting more and more important. That is the biggest change we can see.

ASIA INTERVIEW How do major events around the world affect the work you do? Samuel Law: Oh yeah. Risk management for a broker is very important. In fact, Tradesto is one of the first few brokers. Who has implemented the lowering of leverage on pound related products one month ahead of Brexit referendum? Now, we gave out these notices to all of our clients and partners because the community providers and banks were cautioning us and everyone in the industry to look out for volatility. This is because of the lessons learned during Lehman Brothers. Especially so, not so the Swiss National Bank decision to unpack itself from Europe within seconds, all liquidity just went off, went off the ECN. It affects a lot of brokers at a time. That serves as a lesson to all of us especially myself in risk management that we view these events as potential black swan events. In fact, we did pretty well. We even guide our white labels to follow suits, the same mechanisms that put in place, so that it would protect our clients not to overexpose themselves during that high volatility. So, you've learned to expect the unexpected and be ready for it if you can? Samuel Law: Yes, we try to anticipate. This is not easy; you know? This is hard to find black swans now days. It just pops out. It could be catastrophic. You would never know when is the next black swan event. I know that you provide ECN trading. Can you tell me why you think there is an advantage to this form of trading? What are the advantages of it indeed?

Samuel Law: ECN trading is a popular way today for traders to get access to execution. The infrastructure evolves into higher speed broadband. Everybody is looking for reduced latency execution. So, ECN would help us, help traders access the market in a very continuous pattern. It allows traders to access the deeper pool for liquidity. That's the number one benefit because we pool all of these banks together, and we have much more liquidity to pool from institutions. You see continuity and traders would be able to take advantage of news trading. They could implement some of the higher volatilitytrading patterns. So ECN would enable all of that where previously they couldn't do that. What other kind of trading services do you provide? Samuel Law: We try to fulfill what the clients want. We try to anticipate what clients want in the future. Now, for instance, we did look at several products such s CFDs. These are common products, which clients have. We do look at some other products like options for the future. It's getting more popular. Not wider options, more of a forex options product, which are still sourcing out. Good ones and even money management products to gain access to portfolio management. By working hand in hand with good partners so that this line of products which we attempt to bring to the market that clients feedback to us. I think Tradesto do bring in a lot of new clients to these. Now, presumably, for those clients and traders, training is important. How important do you see the start of training and ongoing training for traders themselves?

Samuel Law: Oh it is extremely important. I mean, education and training for traders who aspire to be professional traders or to be better in trading is very important. You cannot discount the fact. Well, I know that there are too many gurus out there who claim to be the best in their own right. As a trader myself, I have been trading for a good 18 years now, we're still learning. Market changes all the time with new trends, new volatility, and new system. We need to learn all that and along the way improve ourselves. So, I would always say a trader is like a soccer player. If you want to be a Cristiano Ronaldo or if you want to be a Messi, then you need to really work hard and look at your strength and weakness and try to improve on your stats. Right? As a trader, that is very important. That is why Tradesto, we strive to work with good academies. We try not to look at individuals, but we look at academies like recently we worked with one academy, Rubiks Academy from Singapore. We worked with a few others while based in Thailand and Malaysia. We find that people are hungry to learn, but just do not know where to look for, and they are afraid to pay crazy money for some holy grail where there is no such thing as a holy grail. You know? You see, the life of a trader is like, I like to put it in a way where it's like you have a checkered box. You have a black day. You have a white day. You have a winning day. You have a losing day. It's how you manage your winnings and how you manage your losses. At the same time, this requires a lot of skills and control of emotion and stuff like that. Definitely, to succeed, you would need mentors.

