Global Banking & Finance Review Issue 7 - Business & Finance Magazines by Global Banking & Finance Review®

Desjardins Private Wealth Management

Issue 7

The Shifting Tides of Asian Trade

An inside look at Desjardins Private Wealth

Dominic Broom, member of the

Management (DPWM), from its leader’s

International Chamber of Commerce

point of view: Sylvain Thériault, Vice-

(ICC) Banking Commission’s Executive

President and General Director.

Committee, and Global Head of Trade Business Development at BNY Mellon

Investing in Angola Interview with David Carvahlo, Head of Private Equity, Quantum Global Group

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I am pleased present to you the Issue 7 of Global Banking & Finance Review. For those of you that are reading us for the first time, welcome.

In this edition you will find engaging interviews with leaders from the financial community and insightful commentary from industry experts. We discuss banking in Egypt with Hassan Abdalla, CEO of Arab African International Bank. Get a look at the investment landscape in Africa from David Carvahlo, Head of Private Equity at Quantum Global Group and explore the changes occuring in Asia with Dominic Broom, member of the International Chamber of Commerce (ICC) Banking Commission’s Executive Committee, and Global Head of Trade Business Development at BNY Mellon. Featured on the front cover Desjardins’ Private Wealth Management. The multidisciplinary team at Desjardins’ Private Wealth Management specializes in tax planning, portfolio management, business ownership and intergenerational wealth transfer and philanthropy. Sylvain Thériault, Vice-President and General Director of Desjardins Private Wealth Management provides us with a leader’s point of view. 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 you’d like to see in the future. Happy reading!

Wanda Rich Editor ®

Stay caught up on the latest news and trends taking place. Read us online at

http://www.globalbankingandfinance.com/

CONTENTS

Why scaling the conversation is key to maintaining loyal customers

inside... BANKING

28 42

BANKING’S UBER MOMENT

By Julian Smith, Head of Strategy and Innovation at Fetch

Are convenience and loyalty the same thing in modern banking customers?

126

80 88

Lars Holmquist, Senior Vice President for the Americas at Collinson Group

Security Policies Matter for Disaster Recovery Professor Avishai Wool, CTO, AlgoSec

In search of global transparency

How to Avoid Wasting Millions on Inefficient Shopper Marketing Campaign

IRFS 15 & 16 are on the move and about to affect businesses

R&D relief: Use it or lose it!

We Have Passed An Inflection Point in the Personal Accountability of Senior Managers But Don’t Take My Word For it

Nick Nesbitt, managing director at Tagetik UK

Justin Arnesen, R&D Tax & Grants Director at Ayming

Francis Kean, Executive Director in Willis Towers Watson's FINEX Global.

Graeme Gordon, executive director,Praxity Global Alliance

Jon Southcombe, Co-Founder and MD of BASE™ Technologies

Reducing the risk of mergers & acquisitions through trademarks

By Rob Davey — Senior Director, CompuMark, a brand of Clarivate Analytics

117

BUSINESS

Barry Scott, CTO, Centrify EMEA

Banks should ditch cash to boost customer loyalty

Can retail banks attract the tech experts they really need to thrive?

Vanessa Byrnes, Sector Managing Director, Retail Banking & Insurance, at Alexander Mann Solutions

Richard Broadbent, General Manager, Banking, Wincor Nixdorf UK/I

Strengthening Employee Security Using Machine Learning

Product development team structure: identifying Digital Banking in Chile the unmet needs of B2B customers

BANKING

Will PSD2 Be The Nail In The Coffin For Banks? Jens Bader, Chief Commercial Officer, Secure Trading

Don’t Assume Bankruptcy Remote Means Bankruptcy Proof

Get in shape for GDPR

European Tech Mergers & Acquisitions

Dr Jamie Graves, CEO at cyber security specialists ZoneFox

Jason Purcell, CEO, FirstCapital

information: the 100 Valuable importance of data in M&A

Andrew Joss, head of industry consulting EMEA, Informatica

137

Taking the Plunge

Harry Mowat, Greentree

Issue 7 | 5

CONTENTS

Keeping up with today’s high-net worth investor: The challenge for financial institutions

64 6 Emerging Trends in Real Estate Technology

Brexit, borrowers and the superheroes

FINANCE

Brexit, borrowers and the superheroes

Lerika Joubert – Senior Associate in the Banking & Finance team at international law firm Taylor Wessing

The EBA’s new capital requirements: proportionate doesn’t always mean lower Written by Michael Chambers, Head of Prudential at Cordium

Riding the wave of payments transformation

Eric Tak, Global Head of Payments Centre for ING Bank

Ready for Invisible Payments?

131

Payments evolution – happening so fast, everyone is out to win the race!

Ralf Ohlhausen, Business Development Director at PPRO Group

Mike Manchisi, President of MasterCard Payment Transaction Services.

INSURANCE

Not If, But When: Five Questions You Should Ask When Seeking Cyber Insurance

Walter J. Andrews and Jennifer E. White, Hunton & Williams LLP

INVESTMENT

Keeping up with today’s high-net worth investor: The challenge for financial institutions Gareth Lewis, CEO and co-founder of Delio Wealth

82 109

A new model for investible infrastructure

TECHONOLOGY

Digitalisation or Bust

6 Emerging Trends in Real Estate Technology

Steve Young, Managing Partner at Citisoft

106

Into Africa: For corporates, insider knowledge is the key to unlocking African trade Christian Nägele, Head of Sub-Saharan Africa Region at UniCredit

Trading in Asia

Dav Liew, Chief of Strategic Marketing in Asia for Starfish FX Steve Hansen, Chief Operating Officer for Starfish FX

The Need for Strategic Change in Mobile Financial Services Craig Catley, Director, StrategyBlocks

Security Policies Matter for Disaster Recovery Professor Avishai Wool, CTO, AlgoSec

Murray Rowden, Turner & Townsend

Following the herd

Amin Lalani, CIO Executive, Financial Services, Huawei Western Europe

Anna Rodriguez

102

Buzzword Bingo! Making Sense of SDN, SD-WAN, NFV and VNF Steve Woo, VP of Product & Co-Founder, VeloCloud

TRADING

120 6 | Issue 7

134

Better control and protection of software-based intellectual property in the financial services market -why it matters and how to achieve it Konrad Litwin, Managing Director International, Perforce Software

CONTENTS

BANKING IN EGYPT

8 62

CELEBRATING 96 YEARS OF STRONG PARTNERSHIPS

INVESTING IN ANGOLA

DESJARDINS PRIVATE WEALTH MANAGEMENT

interviews... BANKING IN EGYPT 8 Hassan Abdalla, CEO, Arab African International Bank

DESJARDINS PRIVATE WEALTH MANAGEMENT 60

Sylvain ThÃ©riault, Vice-President and General Director, Desjardins Private Wealth Management

INVESTING IN ANGOLA 96

David Carvahlo, Head of Private Equity, Quantum Global Group

Issue 7 | 7

Middle East

8 Issue 7

MIDDLE EAST INTERVIEW

Banking in Egypt On the occasion of winning the Best Investment Bank in Egypt for the fourth consecutive year, Global Banking & Finance Review spoke with Hassan Abdalla, CEO of Arab African International Bank about the banking sector in Egypt. In your view what is the current state of Egypt’s economy in terms of stability and potential for growth? Egypt is quite on track. The decisions taken by the Egyptian government lately aim to restore financial stability and investors’ confidence, while at the same time, increasing employment opportunities. Aside from de-pegging Egypt’s Pound from the USD Dollar, a number of measures have been taken by Egypt to rectify its large fiscal deficit. To name a few, introducing VAT & progressive taxes, slashing the public sector wage bill, and lifting of fuel subsidies were pre-requisites to approve the recent IMF loan. The move was applauded by Global Rating Agencies which have reaffirmed Egypt’s B-/B long and short-term sovereign credit ratings and revised the outlook from “negative” to “stable”. Hence, the structural reforms should aim to transform Egypt’s economy into a market-

driven, private sector-led, competitive enterprise capable of generating high rates of inclusive and sustainable growth. Egypt is a deep rich market with high resilience, and provides very lucrative returns compared to the risks entailed. What impact are regulations and reforms having on the banking industry in Egypt? We are part of the global banking scene. Financial institutions across the world are facing many challenges, yet I am quite confident of the resilience of the Egyptian banking sector. As we speak, the challenges facing the Egyptian banking sector are more or less similar to those facing banks worldwide. We all have to adjust and revise our business models in a very challenging macroeconomic landscape. Topping the list is facing foreign exchange volatility, evolving international regulatory and compliance requirements including new risk management techniques and capital adequacy requirements in addition to tighter banking supervision.

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MIDDLE EAST INTERVIEW

Hassan Abdalla CEO Arab African International Bank

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MIDDLE EAST INTERVIEW

Compliance cost, data reporting, and necessary IT infrastructure are becoming additional costly mandates. Basel III will add further capital and supervision requirements that will put pressures on banks’ profitability and trigger the risk – return trade offs. Will banking remain a profitable industry? It is no longer business as usual. Banks cannot sustain their profitability unless they undergo a fundamental revision of how they do business, revise policies, systems, structures, including development of human resources skills. It is quite challenging. Zooming on specific challenges facing Egyptian banks, the main challenge will be adapting and coping with a very fluid and dynamic socio-economic landscape. Egypt offers a very rich landscape with a huge diversified economy, deep market and huge population of around 90 million inhabitants. This situation creates challenges as much as it creates opportunities. It all depends on your ability and agility to develop your business models to leverage opportunities. For example, Egypt has a young population whereby 60% are below the age of 30. This could be deciphered as a burden of unemployment but it also points the way that banks should shift their traditional operations towards microfinance, entrepreneurship funding, along with small and medium enterprises. Financial inclusion has become a nationwide mandate endorsed by the Central Bank of Egypt. Egyptian banks are faced with a new mandate, which requires new arrangements as it provides rising growth potential. In the same context, funding clean energy and energy efficiency is a new track that is becoming very relevant to the Egyptian context. What opportunities do you see for foreign investments? There are countless opportunities untapped for Egyptian and foreign businesses. Egypt is currently showing promising growth

rates when compared other emerging markets. Investments in Egypt tend to provide relatively high return compared to risk. Egypt is characterized by a resilient economy that has been able to withstand and overcome internal and external shocks. Continuing with the structural reform program, Egypt is expected to witness an uptick in growth rates over the medium term due to the inherent advantages in the Egyptian economy; namely a large population, deep market and a highly diversified economy. What advisory services does Arab African International Bank (AAIB) offer to help individuals and corporate investors achieve their investment objectives? AAIB is Egypt’s leading investment bank. Its distinction lies in being a frontrunner in providing outstanding investment banking and corporate finance services. We offer a plethora of financial advisory services, including distinct and tailormade – not to mention solution – driven finance structures – customized to our clients’ needs across different sectors. These can vary from short to long-term loans. Our corporate portfolio services include advising on equity placements, mergers and acquisitions, feasibility studies, valuations, escrow arrangements, agency services and raising finance through syndicated loan market. We also lead the local debit capital market in terms of issuing corporate and securitization bonds. AAIB corporate services is backed by integrated services of its financial subsidiaries along with its regional branches. Established in 1964, AAIB has a strong regional presence with branches in Egypt, Dubai, Abu Dhabi and Beirut. With 90 branches in your network, what are your plans for expansion and development of your self-service channels? AAIB is the only private Commercial Bank with growing presence in the region. AAIB’s presence in the region is not only by having branches in Dubai, Abu Dhabi

and Beirut. AAIB has strong business relations with many countries in the region.It has deep business relations with leading corporates in Saudi Arabia, Kuwait, Bahrain, Oman, and Qatar. On the other hand, AAIB has made a significant investment in expanding its local branch network. It aims to reach a network of 100 branches by the end 2017 with more focus on geographic footprint in Upper Egypt & the Canal Area. Egypt has a large youth population, which constitutes a great opportunity for retail banking growth. With a total number of banks in Egypt of 40, number of branches for total banks in Egypt are only 3,824 as of December 2015 (CBE). Banking density is 1 branch for each 23,600 persons which is very low compared to the rest of the world. AAIB Network Expansion Strategy is enhancing its geographical spread across Egypt and enhancing its self-service channels. AAIB is targeting to be the third bank among peers in terms of customer reach by the end of 2017. The planned network expansion is to reach almost 100 branches by the end of 2017. The additional branches that will be launched during 2017 are scattered among different untapped governorates and include branches in strategic areas such as vital Egyptian ports. As for the self-service channels, AAIB is targeting to grow its ATMs network to reach 410 ATMs towards the end of 2017. The bank also has 2 Auto branches. Moreover, the bank is conducting studies to introduce unmanned branches/ banking units in shopping malls, universities and residential compounds to improve customer reach and enhance customer experience. AAIB is also focused on probing Mobile Banking in 2017. Enhancement in offering the payroll service as well as an ongoing innovation of new products and market segments introducing unique products and service offerings. In addition, improved and accelerated delivery channels through migration to ATMs and mobile payment gateways; and intelligently rationalize the branch footprint locally & regionally to increase banking penetration and outreach.

Issue 7 | 11

MIDDLE EAST INTERVIEW

AAIB is now also preparing branches to serve for special needs and is planning to have 5 fully equipped branches. AAIB has evolved from being just a bank to a fully integrated financial group offering asset management, brokerage, leasing, and mortgage services. How does this benefit your clients and what plans do you have for future growth?

12 | Issue 7

AAIB’s mission is to offer a continuously evolving array of services to the entire region, developing new business arms to that effect. The Bank's growth was propelled in 2008 with the establishment of four subsidiaries; Arab African Investment Holding (AAIH), Arab African Investment Management (AAIM), Arab African International Securities (AAIS), Arab African International Mortgage Finance (AAIMF) and the newly established in 2014 Arab African International Leasing

(AAIL). The establishment of which transformed AAIB from a Bank to a fullfledged financial group. Therefore, AAIB has realized the benefit of synergies and consolidated services to our clients through its financial arms, perfected by a related diversification within the financial services markets. Moreover, the bank is planning to launch “SANDAH” with KFW Bank aus Verantwortung, a green field microfinance company that will serve the untapped microfinance segment in Egypt .

MIDDLE EAST INTERVIEW

AAIB recently signed a memorandum of understanding with the General Authority for the Suez Canal Economic Zone. Can you tell us more about this agreement and what it means for investors? AAIB is the first regional bank to conclude a MOU with the General Authority for the Suez Canal Economic Zone (SCZone) on January 3, 2017. It aims at providing investors with bank’s unique financial and investment products and services,

which will definitely help to boost the flow of investments into the region. Enacting the MOU, the bank will have the right to arrange and fund loans, offer its distinctive banking products, and provide investors with bank’s renowned financial advisory services. Besides holding projects and partnerships between the public and private sectors including navigation sector and its affiliated ports. That’s in addition to the participation in providing funding alternatives for all economic activities including the industrial activities. SME’s represent a large portion of Egypt’s GDP. What are the biggest challenges facing SME’s right now in Egypt? The role of SMEs proved efficacious in the development of many economies around the world including the United States and China. That is because they are easily initiated and carry benefits to the citizens as well as the state. The SMEs may be the best solution for Egypt’s current economic state as a long term objective. SMEs have the ability to provide a large number of jobs to subdue unemployment and substitute imports of finished goods. Egypt has a total of 6.4M enterprises, whereby only 400K are formal. Although the government has taken steps to bolster the sector, little success has resulted. Compliance with the new norms requires working on the demand and supply side categorically. Initiatives in financial literacy, KYC, and leveraging on bank’s infrastructure might precede lending to SME clients. Commercial banks are yet to remain conservative with respect to lending to this segment. Egypt’s SME sector remains underdeveloped with less than 8% of total firms have credit. The main challenges facing borrowers are collaterals, access to finance, and lack of entrepreneurial skills and managing accounts. Banks have to be equipped with the necessary infrastructure, training of manpower, delivery channels, business and operational model, credit and risk management.

The program recently launched by the Central Bank aims at increasing the SMEs lending share of total banks’ portfolio to 20% over the next 4 years. In this context, we are constantly building the infrastructure necessary to substantiate this move. We are structuring a fully-fledged specialized SMEs unit inside our bank, considered the best new revenue streams. We have also focused on investing in training emerging calibers from the corporate and retail lines of business to build a strong knowledge base in SME funding and through a joint training program with Frankfurt School of Finance & Management. Can you tell us about some of the support services you offer SMEs and how does the support offered to SME clients differ from the needs of large corporations? As I mentioned before, the bank is planning to launch its SMEs company “SANDAH”. A green field microfinance company will serve the untapped microfinance segment in Egypt. Creating a completely new microfinance institution that requires an innovative, proactive approach to the challenges of risk assessment and efficiency of the low and middle-income segment .AAIB’s role would be enhancing access to credit vital to Egypt’s economic growth and job creation. The support given to the SMEs differ from the needs of large companies in many ways. A crucial element in the development of the SME sector is access to finance, particularly to bank financing, given the relative importance of the banking sector in serving this segment. Small businesses cannot usually afford to pay for the kind of accounting and bookkeeping services they need, nor can their new employees be effectively tested and trained in advance. Moreover, to compete in global markets, SMEs need to develop new business strategies and deploy new technologies. SMEs provide tremendous growth potential but require a healthy ecosystem to evolve in scale.

Issue 7 | 13

MIDDLE EAST TECHNOLOGY

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MIDDLE EAST TECHNOLOGY

Digitalisation or Bust The proliferation of digital and physical channels has never had more of an impact on our lives than today. This is especially apparent within the financial services industry, where digital transformation is more important and relevant than ever before. While digital technology has continued to develop and grow in complexity over the last few years, it has also served as a catalyst for digital banking, benefitting not only consumers but banks themselves. This can be seen through the â&#x20AC;&#x153;anytime, anywhereâ&#x20AC;? concept, which promises customers service whenever and wherever they need it. What was considered new ways of working have now become conventional such as the use of contactless and mobile payments which use advanced digital technologies to complete transactions. The proliferation of self-service, reduces the need for extensive branch networks, freeing up staff to work on other important tasks such as improving customer engagement.