Issue 5 | 131

Vietnam

ASIA INTERVIEW

Retail Banking with ABBANK

In May of this year Global Banking & Finance Review journalist Phil Fothergill met with Mr. Bui Trung Kien, Deputy General Director of An Binh Commercial Joint Stock Bank (ABBANK) in London to discuss retail banking in Vietnam, the bankâ&#x20AC;&#x2122;s success and the significant growth of their retail division over the last few years. Well you certainly had a very successful period, I'd like to talk to you more about the work of ABBANK. You've been experiencing significant growth, I know, in the last couple of years in your retail division, and the number of accounts has been increasing huge to 559,359 in 2015 from 304,410 in 2014. So for what reason do you think that is, why has it been so successful for you? Mr. Bui Trung Kien: I think the success is from the effort of the whole bank, in restructuring the bank to work in retail banking. We focus on improving our quality of service, in which we simplify the procedure to provide our products and services to customer. We shortened the time for customers. For example, currently we provide a loan to our customer within 4 hours and this is much better as compared to the past. Secondly, we have developed products that meet the specific needs of the customers and we restructured our products to make the most profit for our customer. Along with this we have continuously provided s, very attractive promotions to our customers and so far, we have gained quite a rapid growth in customers. So you work very hard to ensure that success with all kind of special projects and plans. And indeed in October of 2015, the very respected organization Moody's assigned you for the first time, the B2 rating for the bank. What does that mean to you and the Bank? Mr. Bui Trung Kien: With the B2 rating, assessed by Moody. This is a highest credited in the Vietnamese commercial bank so far and this presents that ABBANK have high liquidity and also in capital adequacy and it also shows that our policy to meet with international best practice and it increases a belief and trust of our shareholders to the bank, to the perspective of the bank in the coming years and I think this is a very good signal to ABBANK. Issue 5 | 133

ASIA INTERVIEW

It certainly has been very rewarding and I know that you must have had a strategy going back maybe as far as 2014, now looking ahead to maybe 2018, what exactly is that strategy? Mr. Bui Trung Kien: The front of our vision is to be the leading Joint Stock Commercial bank in Vietnam, focusing on retail banking. With that vision our mission is to provide friendly, effective and efficient solutions to our customers. So you know that the retail banking in Vietnam, it is full of potential as the growth rate of economy is about 6.6% last year, the population was 90 million people and 60% of them are in the age of labor. It means that we try our best to capture this very potential market and the bank has issued 20 strategic initiatives to implement all the policies to improve the capacity of the bank. So far the progress is on track. Well obviously to make that so successful, you must have developed quite a large number of unique products and services as a result of what your clients have requested. Can you tell me more about that? Mr. Bui Trung Kien: Last year we were successful in reducing the time of processing a loan to a customer. We also issued some different products to our customer based on our advantages. Such as electricity payment, we can now provide the credit to our customer with receivable collateral in a short of time for their contractor of electricity project, so this is a very different product of the bank as compared to the market. Well I have some facts on figures here about the issuance of credit cards by your company because they are very successful. Up in 2015 from 3950 credit cards to 10914. Now why such an increase, why has that been so successful for you? Mr. Bui Trung Kien: Credit card is our very important product as we concentrated in the retail market.

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Last year we co-operated with Visa to issue the new high class credit card so cause ABBANK credit card platinum. This is a specifically used where there is a very high demand of the credit card users and we also invest in credit card with new technology. So credit card of the bank is more secure and more efficient for our customers and we also co-operate with our partner in hotels, in education, in traveling agents and other agencies to promote and to provide promotion policy to our customer and we have some policy with no issue on fee, no annual fee for our customer, so that increase our customer satisfaction.

our customer. We have plan to widen the network, to make us closer to our customer and we also invest in CRM project to improve our knowledge which understanding our customers, and based on that we meet the requirement of our customer. We have the direct interaction with a customer 24 hours a day, by the service center and our branch. In addition, we improve our internet banking and mobile banking also to make it more attractive and more friendly to our customers. So with that solution, we improve the confidence of our customer to the bank and also the interaction between the bank and customers.

Let's look at SMEs. How do you ensure that they and indeed working with you are more competitive?

Well it sounds like you do a great deal of work to ensure that the customers are satisfied, looking ahead to the future if we may, what kind of plans do you have going forward for ABBANK?