Driving the progress are four key enablers; cloud computing, mobile internet, social media and big data integration. All being achieved in a climate where there are growing requirements and changing expectations from customers that banks must comply with to remain competitive. A scenario compelled by reduced costs, faster time to market, greater transparency and control and improved customer loyalty. This must all be done within a more exacting and demanding regulatory framework.. However, the big transformation brings great challenges.

Challenges in the Internet era There are two key challenges facing financial services organisations today. Firstly, customer expectations which continue to grow as technology becomes more innovative and accessible. Consumers want seamless, secure, efficient, easy to use services that are available on demand and many will not remain with a bank or financial service if it doesnâ&#x20AC;&#x2122;t provide this1. Customers want to feel connected with their financial institutions and because of this, customer loyalty can be hard to maintain.

Issue 7 | 15

MIDDLE EAST TECHNOLOGY

Secondly, new entrants into an established industry are disrupting traditional banking and have a big impact on assets, liabilities and also business. Various digital financial service providers have lowered the entrance of mass-market wealth management, and have overshadowed the attractiveness of banking deposit products. Moreover, third party platforms such as Apple Pay are also gradually replacing the banksâ&#x20AC;&#x2122; role as a payment channel. Financial regulators intend to make it even more competitive in the world of payments by simplifying the payments landscape to reduce the cost of entry. This will allow FinTech businesses to increase competition and marginalise transitional banking billing and settlement services unless they adapt. In the face of these challenges, banks and other financial services need to have a holistic digitisation strategy to address different channels and products, and to position themselves as both relevant and necessary to the consumer.

Digitising to support the banking revolution To compete and thrive in the digital era, banks and other financial institutions need to respond to increasing customer demand for mobile banking and interaction through digital channels. There are three key areas financial institutions should look to improve. Speed at the lowest cost: Firstly by using high-performance open platforms, cloud computing and distributed architectures, banks and financial services can develop flexible platforms that will support smart platforms. The OpenStack financial cloud will also ensure that services perform at their best to provide the customer with the ultimate customer experience.

Improve customer and business insight: Secondly, by adopting big data platforms, banks and financial services can use innovative technologies, such as artificial intelligence and machine learning, to understand customer behaviour and implement precision marketing based on data analysis and insights. This allows businesses to provide personalised services to customers whilst also providing employees with refined decision-making. Front to back omni channel/unified communication: Finally, financial services organisations can reshape their services by integrating cutting-edge mobile and video communications technologies with financial channel services. Once implemented, these digital services will allow consumers to access financial services anytime and anywhere, significantly improving the customer experience in real-time.

Todayâ&#x20AC;&#x2122;s era of banking transformation In todayâ&#x20AC;&#x2122;s digital era, banks are facing a new reality with customers moving toward and demanding more from mobile and digital channels as well as new entrants disrupting the market. Upgrading and managing business technologies will mean more than rejuvenating legacy ICT systems. Financial institutions can improve the flexibility, reliability, availability and scalability of their services, and make a step forward towards the next generation of banking. It is not the legacy environment that is limiting banks transformation journey but more legacy thinking.

Amin Lalani CIO Executive Financial Services Huawei Western Europe

1 http://newpaceofchange.com/

Issue 7 | 17

MIDDLE EAST BUSINESS

Reducing the risk of mergers & acquisitions through trademarks Mergers and acquisitions have always played a major role in the business world, but rarely have they made news headlines with the frequency that they do today. This is due not just to the increasing number of deals that are happening on a daily basis, but also because of the increased size and scale of such deals. In the last few months alone, we’ve seen numerous ‘megamergers’ within the world of broadcast, food and drink, and beyond. Businesses seek mergers and acquisitions because they want to achieve greater operational scale, improved efficiency and increased influence within its sector. However, none of this can be guaranteed if the issue of intellectual property isn’t thoroughly considered before signing on the dotted line. An important component of intellectual property, trademarks have always been seen as a valuable asset for businesses looking to operate efficiently and protect their brand while minimising the potential of reputational damage. However, they’re more vital than ever in today’s market where competition is at an all-time high. This is why, during the due diligence process of any merger and acquisition, it is essential to undergo what is known

18 | Issue 7

as a ‘trademark validation’ process. This involves thoroughly considering all of the intellectual property assets of the other party, including trademarks, copyrights, patents etc., to make sure that each is properly registered and maintained. If trademark validation is not carried out before the deal is done, it’s likely that problems will be faced later down the line that could limit the scope of use. These consequences can range from re-pricing, re-evaluating and re-structuring the merger or acquisition deal to being forced to abandon the deal altogether. Although the potential consequences depend on many different factors — including the trademarks in question, the small-print within the deal, etc. — it’s a clear warning sign of the possible dangers, and a reminder of what can be avoided by carrying out a proper trademark validation process at the right time. Trademark validation holds advantages for both parties. For those looking to make the purchase, the process provides them with the transparency to make much more informed and sensible negotiating decisions based on the condition and validity of the other party’s intellectual property assets. It also allows the

purchaser to tackle important questions such as: ‘which relevant categories can these trademarks be used in?’ and ‘When is each trademark set to expire?’. On the other hand, for companies putting themselves on the marketplace, trademark validation will result in a much more straightforward deal with minimal headaches to contend with on the way to completion, and no unexpected trademark issues after the deal has gone through. For those looking to actively engage in trademark validation during a merger or acquisition deal, there are three main steps. First comes the process of identifying all assets included in the seller’s portfolio. The seller must declare

MIDDLE EAST BUSINESS

any and all owned trademarks, while the purchaser must thoroughly inspect each mark and check it is assigned to the name of the correct owner. Secondly, the purchaser must identify the jurisdiction in which each trademark is registered. This is so that both parties can determine which ones are ‘first-to-use’ and which are ‘first-to-file’. Some countries may recognise common law trademark rights based on the use of a mark, while other jurisdictions give priority to the first party to file a trademark application, regardless of use. Finally, and perhaps most importantly, comes the process of making sure each

trademark covers the required goods and services classifications. If this isn’t the case, then the trademarks are of little value. Domain names should also be considered, as it’s extremely useful to know whether these are owned by the company itself, an individual or a third-party. There’s no doubt that we’ll continue to see the proliferation of business mergers and acquisitions, which is why it’s becoming increasingly important to take trademark validation into account. The process is beneficial for both parties, and ensures a much smoother deal without any unexpected intellectual property complications.

Rob Davey Senior Director CompuMark a brand of Clarivate Analytics

Issue 7 | 19

MIDDLE EAST BUSINESS

Why Scaling the Conversation is Key to Maintaining Loyal Customers

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MIDDLE EAST BUSINESS

Mailed contracts, emails, text messages, push notifications, online statements: the scope of customer communications is expanding for financial services companies. Maintaining customer loyalty means ensuring each interaction is part of one seamless and personalized conversation. For those with fragmented communications processes, legacy systems and limited capacity to manage vast stores of data, streamlining and tailoring communications is no easy task. But companies who don’t provide consistent, timely, and relevant conversations across channels – when and how their customers dictate – risk getting left behind and losing out to the competition. So, how can businesses achieve this?

Centralizing customer communications Customers have taken charge of their own experiences and expect companies to keep pace with their interests, needs, and preferences across every channel. They don’t expect conversations to be disjointed or communications to be irrelevant. Yet this is still the case for many companies; with a recent PointSource1 study finding that 48% of decision makers in marketing, IT and operations aren’t sure they’re accurately addressing their audiences’ needs across platforms.

One of the key drivers of this fragmented approach is that customer communications management (CCM) is often considered a back office function, usually overseen by the IT department. Not only does this mean the CIO is left to patch complex conversations together, but also that communications can’t run at scale. To deliver tailored and timely messages — and earn customer loyalty — data needs to flow rapidly between departments, and communications need to be at the heart of digital strategy. And this is where cloud-enabled CCM comes in. Cloud-based software-as-a-service (SaaS) models offer an effective solution to issues that can be caused by siloed management. Using advanced modern architecture and cloud efficiency, these models allow companies to unify document generation processes in one system and instantaneously adapt messages at scale. Business users can then take control of the communications’ process so the IT department becomes less of a bottleneck when new communications need to be rolled out quickly.

Moving on from legacy systems Legacy systems are a difficult subject for decision makers. Their drawbacks are no secret: they frequently focus on one area of communication (typically print) while failing to optimize others (such as digital).

They are built from multiple individual systems that don’t work together and require regular maintenance — meaning system or documentation changes can take weeks of costly work by IT specialists, which may be completed too late to reach customers when and where you need to. To make matters worse, this inflexibility means countless versions of individual templates must be created for different channels, customers, and messaging scenarios. Despite being aware of these failings — 84% of respondents in the PointSource2 study agree or strongly agree that their organization’s outdated legacy systems impact their ability to improve digital experiences — many decision makers are reluctant to modernize, as they fear it will be time-consuming, complicated, and expensive. Cloud-based SaaS models, however, are designed to be faster to implement and more cost-effective than legacy systems, as well as simple to use. Here’s why:

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MIDDLE EAST BUSINESS

1. Fast roll out In a report by Cloud Security Alliance3, 40% of financial services companies listed “Improved Time to Market” as the primary reason for adopting cloud computing. Cloud-enabled CCM minimizes disruption to business operations, reducing any potential losses, and enables a speedier transition from initial implementation to efficient large-scale communications delivery. So financial services companies see a rapid return on their investment.

2. Cost-savvy tech Moving away from manually operated on-premise document generation systems can reduce the annual cost of IT infrastructure by $350,000 – by

eliminating hardware, applications, database servers, OS upgrades, and associated maintenance costs – as well as the hours spent entering data in different parts of the same system. Additionally — and perhaps more importantly — it also gives financial services providers the ability to quickly scale up or reduce their processing ability in accordance with customer needs, avoiding any wastage and maximizing business success.

3. Exceptional usability Perhaps most importantly, cloud-based models are designed to shrink internal workloads, saving time for enterprises. It also enables an immediate exchange of data, which powers large-scale personalization – all built from a single template – meaning multi-channel correspondence that is tailored to specific customer needs. No more thousand-

doc refreshes, it’s just one-and-done for communication revisions that keep customer conversations relevant. With an array of channels — from smart watches to social media — transforming the way customers interact with their financial services providers, a more connected CCM approach will be essential if companies are to stay ahead of their rivals and boost scale. The key priority for most decision makers is to choose a path that will generate the greatest returns, fast. With its ability to reduce costs and workload, increase personalization, enable streamlined digitalization and scale customer conversations while maintaining customer loyalty, cloud-enabled CCM is the way forward.

George Wright CEO Smart Communications

"Data Study - Executing Digital Transformation." Data Study - Executing Digital Transformation. N.p., n.d. Web. 05 Apr. 2017.

3 https://downloads.cloudsecurityalliance.org/initiatives/ surveys/financial-services/Cloud_Adoption_In_The_ Financial_Services_Sector_Survey_March2015_FINAL.pdf

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Europe 24 Issue 7

EUROPE FINANCE

Brexit, Borrowers, and the Superheroes When you see a superhero there is usually a villain lurking somewhere. It is probably a bit premature to label Brexit as the villain especially considering that judgement should only be passed once it has had a fair trial, and that trial can only commence once the UK divorces the EU. But I need a villain so it has to be Brexit. There has been an inundation of Brexit related articles in the media, some suggesting a rather bleak future in the aftermath of Brexit and others painting a more positive picture...But what are UK corporate borrowers mostly concerned about?

Brexit side effects Borrowers do not necessarily fear Brexit itself but rather its unknown side effects; for example, will it cause a contraction of the lender pool, reduced liquidity in the financing markets and/or an increase in pricing on deals? There is a real risk that some lenders may face higher funding costs as a result of Brexit; it remains to be seen however whether they will pass these costs onto borrowers. The Loan Market Association (LMA) loan agreement contains a standard increased costs clause

which is drafted in deliberately wide terms in an attempt to cover all circumstances which could increase a lender's costs as a result of a change in law or regulation; therefore, to the extent that there has been an increase in a lender's costs as a result of a change in law or regulation whether or not brought about by Brexit - lenders could seek to recover such increased costs under this clause. In the Government's White Paper on Brexit (presented to Parliament in February 2017) it was confirmed that the UK "will not be seeking membership of the Single Market". EU passports enable unrestricted trade across the EU as they allow lenders and other financial companies to operate across the EU without having to obtain approval for access to each EU country. Following an exit from the Single Market it would be unlawful for UK financial institutions to provide funding to EU borrowers without being authorised in the relevant EU country, if that EU country requires a lender to be authorised in order to make loans. But what does this mean for UK corporate borrowers (as opposed to EU borrowers)? UK banks and foreign banks with licences from the UK's Prudential Regulation Authority will continue to be able to fund lending to UK corporate

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EUROPE FINANCE borrowers regardless of whether or not the UK is part of the Single Market. However, EU banks which operate in the UK under passports will lose the ability to fund through deposit taking and will need to apply for banking licences if the UK government does not offer some form of "grandfathering" arrangement for such banks.. That said, even though an exit from the Single Market may not have a direct impact on UK corporate borrowers it could indirectly affect them as it will no doubt have some financial implications for those lenders who rely on their passports to sell their products into the EU and they may seek to pass on some costs to borrowers. In addition, there is also a risk that foreign banks may decide to find another base from which to conduct their passporting activities across Europe, which may result in (among other things) a flight of capital from the City and a contraction of the local lending pool. All of these potential side effects could have a detrimental impact on a UK borrower's access to funding and as a result hereof some UK borrowers may have to turn to my so-called "superheroes". The only problem is that these superheroes are different - they come at a price but are nonetheless superheroes because they provide depth to the UK lending market and provide borrowers with much needed optionality and flexibility.

Are alternative lenders the new superheroes?

There has been some talk in the market about the rise of the alternative lender (although I am yet to see one wearing a cape) – will they save the UK corporate borrower from the villain called Brexit? Many sceptics suggested that Brexit would cause a chink in the UK corporate borrower's armour but it has now been more than eight months since the referendum and the financing markets across Europe remain liquid and pricing is still competitive. That said, there will continue to be uncertainty for some time to come as Brexit will not happen in a

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flash and arrows are being fired from all directions at the White Paper which did not turn out to be the White Knight that some had hoped it would be. There are many established alternative lenders who have been actively lending in the UK mid-market for many years now; they continue to be an attractive option for those borrowers who want access to bullet structures and more flexibility on the make-up of the covenant package. Their unitranche facilities have especially been very popular, and they also seem to be able to hold very large loan sizes for leveraged loans. All of these advantages (including the ease of transacting) do, of course, come at a price and it will depend on the individual borrower whether it is a price worth paying. Most superheroes have a weakness and this holds true for alternative lenders too: they need longer notice periods for drawdowns (although, in respect of the first drawdown, this is offset by the overall increased speed of execution); they cannot provide clearing and ancillary facilities; and as mentioned above, they tend to be more expensive than traditional senior bank debt. Any relationship with alternative lenders would therefore be non-exclusive; for example, the term debt would be provided by the alternative lenders with a super senior revolving facility and ancillary facilities (including hedging) being provided by banks. Any Brexit-related price increases on bank deals would of course narrow the pricing gap between bank deals and alternative lender deals, bringing it a little bit closer to home for some borrowers. But alternative lenders may too seek to pass on certain Brexit-related costs to borrowers; for example, those alternative lenders who have raised capital in euros, and who are funding in sterling, may want to pass onto borrowers any increase (post-Brexit) in the cost for buying a sterling/euro swap.

EUROPE FINANCE Private placements Borrowers could also explore other methods of alternative funding such as private placements. The past few years have seen a push to stimulate the UK private placement market with the introduction of, for example, standardised LMA documents and an exemption from UK withholding tax for interest paid on “qualifying private placements”. The exemption, which came into force on 1 January 2016, under the Income Tax Act 2007 (ITA) as supplemented by the Qualifying Private Placement Regulations 2015 (SI 2015/2002) is aimed at transferable unlisted debt instruments that cannot benefit from the “quoted Eurobond exemption”; it enables direct lending from states with a double taxation treaty whether or not the treaty provides for a nil rate of withholding tax, and without making treaty claims (the exemption can also apply to UK investors). For some borrowers private placements may very well be the golden key that they have been waiting for to unlock the door to a whole new universe of investors such as insurers, pension funds and asset managers. Private placements offer borrowers many advantages including: longer maturity dates than bank debt; quick implementation due to the standardised LMA documents; (depending on the investor base) they can be structured as loans or bonds; and they offer borrowers covenant flexibility. As expected, however, this superhero has its own kryptonite in the form of, among other things, a make-whole on early repayment and minimum deal sizes.

From a borrower's point of view, there are many different choices when looking for debt capital each with its own advantages and disadvantages; the trick is to find the right one that works for the particular borrower.

The closing scene

It is all about having quick and affordable access to funding. If the lenders in the UK market can continue to provide such access regardless of Brexit, and at a reasonable price, then generally speaking UK corporate borrowers should not have too much to fear in a post-Brexit world. In addition, there will always be a few superheroes circling above happy to answer any distress calls. Only time will tell whether more UK corporate borrowers will call upon the superheroes in the aftermath of Brexit and perhaps more interestingly who these superheroes will be. There is certainly a possibility that, when unmasked, it could be any of Mr Alternative Lender, Mr Private Placement or Mr Bonds. The good news for UK corporate borrowers is that they have more than one option and that is a positive story.

Other traditional sources of funding In addition to private placements there are also the bond markets with many corporates considering venturing into, for example, the high yield bond market with its very attractive cov-lite terms. As with anything else, it too has its disadvantages with, for example, its long non-call periods and generally high refinancing costs.