Mr. Bui Trung Kien: SME is the other segment of retail banking and currently we have very close corporation with our foreign stake holders. IFC, the International Financial Corporation to strengthen our capacity in SME. We have done analyst on the market of SME and also on the service of our bank provided to SME, so from that reason we have providers and asses our product to the need of customer and with our service we focus on creating the value for SME customer, saving their time, assist SME to deal with their financial issues and support the development of SME business and also we take a good care for the entrepreneur and their family and also their staff and we believe that with such solution, we strengthen our capacity to attract more SME customer to the bank. Well customer relations obviously are a vital part of the services you provide, how do you ensure that you provide those right kind of services to keep your clients satisfied and coming back to it with even more? Mr. Bui Trung Kien: Relation with customer is very important for the bank, we invest significantly in strengthening our interaction with

Mr. Bui Trung Kien: We have plan to continue our sustainable development of the bank, especially in the retail banking. So to do that, we need to improve our human resource policies, to remains good personnelâ&#x20AC;&#x2122;s with the bank and attract more talents into the bank by competitive benefits, scheme and good career development policies. In addition, we invest more in technology to make our procedures more simplified and to shorten the time to serve our customer and make our product more attractive and useful for our customer. And the third one is we continue to expand our branch network over the country, to make our bank presence in province closer to the customer and we also upgrade our internet banking and mobile banking to make it more attractive along with our management policies. We maintain and upgrade our credit rating in this year and the coming years, and we will comply with all the regulation of the central bank of Vietnam and follow the best international practice. In doing this policy, we closely co-operate with our partner, with Maybank and IFC, our foreign shareholders to make use of the advantage in the banking area.

ASIA INTERVIEW

Phil Fothergill, Journalist

Mr. Bui Trung Kien Deputy General Director An Binh Commercial Joint Stock Bank

An Binh Commercial Joint Stock Bank (ABBANK) is established on the 13th of May 1993. With 23 years of building and development, ABBANK has been among one of the banks which embrace prestige and sustainable operation in Vietnam. With the support of national as well as international prestige partners such as Maybank, International Finance Corporation (IFC), Vietnam Electricity (EVN), Hanoi General Export Import Corporation (Geleximco), ABBANK has been developed based on strong governance, professional and modern platform. With the development goal to become one of the leading commercial joint stock banks in Vietnam, focusing on retail banking. ABBANK has given its prominence to Risk Management; Development & Investment in Technology with the purpose of creating a growing platform for utility products & services, especially the products for Individual customers, Corporate customers as well as Small and medium enterprises (SMEs); Transaction Network Expanding; Repositioning the brand ABBANK in the market… Operating with the guideline “Giving solutions – Receiving Smiles”, within the past 23 years, thousands of customers have been chosen ABBANK with their trust of a brand which provides friendly products & services, a brand which commits to quality, dedicated and professional serving manner. Issue 5 | 135

ASIA TECHNOLOGY

An Unusual Suspect Network costs an opportunity for pan-Asian execution services If asked to name the differentiators for global investment banks trading into and across Asia, you might be forgiven for not having network optimisation at the top of that list. Yet, in reality, the entire end user experience depends on the underlying performance of the network. Many banks and brokers struggle to ever achieve the same quality of execution service in Asia that they deliver to clients elsewhere, leaving the few who do to dominate the region’s fast growing market for cross asset execution. This isn’t good for the region or the market’s participants. Asia is already a very challenging region in which to operate, with softening volumes and high volatility making recent conditions especially difficult. Anything that enhances liquidity or improves execution quality will find an eager market. Compared to trading in Europe or the U.S., the sheer logistics of trading into the Asian markets make it a hugely expensive proposition, largely due to its diverse geography. Unlike the U.S. or even Europe,

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it’s a fragmented market, spread over a number of island nations with thousands of miles in between. To get from Europe, trades need to travel a wire that takes in Russia, the Middle East, or Africa. This not only adds to the distance travelled but also introduces geopolitical risk. These are opaque countries; opacity creates risk and risk creates cost. As such, participation has historically been limited to either those with sufficient scale to shoulder the required investment on a global basis, or the intra-regional participants (who still have to deal with the fragmented nature of the market, even if not the transcontinental links) for whom it’s crucial to be able to demonstrate participation in all parts of the region. For trading companies trying to weather looming economic storm clouds, such as fading Chinese stimulus and weakening global demand, overall profitability in the region is increasingly difficult to sustain. In some cases, businesses are questioning decisions to introduce new products or data feeds based on the cost of the required technical infrastructure.