Lerika Joubert Senior Associate, Banking & Finance International law firm Taylor Wessing

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EUROPE BANKING

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EUROPE BANKING

BANKING’S UBER MOMENT There’s currently a seismic shift occurring in the financial services industry that is shaking traditional banking to its core. Thanks to the smartphone, the accompanying app economy and its most eager adopters: Millennials, legacy banking institutions are being forced to change like never before. This is, in other words, the banking industry’s Uber moment – where plucky and unencumbered startups are increasingly challenging the status quo - forcing the established industry leaders to take note.

Millennial mindset Quite rightfully, businesses across other sectors are taking note of the smartphone revolution and Millennial behaviour, adapting their business models in order to be more compelling to this ever-important demographic. Quintessentially, Millennials are a mobile-first generation. Having grown up in an on-demand digital world, they

expect a seamless and efficient online experience. Something that banks have so far been slow to respond to. As a result, this demographic is increasingly shying away from the traditional banking offering. According to uSwitch1, over a three-month period, almost six in 10 Millennials (59%) hadn’t set foot in a local branch, whereas more than three quarters (77%) logged into their online banking. A telling statistic is that a quarter of Millennials believe that tech companies would do a better job of offering relevant financial products. This mindset explains the emergence of startups, such as Monzo, Tandem and Atom Bank. These companies are looking to tempt Millennials away from traditional banking. These digital only banks all centre their customer experience around a mobile app. By not relying on brick and mortar branches and cheque books these players are built for the smartphone generation.

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EUROPE BANKING

Behind the curve Traditional banks are fully aware that they need to make the effort to appeal to Millennials, due to the generation’s increasing spending/saving power and social influence. They are trying to improve their online and mobile offering, however, due to the inherent challenge of adapting old, established legacy systems they struggle to change quick enough to meet the standards younger consumers have come to expect. Whilst change is afoot, historically the functionality of banking apps has been poor, with simple tasks, such as transferring money to friends, taking minutes instead of seconds and many other tasks needing to be done in-branch. When compared to runaway successes such as Snapchat, CityMapper and Uber, financial players have a long way to go. While the traditional banks’ attempt to change their direction, the fintech sector has rapidly emerged to make its land grab. Barclay’s bPay enables contactless payments from a phone or watch, and its Pingit service facilitates SMS payments. Lloyds meanwhile has launched a new savings app Pennie to Pounds, designed to help 16 to 25-year old’s take control of their personal finances. All these features are squarely aimed at Millennials. However, none of them offer the full 360-degree banking experience, without the need for an in-branch visit, something that a Monzo or Atom Bank is trying to achieve.

Rebuilding reputations Reputationally, traditional banks also have an image and trust problem amongst Millennials. Seen as being partially responsible for the financial crash they grew up in, the incumbents have an uphill battle when it comes to winning over the younger generations. This has created opportunities for disrupters to win customers due to the fresh, mobile-first experiences they offer. They don’t have the baggage of the previous 10 years and fit snuggly onto a user’s iPhone.

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They are appealing to Millennials by offering greater transparency around where customer money is being spent and are putting their users at ease, hence fostering trust. They promise to offer digital products that live on our phones, with potential features like real-time balance information, deep-dive spending data, biometric security and simple money transfers. These new players also have business models which are less reliant on high street stores and teams of cashiers, meaning that their start-up costs are relatively low. Explaining their proliferation.

Big data drive Something which also unites these tech-focused companies is that they all understand how to use data to provide a valued customer service. It is this data which allows them to offer a customised experience, giving the service a personal touch. The need to visit a branch is lessened further if your phone can advise on interest rates or loans. This can be taken further, with data being leveraged to offer a personalised and targeted experience. For example, if your bank knows what you spend your money on and where, the opportunities

EUROPE BANKING

to provide useful loyalty schemes and relevant deals multiply. Smart banking at the tap of an icon also makes everyday tasks such as paying your rent and splitting bills relatively easy. Looking ahead, the recent move by the Competition and Markets Authority that forced banks to allow customers and SMEs to share their data securely with potential competitors will lead to further innovation. This requirement for banks to be more open, and the advent of PSD2, is likely to further help smaller players, while also giving established banks the impetus to invest in innovation.

Stay alert Ultimately, the developments in banking will benefit all consumers, not just Millennials. Although younger generations are leading the way, itâ&#x20AC;&#x2122;s likely that as these newer players become more entrenched in the UK banking scene, fostering trust and loyalty their customer base (and demographic) will grow. Established banks will need to transform to survive and thrive in a mobile-first world.

Julian Smith Head of Strategy and Innovation Fetch

1 "One in four millennials still use childhood bank

account."Â USwitch. N.p., n.d. Web. 13 Feb. 2017.

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EUROPE BUSINESS

IRFS 15 & 16 are on the move and about to Affect Businesses How can companies fulfill regulatory requirements and minimise risk? Technology may have to come to their rescue so they can get ahead of the curve with compliance

Largely principles-based, IFRS are part of an ongoing process, leave room for interpretation and require evolving adoption. To manage the massive amounts of needed data and increasingly complex models, companies that have traditionally analysed and reported in their own data silos will need to upgrade their calculation systems. Data management, finance and risk technology will need to be integrated to fulfill regulatory requirements. But how can companies facilitate this progression, remain compliant and minimise duplications and errors?

IFRS - Some background information Mandated for use in over 100 countries, IFRS are a set of international accounting guidelines stating how certain types of transactions should be reported in financial statements.

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The standards are issued by the International Accounting Standards Board (IASB) in order to maintain stability and transparency throughout the financial world and they specify exactly how accountants must maintain and report their accounts. IFRS were established in order to have a common accounting language so that business and accounts can be applied and understood by different companies in different countries on a globally consistent basis. The standards were also created to provide investors and other users of financial statements with the ability to compare the financial performance of publicly listed companies, allowing them to make educated financial decisions when looking at companies they’re considering investing in.

With particular regard to the EU, the standards were established so that the EU capital market and the single market can operate efficiently. IFRS cover a wide range of accounting activities, from balance sheet to profit and loss statement, from statement of comprehensive income to statement of cash flow and statement of changes in equity. Additional complexity is created by the fact that a parent company must create separate account reports for each of its subsidiaries. An excessive number of standards has been issued over the past three years so company reporters have requested that no major new standards are announced in the next five years. Focus is instead being given on completing outstanding standards and here follows a breakdown of the two which should be a priority given their impending application.

EUROPE BUSINESS

IFRS users from all sectors are well advised – also with a view toward the retroactive application of the new rules – to evaluate early on the formulation of their customer contracts as to the effects of IFRS 15. At most, essential modifications to IT systems are necessary (invoicing, interface to accounting and internal control systems), as well as appropriate checks by the auditors.

IFRS 16 – The leases standard IFRS 16 is to be applied as of January 1 2019 however early application is permitted if adopted with IFRS 15. This standard applies to all leases except those shorter than 12 months and small assets. It also brings additional disclosure requirements for both lessees and lessors.

IFRS 15 – Revenue from contracts with customers IFRS 15 is to be applied as of January 1 2018 however early application is permitted. The standard states that revenue recognition will have to be derived from changes in assets and liabilities. Firstly, the respective contract with the customer and the specific performance obligations must be identified within this contract. The total transaction price for the contract must then be determined and allocated to the individual performance obligations. The revenue recognition takes place immediately after the specific performance obligations have been fulfilled and in the amount of the correspondingly allocated partial transaction price.

A sector that can potentially be greatly impacted by these changes is telecoms given the multiple-component contracts which prevail here. Just to make one example, a new requirement under IFRS 15 specifies that the individual sale price of the smartphone and the service provision contract must be regarded separately whereas until now, to be able to consider the smartphone itself as revenue over the entire contract term period, companies would increase instalment payments to reflect the cost of the smartphone. With IFRS 15, the price for the smartphone is recognised as revenue as soon as it’s handed over to the customer. The now reduced monthly instalment payments are still recognised as revenue over the term period. And although the total transaction price remains the same, the allocation of the recognised revenue to the individual accounting period changes. This could possibly also have a significant impact on performance based payment schemes.

Leasing is a key financial solution enabling companies to use property, plant and equipment without needing to incur large initial cash outflows. Existing rules generally require lessees to account for lease transactions either as off-balance sheet operating or as on balance sheet finance leases. Under IFRS 16, lessees will have to recognise almost all leases on the balance sheet which will reflect their right to use an asset for a period of time and the associated liability to pay rentals. The lessor’s accounting model remains mostly unchanged. IFRS 16 will have many accounting and financial implications for companies: balance sheets will grow while capital ratios and leverage ratios will become smaller. The new standard modifies both the expense character and recognition pattern, affecting almost all commonly used financial metrics such as gearing ratio, current ratio, asset turnover, interest cover, EBIT, operating profit, net income, EPS, ROCE, ROE and operating cash flows. These rules may require companies to transform their business processes not just in finance and accounting but also IT, operations, tax, treasury, legal – and more. So, how can companies achieve IFRS 15 & 16 compliance without disruption?

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EUROPE BUSINESS Technology to the rescue Finding and implementing a solution for IFRS that suits existing processes is going to be a challenge for any company. Data comes from disparate sources and multiple systems and this makes validation more complex. You will need a single, client-specific, end-to-end solution and a modular approach that allows you to manage inventory, modelling and data processes at entity level and that ultimately gives you integration with consolidation, disclosure, reporting and other financial processes. Building your own solution as a stop-gap could be an option, however an automated system centred on a reporting database is the optimal choice. Reporting needs to be repeatable and auditable on a regular basis, and spreadsheets require manual intervention that consumes loads of staff resource, and the evolving nature of regulation means future-proofing will always be required of the software. Are you prepared to keep up with shifting regulations using internal resources? There are automated solutions available in the market and understanding the pros, cons and level of suitability to your business for each option takes time. Obviously it is essential to conduct a thorough analysis of the options and

consider the likely ease of implementation. This analysis requires input both from the finance and IT functions. Any such solution needs to deliver, at minimum: •

Reporting that requires minimal effort from the business

•

Good integration with current IT architecture

•

Built-in validations and data integrity checks

• •

Ease of use, auditability maintenance and results traceability

•

Consolidation functionality

•

Flexible configuration ready to adapt to changes

•

Operational workflow management

We know now that many companies may address IFRS 15 & 16 requirements by rushing to create a manual submission first, and then automating the process later. This strategy can however be more expensive, more time consuming and less accurate than automating the process from the outset.

Conclusion Corporates are currently analysing the impacts of these new standards and starting to implement them. These projects require a strong involvement from legal and IT departments too as more and more data needs to be captured by the reporting. The extent of these projects - especially with regard to the expectations of the auditors - should not be underestimated. The best way to address new and expanding compliance requirements is an automated, agile and non-disruptive approach.

Nick Nesbitt Managing Director Tagetik UK About the author An established and seasoned consulting services leader, skilled in creating, running and leading successful Performance Management delivery and implementation. Nick has worked in the CPM market space for approximately 18 years after starting his career in accounting with Arthur Andersen. The last 10 years have seen Nick operate as a consulting leader, managing large CPM technology practices in supporting and delivering software vendor solutions, most notably Cognos and Hyperion. His career has incorporated working for a number of the large SI consultancies, specifically Accenture and IBM Global Business Services, where he was involved in selling and delivering software and consulting solutions across a wide range of industry sectors. His role at Tagetik has seen Tagetik UK & Ireland grow substantially in terms of successful new customers and software and consulting revenues. Most recently, Tagetik UK & Ireland was awarded Tagetik Best Performing Business Operation for the second year running.

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R&D Relief:

EUROPE BUSINESS

Use it or Lose it! Following the triggering of Article 50, all eyes are on British business as the Brexit countdown clock starts to tick. As Britain renegotiates its trading relationships around the world, Justin Arnesen, R&D Tax & Grants Director at Ayming argues that innovation has never been more important for survival – and outlines how businesses can utilise R&D initiatives to stay one step ahead of the competition. The triggering of Article 50 means one thing: change. In two years’ time, the UK business landscape will be fundamentally different. And companies can’t expect to stay the same while the world changes around them. Innovation is the order of the day. You only have to look at the soft drinks industry at the moment to see the power of innovation in the face of change. The Government’s sugar tax, confirmed by the Chancellor in the latest Spring Budget, has completely moved the goalposts for the drinks industry. And firms have been quick to respond. Pepsi Co has released two new drinks in 2017 designed around a low sugar, low calorie offering – and other firms will have to innovate in similar fashion if they want to compete. But this issue applies across the board. With Brexit on the horizon, innovation will be crucial and every single business will need to grab the Government incentives available with both hands. For any business, the prospect of R&D can be daunting. In order to innovate, a company has to dedicate time, workers and resources, with no guarantee of success. Furthermore, while there are many financial incentives available for investing in innovation, the process of applying for tax relief, grants and funding can be complex and confusing.

Many companies simply do not know what options are available, what’s most appropriate for them or what they can even claim as R&D, meaning they often don’t apply. Even when companies do acknowledge what is available, the prospect of high costs, complex applications and swathes of jargon often result in companies failing to take advantage of the opportunities presented to them. But, managed correctly, navigating R&D and innovation initiatives should not be intimidating. Instead, the activity should act as a vehicle for growth, allowing companies to take their businesses to the next level. Government initiatives and reliefs for R&D have improved greatly in the last six years and there are ample opportunities for companies to benefit from mechanisms such as R&D tax relief, RDEC, and R&D Capital Allowances. Take the manufacturing industry. While it is a well-trodden area for R&D especially new product development, there are a number of areas that may qualify for tax relief that companies within the industry are often unaware of. For example, transferring to a new production facility (no two facilities are the same) whilst ensuring the resulting end product is identical to the original, or integrating processes into one fully automated process and even significantly reducing waste through process or machinery innovation could all qualify. These are just a few examples, but they highlight the huge scope for relief associated with all forms of innovation. R&D tax incentives are even available for unsuccessful innovation and R&D projects.

Yet such is the complexity of the various schemes, coupled with misunderstandings and widespread uncertainty about what they entail exactly, that SMEs and larger businesses will often benefit from working with specialists to guide them through the process and help maximise their tax relief and/or cash benefits. Companies exist that can work with HMRC, on your behalf, to navigate the process – and save you money. In fact, small businesses making a profit can potentially claim back 26 pence in every pound, while loss making firms can receive cash credit of up to 33.35 pence for every pound spent. A significant saving that many SMEs are currently overlooking. Steve Jobs once argued that innovation distinguishes between a leader and a follower. With a specialist partner, companies can be empowered to fearlessly lead in their markets.

Justin Arnesen R&D Tax & Grants Director Ayming

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EUROPE FINANCE

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EUROPE FINANCE

The EBA’s New Capital Requirements: Proportionate doesn’t always mean lower Simpler and more proportionate requirements. These may sound like magic words to an investment firm (IF) but you’d be forgiven for suspecting there’s a catch. The European Banking Authority’s (EBA) prudential framework is changing. The idea behind this is to move away from bank-like prudential regulation for investment firms that don’t require it, instead simplifying the rules and making capital requirements more proportionate. For an industry fretting about the looming MiFID II, this seems to provide welcome respite. However, though ‘proportionate’ may sound like ‘lower’ to some, it’s likely to mean just the opposite for many. It’s very possible that, while some of the largest may benefit, small firms will end up facing higher capital requirements. Some UK firms might be tempted to think Brexit will see them side-step the regulation and will save them the trouble, but that’s unlikely. To do business with the single market in any way remotely similar to what UK IFs are used to, an equivalent regime will need to exist in the UK. So it’s best to assume UK IFs will face the same challenges as everyone else.

Some welcome simplicity In 2014 the EBA published a new rulebook in the Capital Requirements Directive (CRD) IV. At the time, they promised a review into the applicability to investment firms. Three years later, here we are. There are today more than ten categories of investment firms with different prudential regulations applied across the spectrum, the idea is now to reduce it to just three. The biggest IFs – ones classed as systemic and bank-like – will keep the full requirements of CRD IV. This is Class 1. It has been mooted that the criteria for systemic and bank-like will be imported as-is from the existing Global Systemically Important Institutions (GSII) and Other Systemically Important Institutions (OSII) criteria. Currently only nine EU investment firms fall under OSII and none under GSII so it’s possible that some other definition may prevail for these purposes. As it stands though, most IFs will fall into Class 2 or Class 3, both of which will come with a more limited set of prudential requirements.

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EUROPE FINANCE Class 3 is mainly reserved for smaller firms. The EBA proposes thresholds for balance sheet size, income/turnover and assets under management. The thresholds are borrowed directly from EU SME criteria, which set balance sheet size and income/ turnover at €2m for ‘Nano’ and €10m for ‘Small’ entities. At the moment, only ‘Nano’ firms will fall into Class 3, excluding most firms, though this might be changed to include ‘Small’. Some qualitative aspects will keep IFs out of Class 3 too, such as permissions to hold client money or securities or dealing on own account. Interconnected firms may also be excluded, to avoid larger entities splitting into smaller groups for regulatory arbitrage. As for Class 2? Well, it’s anything that isn’t Class 1 or 3. As thresholds stand, this is likely to include the vast majority of IFs. There are caveats and nuances as you’d expect, but this does represent a significant and welcome simplification of a complex regulatory area.