The network effect So why is this such an issue and how is the network a possible answer? Surely the cost of cable is the cost of cable: a necessary business expense? In some ways, yes. The fragmented nature of the Asian market and the long distances between hubs is unavoidable and exposes (relatively) fixed costs when it comes to connectivity. However, given the history of poor quality services in this region, there is a definite and significant market opportunity for anybody able to differentiate themselves with something better. So perhaps it’s worth considering whether network costs are really as fixed as they seem. If a firm can both deliver optimised performance and free up bandwidth to invest in new services, it will be in a winning position. An everyday technical challenge could suddenly be a key differentiator for those operating in the region.

ASIA TECHNOLOGY

The first step to doing so is to invest in a level of close scrutiny and control of bandwidth usage more stringent than firms are accustomed to. Frequent, millisecond sampling rates can capture activity bursts that would have gone unnoticed between samples in less granular traditional architectures. If unnoticed, the bank might then believe that it’s sitting pretty with comfortable 10-15% utilisation when in fact it’s experiencing a burst in excess of 70-80%, leading to slowness and lost data packets for mission-critical trading applications. Forensic, holistic detail can identify which services are causing the bursts – often to find they’re not critical and shouldn’t be on the expensive, low-latency network at all. Re-routing non critical traffic to other, less expensive networks and ensuring events such as batch transfers or daily updates take place outside of the trading window means banks can optimise the performance of their lowest-latency, most expensive networks. This also frees up bandwidth for new services to attract more clients and help gain market share. Costly cables Of course, optimised network bandwidth is good practice anywhere, but it’s an especial boon to trading across Asia. Large scale

executing brokers often use expensive, high-bandwidth lines between their main hubs (Hong Kong, Tokyo, Singapore) and London and New York. While it’s acknowledged that relative bandwidth cost goes down for higher capacity investments, adding extra capacity rather than optimising the existing network is still expensive. For example, 300Mb lines can cost in the region of £10,000 (U.S. $12,971) per month. Upgrading to 500Mb can instantly increase that cost by as much as £60,000 (U.S. $77,826) per year. That’s an unpalatable prospect given the fast growing market data bandwidth requirements, increased regulatory accountability, and soaring operational-level costs which collectively continue to increase the service level burden to banks. Finally, it’s worth noting this isn’t just a problem for the investment banks and brokers. The lack of new products (and cost pressures on existing ones) continues to suffocate new market development. As Asian capital markets look to continue their march of progress and stand shoulder to shoulder with the U.S. and Europe, better network instrumentation and optimisation will be vital to surmounting the region’s unique barriers.

Ian Salmon Accedian

Issue 5 | 137

ASIA INVESTMENT

China –

O n e Ye a r o n f r o m the Panic We have held direct exposure to Chinese equities across our portfolios since late 2014. We also believe that the performance of the Chinese economy and markets is critical to health of the broader Emerging Markets region. Needless to say, our exposure at times has been subject to market volatility during some of the more testing periods. It is with this in mind that we recall events one year ago, when the People’s Bank of China made a one-off currency adjustment, the consequences of which rattled world stock markets. The fracas that erupted after the daily reference rate was lowered by the largest amount in one day since July 2005 was part of broader efforts to bring a more market-determined focus to China’s exchange rate regime. In recognition of these efforts, International Monetary Fund included the renminbi in its Special Drawing Rights in November 2015. The Chinese renminbi is now one of only five currencies with international currency reserve status. A further currency adjustment was made in January 2016, contributing to significant market volatility and fears that China’s authorities were losing control of the ‘managed’ slowdown. Financial markets more comfortable with renminbi depreciation As global equity markets have settled since early February, it has perhaps been somewhat surprising that financial markets have overlooked the steady depreciation of the renminbi at the same