So what’s the fuss? Classes 2 and 3 will have proportionate prudential requirements compared to full CRD IV. That will sound like good news to many IFs who have complained for years that CRD IV is too burdensome. Some are expecting proportionate prudential requirements to mean lower capital requirements. It’s an understandable conclusion, but unfortunately probably not the right one. For both of these classes, the EBA builds on existing Initial Capital Requirements (ICR) and Fixed Overheads Requirements (FOR). For Class 2, there are also riskbased capital requirements based on risk to customers (RtC), markets (RtM) and the firm (RtF). The highest of the ICR, FOR and RtC + RtM (for Class 2 - amplified by an RtF uplift measure’ if highest) requirements will be taken as the firm’s capital requirements. For firms not currently required to calculate a FOR (Exempt-CAD and non-MiFID firms), this will almost certainly bump up capital requirements. It would be understandable if such firms felt aggrieved that a rise in

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capital requirements is being triggered by a moving of the goalposts, rather than a change in the risks they pose to the market. For the rest, so far so good – the changes are likely to be cosmetic insofar as any excess of wind-up estimates over current FOR simply moves from Pillar 2 to Pillar 1. The problem comes in the adjustments being made to ICR and FOR requirements. The ICRs have been unchanged for more than 20 years, so are arguably due an update, but that’s cold comfort to those affected. The current ICRs of €50k, €125k and €730k are mooted to shift up to €100k, €250k and €1.5m. In respect of FORs, the current calculation requires 25 per cent of annual overheads. The EBA’s thinking is that it can take more than three months to wind up an investment firm, and that an increase might therefore be in order. Again, it will be smaller firms and startups that would be troubled by this. For Class 2 IFs, the risk based metrics will be based on ‘scalars’ based on observable ‘K-factors’. Jargon aside, this means there will be numerical metrics based on the perceived risk the firm poses to the customer, market and itself in the event of trouble. These measures will be calibrated based on figures provided by the industry to the EBA’s current request for feedback. At this moment it’s difficult to say whether these will end up being problematic.

this simplification, as they have the most complexity in their operations. Compounding that is the fact that their capital requirements may stay broadly similar or even fall. Smaller IFs will potentially suffer from higher ICRs and FORs and the eventual value of ‘scalars’.

What’s an investment firm to do? The rules aren’t final yet. A lot will depend on the report released by the EBA in June which will factor in the quantitative data collected from the industry. Even this will not contain a final proposal. That means two things. First, that it’s difficult to develop specific action plans at this stage and IFs should keep a close eye on developments. Second, that IFs can still influence the final outcome. Even after the June report the EBA will likely open the floor again for industry feedback, possibly with another discussion paper; or perhaps a consultation on a more formal proposal of rules. The more feedback the EBA receives, the more likely the new requirements will be properly proportionate, and the less chance of an unintentionally harsh set of rules. Whatever happens though, it looks as though capital requirements for many IFs will be simpler, but higher.

For small firms and startups these changes could prove a barrier to entry or even an existential threat. The good news is that implementation is still likely to be a few years away (it’s unlikely to come before MiFID II), so there’s time to inject new capital or to tighten the belt and build up extra capital over time. Either way it remains a burden.

Are there any winners? Arguably, investors, counterparties and regulators win. It’s difficult to argue that firms should not be required to hold a proportionate level of capital to protect customers and the markets. It will be the biggest firms in Class 2 that get the most benefit out of

Michael Chambers Head of Prudential Cordium

EUROPE FINANCE

Issue 7 | 41

EUROPE BANKING

WILL PSD2 BE THE NAIL IN THE COFFIN FOR BANKS?

At present, traditional banks hold a monopoly over the banking industry and have exclusive control over consumer financial data. Being in this position has led to a degree of complacency among banks, but in 2017 this is all set to change thanks to the Second Payment Service Directive (PSD2). PSD2 is a fundamental piece of legislation that will force banks to open their data to third party providers. This will open the door to young and innovative FinTechs who will pose a direct threat by capitalising on weaknesses and gaps left by the banks. With no choice but to adapt to the legislation, it will be important for the banks to collaborate with these companies in order to stay afloat in this significantly evolved market and avoid potentially forfeiting any meaningful presence in the payments industry all together.

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What is PSD2? PSD2 is a revised version of The Payment Services Directive, a piece of legislation administered by the European Commission to regulate payment services throughout Europe. PSD2 was adopted by the European Parliament in October 2015, and provides member states two years to meet the regulations, meaning that 2017 will see the payments sector changing significantly as it incorporates the directive into its services. In a nutshell, these new regulations aim to better protect consumers when they pay online, promote the development and use of innovative online and mobile payments, and make cross-border European payment services safer. The most significant change as a consequence of the directive is that it will allow consumers and businesses to use third-party providers to manage their

finances. The banks will be legally obliged to provide these third-party providers access to their customers’ account data through open APIs (application program interface), which will allow them to build financial services on top of banks’ data and infrastructure. So firstly, banks will have to spend money and resources building an API. Then – as a result of the API they’ve been forced to build – they will be in direct competition with any firm offering additional financial services. This fundamentally alters the payments value chain and will likely force banks and FinrTechs to compete on a wider range of services and the customer experience they deliver. It’s not surprising then, that in 2017, we will see banks desperately trying to collaborate with young FinTech start-ups either in exclusive partnerships or harnessing the latest innovations.

EUROPE BANKING

Jens Bader Chief Commercial Officer Secure Trading

Ending the banks´ monopoly The dominance banks have traditionally held over the financial services industry is lifting as PSD2 opens the banking market for the first time to ‘non-banks’, which have fresh ideas about how to mould the banking experience using the latest technology. Simultaneously, consumers are already feeling the full effects of the digital revolution and are seeking easily accessible, personalised financial services. Rapid adoption of technologies such as contactless payments and mobile solutions is indicative of this. PSD2, which removes a number of entry barriers to the financial market, will see consumers gradually become accustomed to turning to Fintechs for their financial tasks, utilising a variety of smaller service providers as opposed to selecting one specific bank to handle all of their financial requirements.

While PSD2 is the game-changer, the real nail in the coffin for the banks is their own inaction. Banks have been standing stubbornly in the face of technological change, with little interest in adapting to meet new customer behaviours and demands. Startups and technology companies, on the other hand, have been moving in with apps, contactless and biometric technology, as well as countless other innovations that have already been embraced by the public. The banks, by comparison, are still waving around a plastic card. The survival of banks as we know as we know today will also not be helped by their current reputation in the public eye. A number of very public scandals such as large-scale insurance mis-selling and the manipulation of Libor, not to mention their almost complete collapse in 2008, all contribute to a severe lack of trust by

consumers. Other providers of financial services – such as PayPal, Apple Pay and newer players such as MX Technologies – don’t need to shake off this poor public perception and are increasingly being seen as credible alternatives, especially among the millennial generation. As banks are forced to integrate with these and they demonstrate a new standard of customer service, the banks stand to lose significant market share if they don’t shape up. 2017 is not the year of disruption, the disruption has already come; 2017 is the tipping point. The bank, of course, will always have a role in the payment journey, because people will always hold their money there. But from now on that will likely be the extent of its function. Ultimately, the banks will become a B2B service provider to FinTech companies – this will be the new face of payments.

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EUROPE FINANCE

Riding the Wave of Payments Transformation

From instant payments to PSD2, payments transformation is seemingly unstoppable. Eric Tak, Global Head of ING’s Payments Centre, deciphers the latest industry trends and explains how banks can remain relevant in a shifting payments landscape. A perfect storm is brewing. Three distinct, yet interconnected, forces are changing the payments landscape as we know it, giving incumbent banks much to consider – and act upon – in 2017. First is the evolving regulatory environment. Capping of interchange fees, the revised Payment Services Directive (PSD2) and the EU’s General Data Protection Regulation (GDPR) are encouraging greater competition and innovation in the industry. Further regulation is also anticipated, meaning additional disruption to the traditional payments ecosystem in the months to years ahead. Payments transformation is also being driven by growing customer expectations. Customers want a payment experience

that rivals cutting-edge consumer technology. It must be high speed, high quality, personalised, and delivered seamlessly through their channel of choice – anytime, anywhere. Advances in technology are also pushing payments forward. Instant payments are now a reality, and emerging technologies such as blockchain may soon create entirely new payments infrastructures – but this is just the tip of the iceberg.

A balancing act For many banks, pervasive payments transformation such as this is a double-edged sword. On the one hand, it is eating into traditional revenue sources; on the other, it is opening up new business opportunities. At ING, we are focused squarely on the latter. In fact, embracing payments transformation is part of our €800m bank-wide ‘Think Forward’ strategy which aims to make the organisation more agile through digitisation and collaboration, whilst encouraging the development of innovative services beyond traditional banking.

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EUROPE FINANCE

To fully leverage the opportunities that payments transformation presents, we are investing in several key areas: •

Upgrading payments infrastructure. As well as transitioning away from legacy internal platforms towards a shared, multi-use infrastructure, we are ready for SEPA Instant Credit Transfer (SCT Inst) and are collaborating with other banks across Europe to introduce local instant payment solutions too. Poland has been live since 2011. Spain will go live later this year, Belgium in 2018 and The Netherlands in 2019. While fragmentation is a concern here, these local solutions are built with interoperability in mind. Ultimately, they ensure that slow movers at a multi-bank or national infrastructure level do not impede our

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ability – and therefore our customers’ ability – to leverage instant payments. After all, we see instant payments as a powerful alternative to the cards infrastructure. Not only is the cost significantly lower, but immediate receipt of funds can also lead to richer data, enabling banks to empower customers through enhanced data analytics. Elsewhere, ING is participating in SWIFT’s global payments innovation initiative (GPII) which is intended to improve the customer experience in correspondent banking by increasing the speed, transparency and predictability of cross-border payments. We are also investigating the potential of alternative infrastructures, such as blockchain, for high-value, secure transactions, by working with industry groups like the R3 Consortium.

•

Developing new services ahead of PSD2. Since it allows for payment initiation by third parties and sharing of account information with third parties, PSD2 is potentially highly disruptive. While some banks will be relegated to being pure account service providers, ING is taking the opportunity to embrace multi-bank or bank independent services ahead of PSD2 that work to the benefit of customers. A good example is Yolt – an app which ING has launched in the UK that aggregates a retail customer’s data (with their permission) from their accounts held at different financial institutions. It shows them how much they can afford to spend before their next payday and also helps them to save. Similar solutions could well be developed for corporate users and SMEs across Europe.

•

EUROPE FINANCE

Eric Tak Global Head of Payments Centre ING Bank

•

Embracing Application Programming Interfaces (APIs). PSD2 is also encouraging a move towards open banking and integration through the mandated use of APIs. To prepare, ING is itself implementing an API-based architecture in order to learn how to deliver better, faster services internally – before translating those findings through to customers. We also have some external API projects in the pipeline, including Yolt. While the app currently uses an external party for data aggregation, it will soon be able to leverage other banks’ APIs, which will be a gamechanger from a customer relationship point of view.

•

Building next generation mobile capabilities. Mobile is an increasingly popular channel, with 54%1 of Europeans now regularly using a mobile device for payment. In addition to developing and upgrading proprietary mobile apps such as ING’s Payconiq, which allows retail customers to make smartphone payments and business customers to easily accept them, emerging third-party apps, like X-Pay, are also on our radar.

Furthermore, we continue to work alongside established industry partners, such as Visa and MasterCard, to stay at the forefront of their mobile offerings, and we are already anticipating new security features for Apple Pay, such as tokenisation.

On the back of this, there is also an opportunity to offer value-added services such as digital loyalty programmes, which will help to ensure banks like ING continue to play a distinct and important role in e-commerce. In conclusion

•

Supporting integrated payments. By 2025, 27 billion2 devices will be connected to the Internet of Things (IoT) – including devices that have automated payment functionalities built-in, such as cars that pay tolls as you drive through. As such, we are moving from a world of standalone payments towards integrated, automated payments that are ‘invisible’ to the consumer. As well as seamlessly integrating payments into day-to-day life, IoT will drive an explosion in micropayments and significantly boost the use of digital wallets. Banks like ING that can offer their own or third-party digital wallet solutions will find that increased digital touchpoints provide rich data which can feed new analytics capabilities for customers.

The payments industry is experiencing unprecedented transformation. Those banks who do not ride the disruption wave face not only significant loss of revenue, but also long-term disintermediation. For those who are prepared to invest in change, and to challenge traditional models, however, there is an open opportunity to become seamlessly integrated into the digital payments infrastructure, and to offer innovative data services that deliver a new level of value to customers. 1 https://www.visa.co.uk/newsroom/mobile-paymentssoar-as-europeans-embrace-new-ways-to-pay1600684?returnUrl=/newsroom/listing

2 https://machinaresearch.com/news/press-release-globalinternet-of-things-market-to-grow-to-27-billion-devicesgenerating-usd3-trillion-revenue-in-2025/

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EUROPE BUSINESS

We Have Passed An Inflection Point in the Personal Accountability of Senior Managers But Don’t Take My Word For It. In these times of austerity, it is worth reflecting that the war chests of regulators (or at least those of the Governments they serve) have swelled to unprecedented proportions. The Financial Conduct Authority alone has imposed more than £3 billion of fines in the five years up to April 2016. Only a miniscule proportion of these fines has been levied on individuals. That imbalance is set to change – but how? And what does this mean for the senior managers themselves? In a thoughtful speech, Mark Steward, Director of Enforcement and Market Oversight at the FCA recently described how March/April 2016 and the introduction then of the Senior Managers Regime in the UK marked “an inflection point” in the regulator’s approach. As he put it: “The regime embraces a very simple proposition – a senior manager ought to be responsible for what happens on his or her watch.” He frankly identifies three specific enforcement challenges faced by the regulator in giving effect to this change of approach. •

“First, we don’t expect senior managers to agree so readily to pay high fines to resolve cases. We expect there will be more contest and more litigation.

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•

Secondly, firms may well be reluctant to spend such high sums to resolve investigations where those resolutions do not also resolve cases against senior managers who may also be in our cross-hairs.

•

And thirdly, there lurk latent tensions in the way in which firms may self-report misconduct or cooperate with the FCA where senior managers in the firm may also be or become subjects of investigation for the same matters. “

EUROPE BUSINESS

Part of the answer to these challenges from the FCA’s perspective lies in what Mr. Steward describes as the need for earlier interventions. As he explains, “it is not the size of the outcome but the perception that detection and responsive action are both inevitable and speedy” which matters. This is interesting as, in order to deliver swift justice based on early detection, the regulator has to be involved at an earlier stage in the process than firms might wish. In that context, it is perhaps the third of the challenges outlined above which poses the greatest practical and immediate problems for individuals. Let’s take an example. Assume that Mr. X, the anti-money laundering officer of Bank A (“Senior Management Function 17”) has concerns that there may be suspicious activity in one of the bank’s overseas branches. Arguably, he is already under a duty to report his concerns straight to the FCA. Senior Management Rule 4 requires senior managers to “disclose appropriately any information of which the regulators would reasonably expect notice”. Given that among the FCA’s thematic reviews published in July 2016 was the failure to report suspicious activity relating to bribery and corruption, it might be “reasonable” to suppose that the FCA would wish to be informed of Mr. X’s concerns at an early stage. Mr. X is, however, rather more likely to say to himself in the real world that he needs first to establish whether his concerns are well founded. So let’s assume that he escalates his concerns internally through the office of general counsel and that, as a result, an internal investigation is commenced. The findings, whilst not conclusive, suggest that there may have been some historic shortcomings in Bank A’s systems and controls relating to the KYC (“Know Your Client”) checks which should have been carried out in branch. Three months have elapsed between the concerns initially coming to the attention of Mr. X and the transmission of the report to the FCA.

A decision is now made to disclose the findings to the FCA on the basis that failure to do so would itself constitute a breach, both by the firm and by the senior manager, of their respective duties to selfreport misconduct. The trouble is that the FCA may see this as a case of too little too late. They tend to approach internal investigations with skepticism. Listen for example to Mr. Steward’s views expressed in his recent speech on the worth of internal investigation reports in general. “Leaving aside the concerns about the forensic rigour of internal investigation reports, there is an inherent conflict of interest as the reports have been commissioned by and prepared for senior management who may well be part of the problem. I am yet to see an internal investigation report that has filleted the involvement of existing senior management in suspected misconduct.“ From the perspective of the regulated firm and the senior manager concerned, the actions taken here, including the passing of information to the regulator, have been reasonable. In the old “preinflection point” world, a disclosure such as this may have led to “early settlement” – that is, a payment of a fine with the firm taking the full weight of responsibility and culpability and without any action being taken against any member of the senior management of the firm. That outcome is much less likely today without a more searching investigation having first been conducted by the FCA into which individuals were responsible (a) for the original shortcomings and (b) for the three month “delay”, as the FCA may seek to characterize it, in reporting the breach in the first place. There are no easy answers as to what Mr. X could or should have done here to avert an unwelcome outcome for him personally. Much will depend on a detailed examination of the facts and as to who knew what and when. It may be that Mr. X’s predecessor will also find himself having to answer uncomfortable questions. If he is no longer employed

by Bank A, that may create additional difficulties for him. It is worth keeping in mind that the FCA can look back six years and more into possible misconduct. Also, it would not be hard to tweak our scenario slightly by adding that the original concerns brought to Mr. X’s attention emanated from a zealous deputy who, unhappy with what he took to be a lack of urgent response, decided to blow the whistle straight to the regulator in order to protect his own position. That could make Mr. X’s position even more uncomfortable. It’s not all doom and gloom though. There are things which a senior manager can do to prepare for the eventuality either that he or she comes under regulatory scrutiny as a result of early intervention or because he or she is subject to criticism on the basis that the regulator was deprived of the opportunity of making an early intervention. A key component of the precautionary measures which managers ought to consider in this context is the ability in appropriate cases and at their discretion to seek legal advice independent from that of their employer. A thorough and more general understanding of the indemnities and insurances available to him or her might also be well advised.

Francis Kean Executive Director Willis Towers Watson's FINEX Global

Issue 7 | 49

EUROPE BANKING

Are Convenience and Loyalty the same thing to Modern Banking Customers? Historically, one of the main reasons people chose their bank was the proximity of its branches and ATMs. Physical convenience mattered and most consumers banked with financial institutions right down the street. Indeed research shows that 58% of customers still value the importance of a local branch. However, technology is rapidly changing the definition of convenience for customers. The accessibility and openness of mobile and online banking services poses new challenges for financial services organisations that have previously based their value on being an integral part of the local community. There have been a number of reports commissioned to research this trend and they largely come to the same conclusion - the pressure is on traditional banks to enhance and modernise the customer experience.

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As a recent report by Bain & Company concluded: “The code that reveals the connection between consumers’ bank interactions and their loyalty to those banks has been cracked. It isn’t only big emotional episodes like fraud that matter to consumers, but also the mundane interactions that people deal with every day. For those interactions, the primacy of a branch that is conveniently near home or work, so important a decade ago, has been replaced by a new imperative: Just make it easy.” In order to assess the state of customer loyalty in banking, we’ve recently undertaken an in depth study into the banking habits of a small group of people over a period of two weeks. The experiment involved participants from all age ranges collecting their banking receipts and recording all their transactions as a way of gaining an insight into how they bank.

The qualitative study aimed to gain a better understanding into how consumers view loyalty relative to more convenient and more connected ways of managing their personal finances.

Convenience is personal So what does convenience really mean? Well, convenience is clearly personal, and what may be convenient for one person may not be for another. This is certainly a key learning of the study, and in a number of ways initial assumptions were found to be true. For example, online banking tends to be more popular with younger survey respondents whereas a number of older respondents do not use it at all. Similarly, in-branch banking for the younger generations was not valued for daily transactions, but is still valued for significant and specific transactions, for example when they need to seek advice about a product or service.

EUROPE BANKING

Richard Broadbent General Manager Banking, Wincor Nixdorf UK/I

One respondent said: “I only visit a bank branch when I’m making a significant change in my personal banking like opening up a new account or applying for loan. This is because I value the information the staff provide when I need to make these decisions.” For those over 35 in our experiment, visiting a branch was valued for a number of reasons. They appreciate the personal interaction coming from staffing know them. One person said: “I regularly visit the bank to get money out and I like to have a chat with the bank manager.” The branches they visit are conveniently located for paying money in or taking cash out. Respondents in this age group mentioned the words “ease and speed” and “simple and quick” in reference to their branch experience.

Mistaking inconvenience for loyalty The second key finding from the study is that there’s a danger banks may be viewing their customers as loyal, when in fact it’s simply inconvenient for them to change provider. Most respondents (80%) use the same bank as other family members, and only a few said they would change unless there was a particularly attractive service, deal or financial incentive on offer. Nevertheless, all respondents said they would shop around

for certain financial services. Those people we interviewed over the age of 35 don’t question the bank they use, describing it simply as the ‘bank I’ve always used’, and recognising that it would be ‘inconvenient to change’. One person said: “I have a history with my bank, so it's sensible to stay”, and another said “I will not change - they know me well and another bank wouldn't." One respondent even admitted that convenience was the main reason for staying with her bank but she would be interested in changing if it saved money. She said: “I stay with my bank because it’s easy to do so, however should I be looking to take out a mortgage or loan, I would do my research beforehand to look for the best deal.” This finding shows that there is a willingness amongst consumers to use different financial institutions for different services. However, habit and inconvenience typically prevent people changing their banks, despite the lure of new market entrants.

Improving the customer experience Our study offers a small but valuable glimpse into the lives of every day banking customers. It shows that the routine interaction is often where the battle for customer loyalty is won or lost.

As Bain and Co. comments, “While the effect of a single routine interaction is small, customers go through so many that the cumulative effect is large.” Loyalty is important in banking and there’s a general acceptance throughout our research that people are usually more careful when choosing financial services providers than when selecting services in other sectors. This is summed up in the response of one respondent: “I don’t necessarily think of myself as loyal, but when it comes to banking it’s different from shopping.” As in the retail world, bricks and mortar are still important and the branch will remain a key channel for banks. But providing customers with the customer service that makes their experience simple and seamless is critical to improving customer experience, and therefore, loyalty. Technology is a key enabler of this. Financial services which embrace change and transformation and create engaging technological experiences, both within the branch and through their digital platforms, will be able to get the right balance between making the customer experience convenient, and building a loyal customer base. 1

Promoting competition in the UK banking industry, BBA (2014)

Issue 7 | 51

EUROPE BUSINESS

In Search of Global Transparency Pressure is mounting on companies to be more transparent and accountable but is enough being done to quell public discord?

profile examples in recent times, Toshiba was fined a record €60 million after the company overstated earnings by at least $1.2 billion over seven years. Vital role of accountants

Global transparency has never been more important as accounting firms seek to build trust and protect clients from potential financial disaster. As financial scandals of ever-bigger proportions hit the headlines, causing serious damage to the reputation of firms and even countries, it is clear there is a growing need for greater transparency to prevent corruption and fraud on a massive scale. Transparency International, the global coalition against corruption, estimates that corruption can cost global GDP up to USD$1 trillion a year. In one of the highest

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The accounting profession is pivotal in the fight against corruption worldwide, from corporate and public sector reporting to financial management. Fayez Choudhury, Chief Executive Officer of IFAC, says the accountancy profession is not only well placed to drive transparency but needs to be a strong voice on the issue. In a speech made at a meeting of Chartered Accountants in England & Wales, in 2016, he said: “At the entity level we are skilled at forensic accounting and well versed on effective corporate governance arrangements and whistle-blower policies. At the national and international levels, we can help in the development of effective regimes to prevent and detect corruption. We need to be a strong voice on this issue.”

However, despite widespread recognition of the vital role of accountants, there has been little international cooperation. The issue is complicated by disagreement among countries and the accountancy profession itself over the degree of transparency that companies should adopt, and how this should be regulated. Experts disagree This discrepancy was highlighted at a recent conference organised by The Accountant and International Accounting Bulletin. Hilde Blomme, Deputy Chief Executive of Accountancy Europe (formerly the Federation of European Accountants), reminded delegates that transparency played a key role in helping to enhance the “relevance and reputation” of the profession. However, Prem Sikka, Professor of Accounting at University of Essex, UK, countered there was “no evidence” of transparency in accounting. Prem Sikka is a strong campaigner for international reporting standards but he claims nobody in the profession is really interested. “We are too comfortable,” he told conference delegates, adding that accountants are more concerned with what the profession requires rather than what society requires. While it may be true that, until recently, there has been a lack of momentum in the drive for transparency, this appears to be changing as businesses realise not only the need to be open but the financial benefits. These benefits are being pushed to the fore within Praxity Global Alliance, the world’s largest alliance of independent accounting and consulting firms.

EUROPE BUSINESS

Eric Balentine, Audit Partner at Moss Adams, one of Praxity’s participant firms in the US, explains: “Financial transparency provides the users of financial information to make informed decisions by reducing information risk. This coupled with a strong internal control framework provides investors with better and more consistent information to make decisions.” International reporting standards There are signs of progress in the development of international reporting standards. The International Accounting Standards Board (IASB), overseen by the IFRS Foundation, is making headway in working towards a global set of accounting standards, known as IFRS Standards. Of 140 jurisdictions researched, 116 require the use of IFRS Standards for all or most public listed companies. China, Japan and India are not included but each are moving closer to aligning national standards with those of the IFRS. For those countries aligned with IFRS, one of the latest standards (IFRS 15) requires revenues to be matched to costs from 2018. The complex process of converging US and European rules is also progressing, be it slowly. In one of the latest developments, the IASB and The Financial Accounting Standards Board (FASB) finalised their respective lease accounting standards in early 2016, after a ten-year effort. The difficulties of agreeing standards across international borders was highlighted by The European Commission’s proposed public country-by-country reporting of tax for large multinationals to discourage aggressive tax behaviour and appease growing public dissatisfaction with tax avoidance. The initiative does not have universal support, with opponents claiming fiscal information is only meant for tax administrations.

Openness is good for the bottom line While agreement between countries is proving hard work, individual companies are showing a greater willingness to be more transparent. They are realising that being open about their anti-corruption efforts and operations is not only beneficial but can have a positive influence on a business’s bottom line. Transparency is becoming the new norm according to the Transparency International global coalition. In a working paper entitled, ‘The Benefits of Anti-Corruption and Corporate Transparency’, the coalition states: “Companies that have good anticorruption programmes and openly report on them have a competitive advantage beyond meeting any compliance obligation. They benefit from risk reduction, cost savings and sustainable growth.” One area of corporate transparency gaining momentum, and where accountants are set to have an increasingly important role, is that of human rights reporting. Richard Karmel, London IC Managing Partner at Mazars, says firms should see the onset of human rights regulations as an opportunity rather than a restriction. He says the evidence is compelling that organisations which embrace human rights reporting benefit from better engagement with employees, suppliers, investors and clients.

Graeme Gordon Executive Director Praxity Global Alliance

Corporate social responsibility (CSR) and the related reporting can be a useful tool for organizations, and accounting firm Moss Adams has adopted CSR reporting to track progress against meaningful CSR goals and key metrics. Eric Balentine adds: “Moss Adams is committed to CSR and the promotion of social values throughout the organization. Moreover, we believe that CSR reporting adds transparency to the marketplace.” With transparency becoming ever more important, now is the time for the accounting profession to develop a clear path through the global reporting minefield to help businesses maximise the opportunities of openness.

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EUROPE BUSINESS

How to Avoid Wasting Millions on Inef ficient Shopper Marketing Campaigns A whopping £1.5bn is spent each year on shopper marketing – that is, marketing campaigns that focus on influencing consumers at the point of sale. But in 2017, inflation, the devalued sterling and ongoing price wars are all squeezing margins, making strategic shopper marketing more important than ever for brands wishing to drive value. Yet brands should beware. Shopper marketing isn’t as easy as it seems. Indeed, a lack of focus on ROI and a lack of cohesive strategy could be leading to huge inefficiencies. In my view, FMCG brands in the UK are likely wasting millions of pounds a year on inefficient shopper marketing campaigns. Here are some of the key obstacles that brands need to overcome: 1) Fragmentation. Widespread fragmentation has resulted in budgets often arriving from numerous sources while important decisions can be made by local teams without wider insight and collaboration. 2) Industry disunity. Harmonising the way projects are managed and spending is controlled has become more difficult as each retailer implements increasingly complex and wide-ranging campaigns differently. 3) Unclear rules and guidelines. Few formal guidelines about which retailers

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and activation elements will best deliver campaign objects have also further complicated requirements for additional marketing insight. 4) Decentralised data. Unclear requirements for thorough recordkeeping have resulted in a lack of central data repositories with important information often stored on different and sometimes incompatible systems. 5) Measurement. Measurement and ROI – an issue for much of the media and marketing landscape – has also posed challenges for a sector historically lacking the right tools and analytical systems. The good news is that, as with many disciplines, intelligence use of technology has sparked a revolution in shopper marketing practices. In overcoming the obstacles outlined above, savvy shopper marketers can make use of the following cutting-edge trends. 1) End-to-end automation. This is alleviating the dependence on subjective and varying teams – allowing companies to budget, plan, deliver and evaluate media throughout the entire shopper marketing campaign, crucially, on the same platform. 2) Targeted approaches. New solutions are now preloaded with a range of retailer information – such as rate cards, timelines and deadlines as well

as other specifications and promotional information. This exceptional granularity lets brands achieve extraordinary data-driven granularity while targeting shoppers by retailers, demographic, geolocation and media channels. 3) Trend forecasting. The growth of data-driven tools and advanced solutions means that the likely success of future campaigns can also be analysed in addition to evaluating previous campaign outcomes – enriching the campaign planning experience and offering valuable insight. Producing sales and impact reports clearly demonstrates ROI and further improves evaluation processes.

EUROPE BUSINESS

4) UX. Rich user experiences save time and improve efficiency – while cloud-based solutions are highly optimised and can be accessed from any device anywhere in the world. Integrating these new offerings within existing systems further streamlines shopper marketing needs from within a single solution. 5) Increasing customisability. Everimproving capabilities for enhancing these technology-led solutions caters for specific client needs and helps develop bespoke campaigns to encourage conversion at the critical point of sale. Software platforms can now be customised from brand colours and logos to uploading specific media channel offering information.

6) Post-launch support packages. The best bespoke support packages now provided a dedicated account manager to aide and support clients with the opportunity to develop parts of the software that can be modified to their needs in order to unlock additional sales opportunities. New and innovative technology-led solutions and data-driven insights have transformed traditional shopper marketing and are rapidly revolutionising the industry. The volume of business booked through these new solutions is set to grow exponentially – and in a fragmented industry should be welcomed by brands as transformative and unifying.

Jon Southcombe Co-Founder and MD BASE™ Technologies

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EUROPE BUSINESS

Get in Shape for GDPR

From MiFID through to the Basel Accords and multiple other Capital Requirements, the finance sector has grown used to unpicking complex EU regulation. However, the European General Data Protection Regulation (GDPR) is a different type of beast because it impacts every nook and cranny of your business. Even ones you weren’t aware existed.

Why? Simple: data has taken root in your organisation. You need it in order to retain customers, deliver innovative new products to the market and execute a fantastic customer service experience. Especially as customers now bank across multiple applications and devices. The hard truth is that without data you simply can’t function, certainly not meaningfully. But how that data is managed and protected currently varies wildly, something the GDPR looks to rectify by standardising how data is protected and accessed across the EU. It’s a highly ambitious piece of regulation and the triggering of Article 50 shouldn’t lure companies into complacency – if you want to do business in the global economy and deliver data across borders, you will need to comply. The regulation brings with it big changes and so, if you haven’t already, it’s important to get your ducks in a row. The question is, how can you prepare? For me, the regulation broadly falls into three distinct action areas that offer the opportunity to enhance information security from a technical, governance and legal perspective: proactivity, ensuring GDPR is a board level priority and risk mitigation. Proactivity When it comes to security, being on the front foot is absolutely key. Most companies don’t know how and where all its data is processed or stored across the organisation, or whether it is accessed always in line with company policy. Auditing this process is the ideal place to start – after all, as the saying goes, knowledge is power. From this audit you will be able to get a much better understanding of:

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What measures you have in place to protect data, especially personally identifiable information. Ensure you perform vulnerability assessments and penetration tests to determine if unauthorised access and downloading are possible. This is a great exercise and also offers the opportunity to test your data encryption standards •

The relationship your organisation has with third-parties. Who do you share data with? And how do third-parties collect data from your business? Longer term, you will need to ensure that your data supply chain is GDPR compliant - the onus is very much on you to take responsibility for this

•

Have your legal and compliance teams go over end-user agreements to ensure that all data subjects have willingly agreed

•

Ensure that how you tell people you use their data is actually how you use it. An outside opinion can help here, so don’t be afraid to engage an expert to advise

•

Does your current data storage solution have any risks associated with it? If so, create a risk registry so that you can tackle these

be looking to you to bring solutions as well as problems to the table •

Risk mitigation The road to successful GDPR compliance will require the strong mitigation of risks. This is an important step because arguably data is the most valuable artefact on the internet and as a result the most traceable. We’ve all seen the headlines resulting from data breaches; companies that are victim to attack suffer brand damage, lose customers and as a result see a real impact on their bottom line. With GDPR the onus on companies to take responsibility increases dramatically. Therefore, it is imperative that you: •

Classify your data as this is vital to preventing data loss

•

Continuously monitor the environment to ensure your data stays exactly where it is supposed to and doesn’t walk unauthorised out of the front door

•

Encrypt your databases. This might seem like an obvious point, but not all companies are following this basic rule. Apply strong algorithms so that even if the bad guys steal your data you render it useless to them

Ensuring GDPR is a priority Being proactive will help you to understand the unique risks and vulnerabilities your organisation faces – in relation to complying with GDPR. This understanding forms the basis of a robust strategy to be presented to company directors. The exec board hears about so many internal projects, all of which are competing for internal resources and funding, so it’s important to present the right information in order to secure the resources you need: •

Any discrepancies between end-user agreements and GDPR requirements as well as a clear roadmap for how to reconcile the two

•

Create risk-based metrics based on vulnerability assessments and penetration tests to outline any weaknesses in your data defences. Don’t forget, the board will

Be clear about any deviations from GDPR and present a strategy encompassing technical, legal and compliance requirements with a timeline for ensuring compliance by May 2018 alongside associated risks of the data registry

GDPR might feel all consuming, but broken down into these three key areas it becomes much more manageable. It is also a significant opportunity to redefine your relationship with your increasingly data-savvy customers and create a new era in which data is shown the respect and protection it deserves. The opportunity is there to become a real industry leader in data security– those that seize it will prosper those that don’t risk being consigned to history.

EUROPE BUSINESS

Dr Jamie Graves CEO at Cyber Security Specialists ZoneFox

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MIDDLE EAST INTERVIEW

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 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 07.04.2016 on “Stages, terms, ways and procedures of cancelling shares and issuing new shares of BC Moldova Agroindbank SA” with changes made by Decision No. 63/18 dated 16.12.2016 “Amending and completing of Decision No.15/2 of the National Commission for Financial Market dated 07.04.2016, in particular with respect to the 9-month term of sale of the newly issued shares by the issuer after such shares were put up for sale; - Decision No. 41 of the Management Board of the bank dated 26.01.2017: BC Moldova Agroindbank SA announces the decision to further list for sale, through the regulated market of the Moldovan Stock Exchange: • A single block of 36,605 (thirty six thousand six hundred and five) newly-issued first-class ordinary nominative shares at the initial price of MDL 1,064.02 per share, from 01 February 2017 through 26 June 2017. • A single block of 389,760 (three hundred eighty nine thousand seven hundred sixty) newly-issued first-class ordinary nominative shares at the initial price of MDL 1,054.71 per share, from 01 February 2017 through 26 June 2017. Pursuant to point 15 of the Law on Financial Institutions No. 550-XIII dated 21.07.1995 and provisions of 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. 28 | Issue 7

EUROPE BUSINESS

European Tech Mergers & Acquisitions 2016 was a record year for European Tech mergers & acquisitions (M&A). The total value of deals was $107bn, a 39% increase on 2015, across 944 deals, up 3.7% in volume. This activity was despite a highly uncertain political backdrop with both the UK’s vote for Brexit as well as the election of President Trump in the US. Geographically US corporates were very active acquirers of European tech companies in 2016, spending over $50bn across 202 deals in 2016, compared to $34bn across 109 deals in 2015. The Qualcomm acquisition of semiconductor company NXP for $47bn accounted for much of the disclosed value. Other notable deals included Verizon acquiring Fleetmatics (SaaS fleet tracking) for $2.4bn and CA acquiring Automic (business automation software) for $638m. Meanwhile we continued to see high levels of activity from the Big 5 (Google, Amazon, Facebook, Microsoft and Apple) with a total of 11 acquisitions in Europe in 2016. But it is not just the US corporates, private equity funds from North America were also major players in European tech buyouts. Notable deals included Advent and Bain Capital acquiring SETEFI (payments software) for $1.2bn in May 2016 and Silver Lake acquiring Cegid Software (business management software) for $481m in April 2016.