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time as the US dollar has strengthened. The renminbi has fallen 3% versus the US dollar since the end of March, while the US dollar has appreciated 2% on a trade-weighted basis. While the numbers appear relatively small, this trend represents a meaningful shift over the longer term. Since the end of 2013 to the time of writing, the renminbi has depreciated 10% against the US dollar, while the US dollar has appreciated 20% on a trade-weighted basis. In contrast to the volatility seen at the start of this year, it is noticeable that financial markets seem to be more comfortable with renminbi depreciation. We believe there are three main reasons: 1. The Chinese authorities have made efforts to improve their communications with financial markets and clarify the exchange rate regime, which has gone some way to easing investors’ concerns. 2. Policy measures implemented since late last year are taking effect and we have seen a cyclical improvement in recent months. Second quarter real GDP was reported in line with expectations (7.1% quarter-on-quarter, annualised). Exports have improved, retail sales growth remains solid and manufacturing surveys have stabilised. Moreover, we are continuing to see further progress in the authorities’ efforts to rebalance China’s economy. June’s activity data showed a divergence between shrinking investment in industrial sectors of the economy versus stronger

investment in technology and service industries. In particular, fixed asset investment growth continues to slow in industries suffering from overcapacity. 3. Capital outflows have stabilised since March of this year and foreign exchange reserves rose by US$13.5 billion in June, notwithstanding renminbi depreciation and the unfavourable valuation effects of the US dollar. The central bank has also provided indications of further financial market liberalisation, including the opening of the domestic bond market to foreign investors, which could boost flows into China in the longer-term. What is the outlook for China’s currency? As ever, a lot will depend on US Federal Reserve policy and the trajectory of the US dollar. There would be more pressure for the renminbi to depreciate

ASIA INVESTMENT

if the US dollar were to strengthen than weaken. In a ‘lower for longer’ interest rate environment and with the Federal Reserve seemingly in no hurry to raise interest rates, then we do not believe we are about to enter another period of significant US dollar appreciation. Another factor influencing the currency’s performance is domestic economic data. Any significant deterioration in China’s economic data would obviously be negative for the currency. We have just been through a relatively benign period of China’s economy, which has benefited from positive cyclical momentum in response to policy easing measures enacted since late last year. However, the Chinese economy continues to face challenges, not least the buildup of corporate debt to around 150% of GDP. This presents a dilemma for policymakers who are trying to manage

a structural slowdown while at the same time avoid stoking a credit bubble. For these reasons, we believe that most of the policy easing has already been done, and we are not expecting additional monetary or fiscal stimulus in the near term. Our central case remains intact that a soft landing in China will be achieved, but expect bumps ahead as the economy continues through its transition. Finally, it is also worth highlighting that the real effective exchange rate of the renminbi remains nearly 25% overvalued, according to the Bank for International Settlements. There is room for further gradual depreciation against the US dollar and we expect this trend to remain intact. Furthermore, as China’s currency receives more recognition of its global currency reserve status, we would expect investors to focus less exclusively on the US dollar and consider its performance against a broader range of currencies.

Jade Fu Investment Manager Heartwood Investmet Management

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ASIA INTERVIEW

Banking Innovation in Vietnam Global Banking & Finance Reviews Phil Fothergill discusses banking innovation in Vietnam with Ms. Le Thi My Dung, Deputy, Head of Consumer Banking and Head of Bank Card Center at Asia Commercial Bank (ACB). Firstly, let’s talk a little about some of the products you offer, you’ve had many new innovations in previous months. Tell us a bit more about what drives that development and how that innovation is so important to you. Ms. Le Thi My Dung: Actually the traditional definition of innovation I think is getting new, improved products to the market, but in the financial sector I think the product is more about a process. So, therefore, innovation in banking is more about process improvement and organizational change rather than new product development in a traditional sense.