In 2016 we also saw the Asian buyers finally becoming a major force in European Tech M&A. Asian buyers acquired 11 companies for a total disclosed value of $40.2bn. The biggest of these was from Softbank, which took advantage of post Brexit uncertainty to acquire semiconductor company ARM for $31.6bn. Chinese internet powerhouse, Tencent, acquired mobile gaming company Supercell for $8.6bn and Chinese travel company Ctrip spent $1.7bn on metasearch company Skyscanner. European corporates continue to account for the majority of deals by volume with 431 deals worth $8.5bn. We have also seen the emergence of a new category of buyer for tech companies, as non-tech incumbents buy tech companies to help to them innovate and digitize. For example, Royal Mail, one of the world’s oldest companies, acquired SaaS e-commerce company NetDespatch to respond to the threat from Amazon. So what is driving this activity? Clearly there is lots of cash available for deals with record levels of cash sitting on the balance sheets of major tech companies and with private equity firms. This weight of money is a very important factor, however, we believe that there is a much broader trend at play. The European tech ecosystem has changed dramatically in the last five years. Europe has a deep base of technical talent with five of the world’s top ten computer science institutions in Europe. In terms of talent, Stack Overflow estimates that there

are 4.7m professional developers in Europe compared to 4.1m in the US. London, Paris and Berlin combined have a larger population of professional developers than Silicon Valley. There is also a deep pool of capital available to finance the best companies, and an increasingly ambitious and experienced set of entrepreneurs prepared to build global businesses. We are particularly excited by the outlook for deep tech where Europe has some amazing talent. Over 1,000 deep tech companies have been founded in Europe since 2014, only narrowly behind the US. Europe is a recognized leader in areas such as artificial intelligence and we expect to see more deals following a number of AI acquisitions in 2016 by big US acquirers, such as Twitter buying Magic Pony for $150m, Apple acquiring VocalIQ, Microsoft acquiring SwiftKey $250m and eBay buying Expertmaker. We expect 2017 to continue to be a very strong year for tech M&A in Europe. These are exciting times in the strengthening European tech ecosystem, and cash rich corporates and investors are actively scouring the continent for the great growth companies.

Jason Purcell CEO and Co-founder FirstCapital

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Americas 60 Issue 7

AMERICAS INTERVIEW

Desjardins Private Wealth Management An inside look at Desjardins Private Wealth Management (DPWM), from its leader’s point of view: Sylvain Thériault, Vice-President and General Director.

In 2017, for the second consecutive year, you won the Best Private Wealth Management Company Award in Canada. What makes DPWM, year after year, stand out from the competition? We put our clients first. Since its founding more than 110 years ago, Desjardins has always had human values at the heart of its philosophy. At Desjardins Private Wealth Management, we are convinced that in order to succeed, we must first prioritize our clients’ success before our own profits.

For each of our clients, we put together a personalized Entourage of experts. With a 360 ° view of their finances, we can provide them with integrated, evolving strategies and services while eliminating the risks associated with blind spots in their financial affairs. Our comprehensive and integrated solutions are tailored to fit the client’s different stages of life and cover all of their personal, family and business needs. We are literally a one-stop shop where clients can access all services and specialists in one place, providing them with top-of-the-line personalized services. The success and trust of our clients is the best reward of all.

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AMERICAS INTERVIEW

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AMERICAS INTERVIEW

What opportunities do you foresee in the next few years in the Private Wealth sector? Market research shows that the number of households in Canada eligible for Private Wealth services is set to double over the next decade. Basically, this means that households in the high net worth (HNW) segment, over the age of 65, will control an increasing amount of total wealth. Nearly 50% of the wealth controlled by retirees will be in the hands of the financially passive cohort, on average over the age of 75. This shift represents a great opportunity for our trust and estate services. Market intelligence estimates the number of intergenerational transfers at $401 billion for the HNW segment, so supporting our clients is key to ensuring our growth in the coming years. Let’s not forget that blended families are becoming the norm; we’re increasingly faced with complex situations requiring a higher degree of guidance and comprehensive strategies. Another phenomenon to watch is the rise of women in the financial market. The share of total wealth controlled by women is set to expand over the next decade. The industry should take note and adopt its strategies to this segment to ensure better results in the future for this client base.

Despite the growing opportunity, personal trust and estate business lines have not realized the same amount of growth as seen in other Private Wealth lines of business. What is your approach on the matter? We believe that the aging population is a major growth factor. Having a team of experts on hand means that we’ve got the necessary expertise to guarantee continuity in the administration of the estate. As mentioned earlier, the typical

family situation has become much more complex and we have the expertise to make daily management much simpler. Personal trusts and estate planning are some of the key elements that set us apart and that will help us to build lasting business relationships over the years.

Considering the changes in generations as well as the evolution of the business world, what is your approach to the "new" HNW client profile? We just love the new focus. It’s shifted from individuals to multi-generation families, our main target. We’ve always worked with the family in mind, not just the individual. Desjardins’ Private Wealth Management 360 strategy offers a solution adapted to the whole family so we can maintain and build our business relationship from one generation to the next. Women will also become a more influential force in the Private Wealth sector. We must find a way to reach out to the business women of today because they will control the economy of tomorrow. If we don’t, we’ll be missing out on a great opportunity. Either way, we are confident that by creating trust, one relationship at a time, we will make our way through the new generation of HNW families.

Sylvain Thériault Vice-President and General Director Desjardins Private Wealth Management

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AMERICAS INVESTMENT

Keeping up with Todayâ&#x20AC;&#x2122;s HighNet Worth Investor:

The challenge for financial institutions

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AMERICAS INVESTMENT

Today’s high-net worth investors are driven by an emotional desire to get involved, be active with their wealth and make a difference. No longer is the typical high-net worth investor only interested in investing in traditional stocks and bonds. Access to opportunities in private equity, debt, alternative investments and impact investments are increasingly important. This is largely a result of more diverse demographics among this group. We are in the process of the greatest intergenerational wealth transfer ever known. With an estimated $36 trillion being transferred to heirs between 2007 and 2061 in the US alone, according to Capgemini’s top 10 Trends in Wealth Management 2017. Additionally, with the digital and technological age opening up a whole host of opportunities for generating wealth and the evolution of dot-com millionaires, the past two decades have nurtured a new crop of ‘millennial millionaires’ whose investment habits vary to that of the traditional high-net worth client. These changes are illustrated in part by the US Trust Insights on Wealth and Worth; a survey of 647 people with investable assets of more than $3million. Respondents were 13% millennials, 24% generation X, 42% baby boomers and 21% 72 or older, exemplifying the diversity we see today among high-net worth clients. These younger high-net worth investors have often been entrepreneurs themselves and therefore have a desire to be much more hands-on and active with their wealth. They want to invest in industries they know about and can contribute their experience and expertise to. As such, we have seen a surge of investment in private equity. Assets Under Management (AUM) in the private market is now $4.7 trillion worldwide according to a report by McKinsey. The passion among today’s investors to really get stuck into a project is what makes direct private equity investment

so appealing and is driving a demand for exciting private market opportunities among wealth management clients. This generation of high-net worth individuals is also seeking to make investments that do more than simply increase their wealth. Although a financial return is still of high priority, seeing a tangible return of the social impact of the investment in the wider world is greatly important. An ambition to make a difference and help society among these entrepreneurs has led to a trend towards impact investing. According to the Global Impact Investing Network, the market for impact capital, currently sized at $60 billion, could grow to $2 trillion over the next decade. Whether the investment is in developing economies or particular communities, reforming healthcare or education, micro-financing, climate change or one of the many other socially responsible causes, the key is that investors are able to see a measurable impact in return for the money they’ve put in. Investors want to be involved in projects that they are interested in and we are seeing that investment decisions are increasingly motivated by emotional factors.

Technology can play an important role in helping diversify investment opportunities. By incorporating technology into their proposition, incumbents can use streamlined processes to enhance access to investment opportunities as well as improving distribution channels, overcoming regulatory challenges, managing reputational impact and the increased role of private capital in the economy. Firms that successfully use technology throughout their business to fundamentally change and improve the service they provide will be rewarded. Not only because of a diversified private market proposition but because of providing the digital functionality that the younger generation of high-net worth investors expect. The changing demographic and personalities of today’s high-net worth investor will doubtless continue to create a move away from the typical investor portfolio of wealth management clients. This is an exciting and critical time in wealth management and financial institutions will need to make the appropriate developments to their propositions in order to capitalise on these changes.

Investment being motivated by emotional factors is a key reason for increased interest in alternative investment opportunities. PricewaterhouseCoopers estimates sales of liquid alternative mutual funds will surge to around $664 billion by 2020. Despite these changing investment trends, clients are struggling to access these types of opportunities from their wealth managers. It is essential that financial institutions innovate and differentiate their offerings if they wish to keep up with the changing needs of these entrepreneurial high-net worth individuals. This is an increasingly important and growing client base so existing players need to adapt in order to stay relevant. Collaboration with FinTech organisations is one way in which this can be achieved.

Gareth Lewis CEO and co-founder Delio Wealth

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AMERICAS INSURANCE

Not If, But When:

Five Questions You Should Ask When Seeking Cyber Insurance “We are in a world now where, despite your best efforts, you must prepare and assume that you[r] [security systems] will be penetrated. It is not about if . . . , but when.” —Admiral Mike Rogers, Director, National Security Agency Financial service businesses are living the “not if, but when” reality described by Admiral Rogers. Over 66% report having experienced a cyber-attack this past year. In fact, the risk has become so prominent that the New York State Assembly is considering legislation that would require those licensed under the state’s Banking, Insurance or Financial Services law to implement, by February 2018, a particularized cybersecurity program “designed to protect the confidentiality, integrity and availability” of electronic information systems.

1. What are your risks, including upstream and down-stream risks?

As financial institutions adjust to enhanced scrutiny from hackers and regulators alike, many have turned to cyber and crime insurance policies to address their risks. However, selecting the right coverage among relatively new and varied forms can be nearly as challenging as protecting against cyber risks in the first place. We have identified five questions to make selecting the right product a little easier and, once selected, coverage less uncertain.

This lack of understanding could jeopardize coverage for later claims, since insurance applications require businesses to answer questions about existing and past cyber-related exposure, precautions and loss history. Courts have held that even unintentional misrepresentations or omissions of material information are sufficient to void the insurance contract.

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A business cannot select the proper coverage until it understands its risks. But many in the financial sector do not know enough about the nature and breadth of their cyber exposure. According to one report, over 33% of financial service businesses do not know whether they have been attacked in the past year, and over 22% do not know whether attacks are increasing or decreasing as compared to previous years.

Such lack of understanding could also be used to trigger exclusions. For example, insurers may argue that ignorance of risk and failure to address risk is tantamount to a circumstance that the insured should have reasonably foreseen would cause an event that could be the basis of a later claim – a common policy exclusion. One way to improve understanding of business cyber exposure is to include critical personnel in the application and coverage selection process. Risk managers – who have the difficult task of being jacks of all trades for their employer – should consult with personnel in every essential department (e.g., human resources, information technology, and marketing) to obtain the benefit of those employees’ deep knowledge of critical data, security measures, and hazards. This way, risk managers will have current, specific information about the business with which to seek and negotiate coverage.

AMERICAS INSURANCE

Risk managers should also cautiously review service contracts, since exposure may be buried in the boilerplate language of common industry agreements. Once exposure is identified, do not assume the risk is necessarily covered because it is cyber-related, or assume that the risk would be covered because the insurer understands the nature of your business. As an example, the restaurant chain P.F. Chang’s ran into that problem with its cyber insurance policy, which P.F. Chang’s claim it purchased to cover payment card industry data security standard (PCI-DSS) assessments, among other risks. But P.F. Chang’s could not prove its expectation in court, resulting in a denial of coverage (among other reasons). This case is a good reminder to demand specific policy language for specific risk, especially for passed-through exposures.

Risk managers should also consider how their businesses will be affected if thirdparty service providers are compromised. Such inquiry has become increasingly important as hackers discover new ways to disrupt business practices, as Netflix discovered in October 2016 when hackers used internet-connected cameras, baby monitors and home routers to effect a “denial of service” attack on the video streaming giant’s cloud-based internet performance manager, Dyn. Similar attacks have affected those in the financial sector – including European, Russian and Asian banks – with increasing regularity. These types of attacks can be very costly for businesses: studies estimate from $22,000 for each minute a site is down to $40,000 an hour (with 15% reporting costs exceeding $100,000 per hour). These costs add

up quickly, since most attacks continue more than six hours. Given potential extraordinary loss, businesses to analyze how they may be affected by attacks against those who they depend to perform critical business services. For example, how much business data or personally identifiable information (PII) is stored with a cloud provider? Will the proposed cyber coverage mitigate the business effects if that information is compromised? 2. What are the gaps in coverage between policies, or within cyber forms? Many insurers have patched together their cyber policies over a number of years in order to respond to new threats. But the hodgepodge result sometimes causes critical gaps in coverage.

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AMERICAS INSURANCE

Such gaps, if not resolved, may require other types of policies to pick up the slack, and vice versa. For example, crime policies are considered a necessary partner to cyber policies, because the former typically covers attacks involving stolen money as opposed to stolen data. But even crime policies may prove to be a deficient partner, as Apache Corporation recently found. The business wired $7 million in invoice payments to a fraudulent bank account that criminals claimed belonged to one of Apache’s vendors. The scheme started with a phone call, confirmed by a fraudulent e-mail on vendor letterhead. The fake letter also included a false telephone number, which Apache personnel used to confirm the change request. The Fifth Circuit Court of Appeals held that loss was not a “direct result” of the e-mail, as required by the policy’s “computer fraud” coverage, but rather caused by human error in failure to investigate the phony directions. The email, according to the court, was “merely incidental” to the money-transfer scheme. A well-crafted endorsement to the cyber or crime policy, or standalone comprehensive policy (both available through many insurers) may have avoided this outcome. Accordingly, businesses should ensure that seemingly broad cyber coverage is not unnecessarily truncated due to lack of imagination or failure to recognize the holes in the businesses’ insurance packages. Policyholders also may be able to fill gaps in coverage through existing forms. For example, last year, the Eighth Circuit Court of Appeals held that the State Bank of Bellingham was covered under a financial institution bond for losses arising from the fraudulent transfer of $485,000. An employee negligently facilitated the loss by leaving tokens in a bank computer – the physical part of the bank’s multistep security process. With the tokens in place, hackers were able to access and transfer funds to a foreign bank account. The bank’s insurer denied coverage under the bond based, in part, on an exclusion of employee-caused losses. The Court held that even if the employee’s negligence had been essential to the loss, it was

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not the “overriding cause,” as was the third-party criminal conduct. Thus, financial institutions should remember the possibility for cyber-related losses to be covered under policies that are not specific to cyberattacks or crime, though businesses should certainly not depend on these forms alone. 3. What triggers coverage? Policies vary considerably with respect to what triggers coverage. Some policies trigger upon breach of a security system; others require an affirmative failure by the insured. The challenge of the latter category is that even the best defense may be insufficient to prevent a constantly improving and motivated cyber actor. Thus, there may be no real “failure” by the insured or of the insured’s security system that would trigger coverage. Also, if it is the breach – as opposed to insured’s failure – that triggers coverage, the next question is whether the policy kicks in on discovery or occurrence of the breach. The trigger can be significant, since cyber breaches may go undiscovered for a long period of time. Nevertheless, a discovery-based trigger may make sense for some types of risks or may be nonnegotiable with the insurer. Policyholders should note what triggers coverage and assess whether the trigger makes sense with respect to the particular insured risk. Policies also differ in coverage for costs associated with alleged or suspected breaches. Such coverage can be helpful when the insured receives notice from a third-party (perhaps a vendor, or a government agency like the FBI) that an investigation discovered confidential business or personal information that appears to have come from the insured’s network. In such circumstances, it is incumbent to investigate the alleged or suspected breach, but such investigations can be just as costly as investigations of confirmed breaches. Proper coverage will assist in the necessary forensic work which can ultimately help a business to address

a security breach and patch security vulnerabilities. 4. Does the policy cover current cyber risks? Cyber threats, which are ever-evolving, can outpace the black-and-white of policy language. For example, policies commonly cover ransoms paid in response to threats to release stolen data or to prevent system access, but not ransoms paid in response to successful attacks (for example, to return stolen data or to restore system access). The gap is explained by the fact that ransomware of the latter kind was not a prominent risk when the policy language was drafted. Failure to cover present threats could be disastrous for financial industry policyholders, against whom ransomware attacks have more than doubled in the past year. Studies report that more than 32% of financial firms say they have lost anywhere from $100,000 to $500,000 to ransom attacks, not including downtime losses. Another common place where policies lag behind in is the definition of terms that describe the insured’s technology or source of risk, like “Internet,” “computer,” “network,” or “system.” Those definitions should be broad enough to include common hardware (like laptops and cellphones), and electronic and cloud technologies. Some definitions of system may not capture wireless networks; others may not explicitly include cloud computing. A company’s IT employees can be particularly helpful in reviewing definitions to make sure the descriptions are broad enough to cover the technology it directly and indirectly uses. 5. Do you have the right advocates? Business leadership and managers – who understand the insured’s daily activities – can be great advocates when selecting coverage. Likewise, it is essential to have a qualified broker who knows the market, the insurers and the available policies. But each of these parties may not be aware of the possible insufficiency of a

AMERICAS INSURANCE

policy. Knowledge of the business is not equivalent to knowledge of litigation or coverage risks. Also, brokers may be so focused on the cost or the deal that the advisory role falls to the side. Experienced coverage counsel can fill the advocacy void by analyzing policy language through the lens of potential litigation, advising the insured about coverage issues based on identified risks, and partnering with brokers to negotiate endorsements favorable to the insured’s needs. Proper advocacy will, ideally, help insureds obtain coverage most responsive to the business needs and cyber threats of today’s virtual landscape. Since cyber losses are now a question of “when,” not “if,” policyholders should seek cyber coverage that responds with a similar level of certainty. While there are no guarantees due to the fickleness of language and the courts, businesses can get very close to coverage that responds to their risks and needs by tackling the five questions posed in this article.