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There are many factors that drive product development in ACB, but I can name here just a few which I think are the most important ones. The first one is customer requirements. As you know, the message which ACB sends to all our clients is “We focus on you” which means that we really want to focus on the customer, and we try to become a customer-centric organization. This customerfocused approach can improve the revenue by attracting more and more new customers and also help us to increase the share of our existing customers. That’s the reason why the customer requirement is very important to ACB. And as you that the customers are really demanding, so that is why in order to meet their expectations we need to create more products and services. The second factor is the competitors, the competition in the retail banking industry, especially in Vietnam, is increasing very intensively. We have to compete with not only local banks

ASIA INTERVIEW

Ms. Le Thi My Dung Deputy, Head of Consumer Banking and Head of Bank Card Center Asia Commercial Bank

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ASIA INTERVIEW but also foreign banks with a hundred years of experience. At the moment in Vietnam, there are about more than fifty commercial banks, in a very small country like this you know how severe the competition is. And that is why, they have more experience than us, we as ACB are very young, we’ve just celebrated our 23rd birthday party this month. The third one I think is the regulatory environment change, this can also drive the product development. For example, the monetary policy, the M&A policy from the state bank of Vietnam and those such changes also impact our product development. And the last one, I think you were sort of talking about technology as well, I think that technology is very crucial. The technology plays a very important role in product development. Technology will change everything; this has to improve the customer experience, and it’s also a critical factor that influences the future profitability of our banks. I can name a few examples you can see that Uber, Air BnB has completely changed the customer behavior nowadays. So ACB, we are so proud to be the first

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bank in Vietnam who implemented the biometric authentication method for all customers across our 250 branches nationwide. Well in keeping with what you’ve just been talking about, perhaps you can tell us more about some of the products you’ve been able to introduce, for example, My First House. Tell us about that. Ms. Le Thi My Dung: My First House, this is for term loans for a housing loan for a customer. The idea of creating the product is that we base on the real needs of the customer who are the young couples and young families. They could be the newlyweds or fresh graduates with a stable income, and they wish to have their first house of their own. Because they are young, and they do not have much income, the bank will support them by lending them money to buy the house with very special offers such as the flexible long-term loan up to twenty years, the flexible interest payment and the client will get the support in financing up to 80% of the house value. And there will be no penalty for the loan repayment before five years.

I also noticed, for priority customers you’ve introduced a platinum card, what sort of services are available from that? Ms. Le Thi My Dung: This is a newly launched product especially for the priority customer, we are going to launch priority banking for CB early next month, and this is a product especially for a customer of that segment. And when you become a priority customer you will automatically be issued a premium debit card, a visa platinum debit card. With this card there’s no participant fee, no annual fee but a lot of special privilege from ACB together with Visa like the transfer service, the TDCQ, the card holder will also benefit from the with no charge at all. Well, those are some of the new services which sound very, very impressive. What about the current trends you see taking place in the retail banking sector worldwide and in Vietnam as well? Ms. Le Thi My Dung: I think that some of the trends taking place in the retail banking sector. The first one I think is the technology change. As I said earlier technology change is becoming very important, it’s been able to increase service and reduce the cost.

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ASIA INTERVIEW Therefore the innovation based on technology change is imperative. There will be more and more digitization in retail banking, and I believe that traditional banking will be replaced by digital channels in the early future. The second change I see is the social and behavior change; this change is also derived from the technology change. More and more people are using social media nowadays, they’re reading online newspapers than old fashion newspaper and media and advertising also change in order to reach the target customer. And the third one is cyber insecurity; it is also a trend that is creating a threat to the retail banking sector. The security breaches and the cyber-attacks generate fear to the customer. Therefore there are higher expectations on information security and privacy among our clients. So I think that the bank has to consider to invest significantly in this area. Technology is a vital part of your operations in today’s modern world of banking but also you have to ensure your customers get the best possible service. How do you ensure that they do just that? Ms. Le Thi My Dung: Well in ACB we have a system to collect all the customer feedback which is operating 24 x 7. In 2014 the contact center served 1 million customers, and it’s increased to 1.2 million in 2015 via telephone, live chats, and emails. 99% of the problem was solved at the first contact point, and the service of the contact centers are really welcome and highly appreciated by the customer. In addition, we’re also running, continuously, a program called mystery shopping in order to track our staff performance to ensure that the customer will receive the best quality of the customer experience. Well obviously you continue to strive to give your customers that best kind of service, but it is as I mentioned just a moment ago it is very competitive in the world of banking what’s your policy to ensure you can stay ahead of the game and still continue to provide excellent service? Ms. Le Thi My Dung: Well in order to expand our market share, in addition to following our proven business model ACB will also leverage on the digital technology to enhance the efficiency and effectiveness by implementing and upgrading projects on digitalization, digital banking, contact center and data governance. The bank will also adopt newer financial technologies to deepen the relationship with customers. With the proven business model, we are trying to review our costs and improve efficiency in growing lending in retail banking; we are trying to focus to have the appropriate risk appetite to enhance the risk management expertise. So we’re confident that the bank will have stable profitability and stay well ahead of our strongest competitors.

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ASIA BUSINESS

India, the UK and the European Union

also need to establish separate offices in an EU country. However, Tech Mahindra has always had to deal with the UK separately to the European Union, so the reality is that while their fortunes are/were interconnected, an independent UK poses more opportunities for it to explore global trade and to look at inward investment directly. Additionally, with the UK less dependent on intra-EU immigration, it could become more open to high-skilled immigration from non-EU countries, including India. In short, Britain, outside of EU can then be seen as an independent market with a renewed focus to build scale. What comes next? Brexit is likely to take a minimum of two years to formalise following the triggering of Article 50 of the Treaty of Lisbon. At this point, negotiation with the EU member states will begin, establishing the grounds for the UK’s redefined relationship with the EU.

Since the result of the EU Brexit Referendum in June, economists, strategists and traders have been hard at work evaluating the far-reaching effects of this decision. One thing for certain is that Indian companies currently headquartered in the UK will need to look at Europe from a different standpoint. At present, there are 800 Indian companies in the UK, employing somewhere in the region of 110,000 people across the largest IT companies. It hasn’t been easy for India to negotiate with the EU in recent years, with conversations often reaching an impasse. Whether UK-India trade will benefit, if the two countries have the freedom to negotiate Free Trade Agreements (FTAs) on their own terms, remains to be seen. The impact of Brexit There’s no denying that the vote for Brexit shocked and unsettled many people and organisations. The first, most notable result was the effect on Britain’s currency – the pound has devalued in the region of 10% since the referendum1. However, as the initial shock factor begins to fade, this decline has been a welcome boost to UK exporters.

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Subsequently, the uncertainty of ‘what happens next’ has resulted in fewer business decisions being made and business spending being put on hold – it’s not necessarily a cut in spending, just that it hasn’t been happening in the past few weeks.

For India, Brexit is a ‘mixed bag’ of positive and negative impacts. It may mean Indian companies in the UK need to re-evaluate their trading strategies and UK/European bases, but it also marks a new beginning for stronger relationships between the two countries. Whilst it is still too early to predict how things will pan out, the fact is, the UK has already begun post-Brexit trade talks with India.

Embracing the opportunities There remains the possibility that future treaties with the EU may not be as favourable for the UK. Whilst the remaining nations may become somewhat insular towards the UK, there are many opportunities for the country when it comes to strengthening the economic relationships between itself and India. After Mauritius and Singapore, the UK is the third largest inward investor into India, with cumulative FDI equity investments of $22.7 billion from April 2000 to December 2015. Likewise, India is the third largest investor in terms of the number of projects flowing into the UK with the number of Indian companies almost doubling from 36 to 62 firms in a year2. The truth is, the UK has traditionally been the gateway for Indian IT firms to enter Europe; they have a large UK presence to serve not only the UK market, but also the EU. The question now is whether they will

CP Gurnani CEO & MD Tech Mahindra Source: 1 https://www.poundsterlinglive.com/gbp-live-today/5265overvalued-british-pound

2 http://indianexpress.com/article/explained/simply-put-

what-britain-european-union-brexit-could-mean-for-indianbusiness-2865405

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