Walter J. Andrews

Jennifer E. White

LLP Hunton & Williams

Walter Andrews is head of Hunton & Williams LLP’s insurance litigation and recovery practice. Based in Miami and Washington, D.C., his practice focuses on complex insurance litigation, counseling and reinsurance arbitrations and expert witness testimony.

Jennifer White is an associate in the firm’s Washington office. Her practice focuses on insurance coverage counseling and litigation, with an emphasis on cyber insurance matters.

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AMERICAS TECHNOLOGY

6 Emerging Trends In Real Estate Technology Drones showing aerial views of properties for sale and microchips inside sale signs detecting prospective buyers are some of the technology trends that will highlight the real estate industry in 2017.

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In 2016, the US real estate industry barely moved in the wake of a real estate bubble, tighter credit, and reluctant builders. Fortune1 magazine said that these trends are about to change this year. There will be looser lending standards, though mortgage interest rates are expected to slightly rise. Builders will be encouraged to boost inventory due to â&#x20AC;&#x153;higher wages, looser credit, and increased demand from buyers.â&#x20AC;? 2017 will also mark the continued rise of mediumsized cities and stronger investments from foreign buyers, mostly from Asia. Technology is expected to play an important role in the renewed strength of the global real estate industry. Know 6 emerging trends in real estate technology.

Drones helping market listings According to tech experts, more real estate agents are using unmanned aerial vehicles (UAVs) or drones to provide potential buyers a comprehensive overview of properties. The aerial images and video footage of homes, nearby amenities, and surrounding areas is especially helpful for buyers based abroad. Drone manufacturers are coming up with better features including high-definition cameras and the ability to control the UAVs with smartphones.

AMERICAS TECHNOLOGY

The rise of smart cities According to the PricewaterhouseCoopers (PwC), the number of interconnected devices will likely rise to 34 billion by 2020 from 10 billion in 2015. The Internet of Things (IoT) or the interconnection of devices is at the forefront of technology trends in the real estate industry. There will be more smart cities that use IoT in improving traffic monitoring, road and lighting management, and integrating communication systems. “The key link between technological advances and real estate investment performance is productivity. IoT can upgrade efficiency in several ways. Deploying sensors throughout the city helps save time and money by targeting capacity use of transportation systems, lighting, overall energy demand, parking availability, and even necessary pothole repairs,” noted PwC in its 2017 Emerging Trends in Real Estate2.

“For most apartments or homes, drone photography is an extravagance. However, it does hold very real appeal to anyone attempting to sell industrial properties, large tracts of land, large estates, or especially photogenic properties,” FastCompany.com noted.

The world is preparing for Augmented Reality Augmented Reality (AR) is the integration of digital information with live video to enrich user experience. One of the latest AR trends that went global is video game Pokémon that encouraged millions of people to go outdoors and search for video characters. Real estate companies

and agents are using AR to level up virtual tours. This technology projects a digital image, such as the interior of a house, on the physical world. The image can be modified for day or night views, or to generate interior or exterior simulations. “Prospective purchasers or tenants can customize the experience by visual ‘what if’ alterations. As a marketing tool, it is a definite enhancement,” according to PwC. AR will change the way the industry conducts site visits and market properties.

Guided tours by beacon technology People have been talking about beacon technology lately. “Beacons allow for background positioning and detection, giving new power to a phone that can make it truly ‘smart’,” TechCrunch.com explained. In real estate, beacon transmitters are installed in “For Sale” signs to help agents detect a prospective buyer. The buyer can get all the information he’d need on a particular listing via an app. The beacon can also give buyers a guided tour to a property.

Energy-efficient architecture Eco-friendly homes and energy-saving devices have been dominant trends in recent years. Developers are responding to calls for energy efficiency in the midst of overpopulation and consumerism.

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Banco BMG. For the second consecutive year, recognized as best bank for investors relations. We believe that the adoption of best practices should derive from principles, not from requirements. That is how we have built, with our investors, a relationship based on transparency, respect, fairness and value generation. And that is why we are very pleased to be awarded, for the second time, as the â&#x20AC;&#x153;Best Bank for Investor Relations Brazilâ&#x20AC;?. A recognition of the values that have always been part of our history.

We do it because we believe it! 2016 winner

2017 winner

With 87 years of solid presence in the Brazilian financial market, we are a multiproduct retail bank 28 | Issue 7 focused on payroll credit card to Social Security and public servants. www.bancobmg.com.br/ir

AMERICAS TECHNOLOGY

The US Department of Energy developed the Home Energy Score, a national rating system that reflects the energy efficiency of a home. The agency provides recommendations on how to achieve a high efficiency score and save money. Some of these suggestions include the use of advanced house framing, cool roofs, and passive solar home design. In the Philippines, DMCI Homes pioneered Lumiventt Technology, an architectural innovation that allows the natural flow of air and sunlight. Prisma Residences’ Sky Patios showcase the benefits of Lumiventt. “There are Sky Patios as well as garden atriums located in every five floors, and single loaded corridors and breezeways that all in all create a spacious, breezy, and bright environment,” according to DMCI. Brixton Place, another resort-style condo community by DMCI, is also designed using Lumiventt Technology.

Pockets of nature in urban spaces Studies3 show that living near green spaces promotes human health. Parks and open areas in cities offer opportunities

for physical activity, stress management, and social interactions. More local governments are recognizing the benefits of green spaces, thus the increased efforts to incorporate these in urban planning. Real estate developers are also infusing landscaped areas and indoor gardens in newer projects. Vertical farming introduced by tech entrepreneurs is making a buzz on social media. Grove Labs, a US-based startup, designs sensor-controlled gardens that allow households to grow vegetation indoors. With the use of energy-efficient LED lighting and automated systems, the cost of growing fruits, vegetable, and herbs is drastically reduced. Aquaponics enables households to grow food in limited spaces in cities. PodPonics, another US start-up, uses custom-built software to grow greens in small shipping containers or “pods.” The software controls the supply of water and schedules LED lighting to save on electricity. The real estate outlook for 2017 is more vibrant compared to the past year.

Anna Rodriguez

Whether in the US, Europe or Asia, property buyers are more willing to purchase and developers more keen to boost inventory. Tech trends will play a role in the growth of the real estate industry. IoT will continue to power cities and real estate projects, builders will give emphasis on energy efficiency and green spaces, and real estate agents will be maximizing new gadgets to level up customer experience.

1 Matthews, C. (2017, January 03). These 5 Trends Will Shape

the Housing Market in 2017. Retrieved March 29, 2017, from http://fortune.com/2016/12/29/real-estate-trends-2017-2/

2 http://www.pwc.com/us/en/asset-management/realestate/emerging-trends-in-real-estate.html

3 Lee, A. C., Jordan, H. C., & Horsley, J. (2015). Value of urban green spaces in promoting healthy living and wellbeing: prospects for planning. Retrieved March 29, 2017, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4556255/

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AMERICAS FINANCE

Ready for Invisible Payments? “This is not good”, I thought. It was roughly half an hour after the restaurant ordered our taxi. The wind had just begun to whip sleet into my face. It was almost midnight. We were on the very edge of town, in an area with — as far as I could see — no buses. We called the taxi company — it had no record of our having ordered a cab. The soonest it could get a car to us was 45 minutes. I was in a strange city in a foreign country, so I’d deferred to my friends’ choice of restaurant and cab company. But now I got my phone out and checked Uber. Despite having no local cash and no local knowledge — I had a car driving us home within 10 minutes. “That’s amazing”, said my friend’s wife, who’d never used the service before. “Why didn’t he ask for any money?” She’s right — it is amazing. But it’s just the beginning.

Mercedes buys into the future On January 16 this year, Mercedes bought the mobile-payment start-up PayCash. Initially, it plans to use its acquisition to develop a secure, invisible and instantpayment method for its car-sharing service Cars2Go and its taxi-app mytaxi. Invisible payments? An app — on your smartphone or some other device — that monitors how and when you consume a good or service, and then bills you at an agreed rate — no credit card PIN, issuer number, or three stage checkout. You don’t even have to tap. You just use the service and get a receipt in your inbox.

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It’s easy to see why auto-industry companies like Mercedes are some of the first investors in invisible payments. If you want to build a distributed, flexible and on-demand transport service, you need customers to be able to pay without carrying cash and without having to visit a centralised point-of-sale. Other car companies are already getting in on the act. Avis, for instance, has its Uber-clone Avis Now and Bentley has a fuel-ondemand service.

Where Adobe and Microsoft led, everyone else will follow In 2013, software giants Microsoft and Adobe changed their business models. No longer would users buy a version of their products and then, a few years later, buy a new version — or not, if they didn’t feel the case for an upgrade was compelling enough. Instead, customers subscribed to the software, paying a monthly fee. New updates arrived invisibly, over the Internet. It was a good model. For a lower upfront cost, the customer always had the latest version of his or her software. The vendors, on the other hand, got a predictable revenue stream that netted them more, over the lifetime of the product, than a single upfront purchase. The software companies were able to make this change in 2013, because broadband speeds were finally high enough to cope with the demand placed

on the network by constant product updates running in the background. At that time, other sectors could only look on in envy. But in 2017, that’s starting to change. In response to the boom in e-commerce, courier companies have been rapidly expanding their capabilities, allowing them to deliver more parcels, more reliably, faster and for less. According to Accenture, since 2010 Amazon alone has spent over US$13 billion on warehousing and logistics. And carriers such as DPD, DHL, FedEx and UPS were also investing millions expanding capacity1. As a result of this investment in courier capacity — particularly in the “finalmile” services so crucial to customer experience — it’s now both feasible and economic to ship even low-value, fastmoving consumer goods in the post. All of a sudden, lots of new markets are opening up to e-commerce providers. And that’s nothing, compared to the e-growth potential that will be unlocked by the Internet of Things. When not only your car, but also your fridge, your vacuum cleaner and your coffee machine are intelligent enough to track usage, order and pay themselves when supplies are running low. The opportunities for e-commerce are huge. Suppliers of everything from milk to motor oil will be able to move consumers to a softwarelike subscription model.

AMERICAS FINANCE

But all of this only works if payment is instant, effortless, and seamless. No one wakes up in the morning thinking, “Wow, I’m really looking forward to making some Internet payments today”. No one wants to have to give their fridge their credit-card number and security code every time they need a pint of milk. Invisible payments are the missing piece of the puzzle. The companies that crack it first will be able to offer their customers an experience and a level of convenience, that their competitors just won’t be able to match. And consumers love convenience, almost as much as they hate being left standing in the rain without a taxi.

To get an idea of what’s at stake, consider that Amazon’s 1-click checkout has increased revenue by billions — and that’s one-click, for one retailer, in one channel. Imagine thousands of retailers, with noclick commerce, over hundreds of devices. Consumers will start worrying soon how to control the spent, not just of their family, but of all the devices belonging to their household. If you are a retailer, start thinking now how you can address such concerns and comfort your customers in automating their payments to you. If you are a payments company, start thinking now how you can make yourself invisible.

Ralf Ohlhausen Business Development Director PPRO Group

1 Adding Value to Parcel Delivery, Accenture, September 29, 2015.

Issue 7 | 75

AMERICAS BANKING

Strengthening Employee Security Using Machine Learning Artificial intelligence (AI) promises to be the next growth area in finance. It already powers chatbots1 that help improve customer service while reducing costs. It prevents fraud2 and bolsters banks’ compliance position with regulators. Now, it promises to revolutionise another important IT process in banking: identity and access management (IAM). IAM is an important part of any large organisation’s security operation. It organises and documents employee identities, giving accounts on corporate systems to those who need them. IAM manages these identities throughout an individual’s life cycle within an organisation, creating their personal record within the system, updating it with new attributes as their status changes, and finally retiring their identity when they cease to work with the bank. IAM also governs how users access banking systems, and what kind of applications and data they can use. Account permissions should vary according to a user’s role, so that they only have access to the applications and data they need to meet their responsibilities at the bank. A junior clerk doesn’t need access to the same systems as a regional manager. IAM systems bring order to complex banking systems, stopping users from overstepping their bounds, or accessing systems after they leave the company. However, it is harder for them to ensure that the person at the other end of the connection is truly the user they expected.

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Account hijacking: a major risk vector Verifying users is critical for banks, because account theft is a growing problem in all sectors. Stolen user login credentials enable attackers to log into a user’s account, bypassing all other protections such as data encryption. The more privileged the account, the more likely they are to damage an organisation, stealing other data such as customer records or intellectual property. Banks must not take these dangers lightly. In its report on effective IAM, Stop the Breach3, Forrester Research found that organisations discovered over 1 billion stolen accounts in 2016. Verizon’s 2016 Data Breach Investigations Report4 found that 63% of confirmed data breaches across multiple sectors involved the use of weak or stolen passwords. Criminals steal employee accounts using several techniques, including spear phishing, where an intruder will send an email to employees purporting to be work-related, and asking for their login credentials. Attackers can also use malware that steals logins directly from an employer’s device. History shows us many examples of employee account theft. In 2014, hackers successfully attacked5 an eBay database, which they accessed using stolen employee credentials. Two years later, computer hackers stole6 the account information of over 50 El Paso Independent School District employees, redirecting their wages. Bank employee accounts are particularly valuable, given the resources that an attacker could potentially access with the

employee’s account. Even if banks lock down their entire infrastructure and train users to be suspicious, attackers have other avenues. People often use the same password to access multiple online resources. Criminals with access to an employee’s credentials on a consumer website may in some cases use them to gain access to an employer’s site. This was precisely the worry when Yahoo! found another in a series of grave data breaches. In December 2016, it revealed7 that the account credentials of over 150,000 US government and military employees were among more than 1 billion stolen user accounts. These personnel had backed up details of their official government accounts in their Yahoo! data stores. Making IAM better with AI Identity assurance is an ongoing battle for banks. Innovation is slow and conservative. Two-factor authentication uses ‘something you have’ such as a hardware token or mobile phone in addition to the password that you know. It can be effective, but it isn’t failproof. Thieves can steal hardware tokens or phones, or socially engineer a phone carrier to redirect text messages to another phone. This happened with at least one bank8 in 2016. As attackers keep subverting security mechanisms, banks must continually work to make their multifactor authentication more effective. Machine learning adds another layer of defence in the battle to stop these attacks. It is a branch of artificial intelligence designed to solve narrow

AMERICAS BANKING

Issue 7 | 77

AMERICAS BANKING problems using statistical modelling. Its beauty lies in its ability to find patterns in large data sets, and in its focus on nondeterministic results. Traditional programs are deterministic, using ‘IF – THEN’ rules to achieve explicitlydefined goals. Results are either right or wrong, and there is no grey area in between. For example, IF a user record includes a flag denying them remote access to a system and they are trying to log in from an IP address not on the corporate network, THEN the system would lock them out. This approach can work in small environments, but it is too rigid to implement effectively at scale, in banks with hundreds of thousands of users. User bases of this size should have many classes of account, each with unique access privileges. Security professionals with limited time and resources will find it difficult to create and support user records and policies to serve them all securely. People outside the company such as suppliers and contractors will use many of these accounts, creating yet more combinations of application and data privilege in line with banking compliance requirements. Moreover, individual users within those classes may have their own unique behaviours. One senior manager travelling for customer meetings may need regular access from a specific remote location, while another may not. By looking at historical access data, machine learning algorithms can use this different approach to satisfy these security needs. Instead of using deterministic rules, machine learning assesses new data based on patterns that it has have seen before. It finds these patterns by combining historical data into a statistical model that it can then analyse. Statistical modelling makes machine learning excellent at recognition. It can ‘learn’ to distinguish a picture of a bird from a picture of a cat, for example, or to recognise specific sounds or even voices. It can recognise patterns in this data without a programmer ever coding an explicit rule telling it what a bird looks like or what makes Bob’s voice different to Jane’s. Just as it recognises certain images or sounds, a machine learning algorithm can also recognise valid user access patterns.

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It can mine an existing IAM system for data, analysing access logs for the entire user base. Data it might be interested in includes who accessed the system, their existing privilege levels, where they asked for access from, and when. It might examine which device they used to log in, and the applications and data that they wanted. The statistical machine learning model then recognises patterns in that data and uses them to create a baseline of normal behaviour that varies between individual users. Without following any pre-programmed rules, these patterns would understand that one employee only ever logs in while on the local area network at a certain branch, and that another often accesses loan management systems while at a client’s site. The machine learning-powered IAM system could then recognise login attempts that match a user’s normal pattern. Similarly, it can recognise a login that deviates from a user’s normal pattern, even if that pattern changes over time – even though there is no specific rule or data item that it is looking for. When a user’s behaviour doesn’t fit the statistical model, the machine learning algorithm can flag it and decide what action to take. The user’s deviation from the statistical baseline tells it how much risk a login attempt carries.

necessary, rather than getting in the way of everyday business. Machine learning is sure to pervade many more applications in various sectors as researchers perfect this exciting technology. It has strong potential in the security space, which faces a growing tide of data that human administrators are finding difficult to navigate. If IAM is a foundation for secure access management, then machine learning is the mortar to make it stronger still.

Barry Scott CTO Centrify EMEA

1 [24]7 LEADS ENTERPRISE CHATBOT MARKET WITH MORE THAN 160 ORGANIZATIONS USING VIRTUAL AGENTS. (2017, March 03). Retrieved March 29, 2017, from https://www.globalbankingandfinance. com/247-leads-enterprise-chatbot-market-with-more-than-160-

A low risk score may incur few if any extra security measures, whereas a higher one may require a call to the help desk, for example. The security team can create as many policies as it needs, making its response to different risk levels proportional in line with its compliance requirements.

organizations-using-virtual-agents/

2 TSYS ENHANCES REAL-TIME FRAUD CAPABILITIES WITH MACHINE LEARNING TECHNOLOGY. (2016, May 24). Retrieved March 29, 2017, from https://www.globalbankingandfinance.com/tsys-enhances-realtime-fraud-capabilities-with-machine-learning-technology/

3 Forrester Data Breach. (n.d.). Retrieved March 29, 2017, from https:// www.centrify.com/lp/forrester-stop-the-breach-IAM-maturity-model

4 Industries. (2016, April 27). Retrieved March 29, 2017, from http://www. verizonenterprise.com/verizon-insights-lab/dbir/2016/

This approach lets security teams create access policies that accurately reflect corporate risk on a per-employee basis. These policies run in real time, and they change in line with a user’s access patterns. It also gives the IT department better visibility into access patterns, because an IAM system can analyse those scores and risk patterns on a dashboard, making it a useful analytics tool. Employees also get the benefit, because they no longer need to jump through cumbersome security hoops simply to do their jobs in the normal way. A layered set of policies applies the burden of proof when

5 EBay Database Hacked With Stolen Employee Credentials. (n.d.). Retrieved March 29, 2017, from http://www.darkreading.com/attacksbreaches/ebay-database-hacked-with-stolen-employee-credentials/d/d-id/1269093

6 Crowder, P. B., Photo, E. P., EPISD, I. P., & EPISD employee accounts hacked, money stolen By David CrowderEl Paso Inc. staff writer El Paso Inc. | 0 comments. (n.d.). EPISD employee accounts hacked, money stolen. Retrieved March 29, 2017, from http://www.elpasoinc.com/ news/local_news/article_9c0a4f3a-20fe-11e6-b531-d7817e7eb054. html

7 Robertson, J. (2016, December 14). Stolen Yahoo Data Includes Government Employee Information. Retrieved March 29, 2017, from https://www.bloomberg.com/news/articles/2016-12-15/stolen-yahoodata-includes-government-employee-information

8 8 Mar 2016 at 06:58, John Leyden tweet_btn(). (n.d.). NatWest tightens online banking security after hacks' 'hack' exposé. Retrieved March 29, 2017, from https://www.theregister.co.uk/2016/03/08/ natwest_mobile_hack/

AMERICAS BANKING

We are proud to share with you that â&#x20AC;&#x153;Global Banking & Finance Reviewâ&#x20AC;? has recognized Mibanco as:

BEST MICROFINANCE BANK IN PERU 2016 This institution rewards leadership, commercial strategy, financial achievements and innovation within the global financial community. This award motivates us to keep striving for the inclusion of more entrepreneurs into the financial system in our country.

www.mibanco.com.pe Issue 7 | 79

AMERICAS BANKING

Banks should ditch cash to boost customer loyalty The cashless society is not a new concept. Debate about the future of cash has raged since the introduction of magnetic strip cards decades ago but in the age of the digital customer, banks are struggling to engage and retain customers, with millennials and generation Z proving the most challenging. Could ditching cash be the route to customer loyalty for the modern bank? Collinson Group research suggests yes and that it is a win for both customer and bank. We polled 2,500 loyalty program members across the globe and found that they used a mobile wallet (such as ApplePay or Android Pay) an average of seven times a month – this figure was as high as 10 times per month in the US. Our research also found that 71% favour brands that are early adopters of technology.

Convenience and reward Mobile phones are an integral part of everyone’s lives – from capturing and sharing memories, to booking travel, grocery shopping and keeping up with the news. There are now more mobile phones on the planet than people1. With apps providing information on everything from how we eat, exercise and source entertainment, to how we sleep, it is natural for people to use their phones to complete financial transactions. Using mobile as a payment technology makes customers’ lives easier and is more efficient. No more fumbling around for cash or trying to remember different pins – just a simple wave of a mobile device or a biometric scan and the transaction is complete. By making mobile payments even more accessible, banks will generate positive brand association and will build loyalty with their customers. If they don’t, they risk missing out on revenue. Research from financial analyst firm, Lafferty, reveals that non-bank players dominate the US mobile payments market, led by initiatives such as Walmart Pay, Abra and Samsung Pay. They also found that P2P transactions are gaining more popularity in the US, when compared to other countries. About $7.5 billion was transferred using Venmo, one of the most popular P2P money transfer services, during 2015.2

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Many customers only use banking services a few times a month but are likely to make contactless payments several times a day. Unlike a credit card, a mobile payment also creates the opportunity to deliver a relevant offer, reward or additional service to the customer. For example, a reminder about a balance and the opportunity to transfer more money; a chance to earn loyalty points in the future or to use those points to pay for purchases. These are powerful opportunities for banks to offer greater convenience, relevance, timeliness and rewards to customers. Organizations are recognizing the convergence between payments and loyalty, with First Data acquiring Perka (a loyalty platform) and Clover (a point of sale solution), and Visa investing in Square, so that it can offer a closed loop digital payment and retail system.

Using data and digital wallets to become indispensable to consumers Perhaps the biggest opportunity arising from the cashless experience is the chance to generate more data and use this to retain customers. A traditional card payment gives the bank insight about a purchase based on outlet, time and location. For mobile payments, more information is available such as links to social media profiles, mobile browser history and other contextual information through collaboration and shared APIs. Analysis of this behavioral data, including real-time data can help banks to create better services, deliver great experiences and provide more valued rewards for customers. Today the majority of consumers have used digital wallet services such as PayPal, increasingly for face-to-face as well as online transactions. Consumers will choose the fastest, most convenient and secure digital payment option and offering a frictionless, channel agnostic service is a way for brands to add value to consumer experiences. To demonstrate the potential for banks, in China the two main players in this area – Tencent’s WeChatPay and Alibaba’s AliPay are far ahead of the West in terms of frequency of use and share of wallet across all demographics. Alibaba is also expanding into other areas of financial services, with its proposed acquisition of US-listed money transfer service, MoneyGram International.

AMERICAS BANKING

Overcoming the barriers is the first step to success Banks are taking steps towards a digital first engagement strategy but these changes are incremental. One of the biggest barriers banks face is overcoming legacy systems and infrastructure, with new platforms facilitating rapid analysis of big data and increased collaboration with third parties through open APIs. By working with the right partners and adopting a digital first mindset, such as facilitating the reduction of physical cash, banks have a massive opportunity to increase revenue and boost loyalty.

Final thoughts Banks have a significant opportunity to build real-time loyalty initiatives based on behavioral data, enabling customers to collect and redeem rewards that are relevant, personal and broad enough to engage more members, more of the time. A completely cashless society is still a long way off, but there are many reasons why banks should champion contactless payments and couple this with loyalty program apps or messaging platforms. It provides the opportunity for consumers to pay with points and cash, increasing the utilization of loyalty currency, and presents an improved customer experience and more value to customers overall. For financial services brands, it offers the opportunity to deliver a differentiated, personal, relevant and unique customer experience. It is undoubtedly a win for customers and a win for banks.

Lars Holmquist Senior Vice President for the Americas Collinson Group About the research Research commissioned by Collinson Group was conducted by Vanson Bourne. A total of 2,500 consumers were interviewed in September 2016. The respondents had to be members of at least one of the following loyalty programs: airline, hotel or retail banking/ credit card. Surveyed consumers could have been of any age and gender. Interviews were conducted online in the US, the UK, Singapore and the UAE using a rigorous multi-level screening process to ensure that only suitable candidates were given the opportunity to participate.

1 http://www.independent.co.uk/life-style/gadgets-and-tech/news/there-are-officiallymore-mobile-devices-than-people-in-the-world-9780518.html

2 http://www.laffertyreports.com/reports-store/country-reports/north-america/unitedstates.html?utm_campaign=WCI%20USA&utm_medium=email&utm_source=WCI%20 US%20Email%2031012017&utm_content=

Issue 7 | 81

AMERICAS INVESTMENT

New Model for Investible Infrastructure Global population is rising. The United Nations estimates that by 2050 the planet will be home to nearly 10 billion people, with two thirds living in cities. Pressure is growing on the vital transport, energy, housing, communications and water infrastructure that supports our modern lives. A new model for investible infrastructure is required to successfully support this.

There is a great appetite in the global investment community to support this infrastructure ambition and a multitude of ways to finance projects, from issuing long-term bonds to institutional investors, to the long-term involvement of pension funds. Typically there are two routes to provide funding; taxation, or through some form of fare box.

Investment is vital to underpin living standards but also to provide the connectivity that drives economies and generates growth and wealth. Yet while there is certainly a political will and a clear logic to this investment, the challenge faced by global leaders is how to pay for it. For all the speeches and policy commitment, driving forward with long-term investment remains difficult. Inconsistent delivery record, high risk profile, funding difficulties plus relatively slow returns on investment continue to act as major barriers to both public and private investment. A new model is needed for the funding, planning and delivery of major infrastructure projects. This should be a new way to focus 21st century global infrastructure projects – with the focus on investment need, transforming delivery and understanding long-term value.

Tackling the funding challenge Infrastructure is an expensive business and across both the developed and developing world governments simply do not have the cash to fund all programmes from the public purse without resorting to undesirable levels of borrowing. We see this in the USA, with programmes such as the $137bn Emergency & National Security Projects programme proposed by President Trump shortly before taking office and public and private funded schemes, which require vast amounts of private funding to underpin the public commitment. In reality the former generally involves a direct grant from government, and as such it can be an inefficient way to direct Similarly the UK government’s long-term £500bn National 28 | Issue 7 funding towards infrastructure and is also politically undesirable, Infrastructure and Construction Pipeline1 of 728 projects assumes not least for administrations elected on the basis of reducing state that more that 50 percent will be delivered and funded by the borrowing. private sector. Meanwhile Australia’s Sydney Metro and Malaysia’s Kuala Lumpur to Singapore high speed rail link are both anticipated to feature heavy private sector involvement.

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AMERICAS INVESTMENT Tolling or charging at the point of use can effectively focus and connect revenue collection directly with the service. That said, it can be equally unpopular with the public used to obtaining services ‘for free’. But examples such as the UK water industry, which has seen some £108bn invested by companies in England and Wales since privatisation in 19892, the French motorway network which has some 12,000km of tolled roads or Hong Kong’s multibillion dollar tollfunded programme of investment in tunnels and bridges, demonstrate that levying charges directly on infrastructure use can be successful. Success in these cases has relied on strong political and regulatory frameworks allowing long-term policies to be set and investment decisions to be made that linked charges with service improvement. But this isn’t generally the case.

Understanding the investment need The creation of the UK’s independent National Infrastructure Commission, with its research-based National Needs Assessment programme, is potentially an example of a well-thought-out plan. Not only does this identify the critical needs for the nation today, but it is also capable of identifying those for the longer term, highlighting the whole-life and whole-community value that can be extracted from that investment.

The current market set-up, with its lump sum and target cost pricing structures, is simply not delivering the performance required by long-term investors. Not least while the supply chain continues to stand back and wait for others to invest in innovation, skills and new products. The market must move towards larger turnkey contracts with more emphasis on outcomes rather than transactional products. Only then will we start to see improvement in productivity across the sector as demanded by asset owners and governments around the world. The World Economic Forum’s Shaping the Future of Construction3 report highlights the scale of the challenge and the size of the opportunity. Given the Engineering and Construction industry is six percent of global GDP and growing - and is the largest consumer of raw materials and other resources - it cites that even a one percent increase in productivity worldwide could save $100bn a year. Combine this with improving asset management capability then a whole lot more schemes would move from marginal to investible. The UK’s Construction Leadership Council understands this and, by following the transformation already seen in the aerospace and automotive sectors, is attempting to reform the construction through:

Transforming delivery

•

digital technology

Institutional investors like a clear understanding of risk. Given the inconsistency of project delivery witnessed across the global construction industry, they are understandably wary of investing in major infrastructure projects.

•

off-site manufacturing

•

smart asset management techniques.

In many cases, large-scale infrastructure projects still: •

take too long from inception to implementation

•

cost too much to deliver

•

cost too much to maintain

•

focus on short-term rather than longterm solutions

•

carry higher levels of risk when compared to real estate investment.

Embracing whole-life value There are numerous global flagship projects which demonstrate that, approached correctly, infrastructure can be a very attractive to investors. Think Crossrail and Thames Tideway in the UK; think Sydney Rail in Australia, think Metrolinx in Canada. These projects all make the link between investment and long-term value and are being effectively delivered as part of a longer-term vision. However, these successes are not yet the norm. For too many nations investment in infrastructure is still rooted in short term gain, and poorly delivered political pet projects. Neither provide an attractive proposition for private investors. This must change. Infrastructure is now an increasingly attractive asset class for the global investment community seeking long-term secure returns on investment. Making projects investible is critical to securing this investment. A transformation of current delivery models is needed against these three key criteria to enable global infrastructure schemes to be delivered and funded consistently, and so benefit governments and the lives of communities worldwide.

A new data-enabled, technology-driven production method is a critical step for asset owners and operators looking to reduce their capital programme delivery, asset management and whole-life cost base. From an investment perspective, moves to embrace the entire asset lifecycle also herald a transformation for investors. In Australia and Canada, for example, measures are being investigated and instigated in which shares of existing brownfield assets are sold to the private sector in order to fund new schemes. Understanding and managing the whole-life risks and performance significantly impact the value that can be extracted.

Murray Rowden Turner & Townsend

1 https://www.gov.uk/government/publications/nationalinfrastructure-delivery-plan-2016-to-2021

2 http://www.ofwat.gov.uk/regulated-companies/ofwatindustry-overview/

3 http://www3.weforum.org/docs/WEF_Shaping_the_Future_ of_Construction_full_report__.pdf

Issue 7 | 83

AMERICAS TECHNOLOGY

The Need for Strategic Change in Mobile Financial Services The problem with the mobile revolution in financial services is that it has been hyped about for so long, yet still hasn’t fully arrived. However, in less than five years it is predicted that the number of mobile phone owners using their device for banking purposes will double to over 1.75 billion. Banks cannot ignore the implications of what this means to their future business models, and now is the time to be strategic and plan for the future. If there’s one thing we know, banking is becoming increasingly digital, and mobile is at the heart of the experience. Forrester1 recently highlighted that “mobile banking is the most important strategic change in retail banking in more than a decade.” Consumers are increasingly using mobile devices for financial transactions, and for the industry, that's good news. Not only do mobile interactions cost less to serve, but more importantly, they generate critical data. According to the annual State of Banking Innovation 2016 survey2, mobile banking is the most valuable area of consumer innovation, and it is in this area that banks are spending the most money. It is for these reasons that standing still, or waiting to see what direction the market turns with mobile payments, is no longer an option. The Strategy Behind Speed and Agility Despite being one of the most heavily regulated industries, financial service providers need to deliver attractive and highly functional customer journeys for increasingly digitally-savvy customers. Issues such as legacy systems and fast-moving changes in the market make creating the ‘perfect experience’ very challenging. Many banks have launched a mobile payment services or wallet, but this opportunity also brings specific challenges. There are many new entrants investing heavily in mobile payments -- Samsung, Google, Carrefour, payment service providers like PayPal, as well as money transfer operators and card companies. However, it is still an undeveloped business where only a few initiatives have succeeded in attracting a significant user base. This fast evolving landscape creates doubt. Many banks wonder what can we do? How can we keep up? What is our bank’s mobile payments strategy?

and has continued to successfully innovate by embracing a level of agility and adaptability. Launched in 2014, 35 percent of retailers now take Apple Pay, in part due to the service’s ability to solve customer inconvenience issues in a way that rivals (such as PayPal and Google Wallet) did not. What's more, Apple found a way to offer a seamless user experience and simplicity at the point of sale. Don’t Fear the Cloud, Embrace It There are many enterprises that want to deliver software at high speed, but often struggle with the complexity of deploying, upgrading and scaling. Cloud-based technologies can be used to address this issue. However, cloud fears are having an impact on adoption in the financial services sector, as the risk of data loss continues to be a main concerns. A 2014 survey of CIOs3 from financial services firms saw that 72 percent of respondents feared the cloud because of concerns over data not being backed up, and issues of disaster recovery. However, what people tend to forget is that the cloud has made significant improvement in the areas of security, making it a viable solution. It was recently reported that today organizations which execute a strategic cloud plan are growing revenue 2.3 times faster4 than their competition, and on average generating a 35 percent lift on year in top line revenue. What’s to fear about a healthy bottom line?

Newer and more tech-savvy players have speed and agility on their side to successfully transform different areas of a bank’s business, but that doesn't mean more traditional players can't employ a workable strategy for keeping pace.

As an enabler of innovation and a catalyst for change, there is a real opportunity for cloud computing to play a significant role in banks’ efforts to reinvent their business and operating models in the coming years. Financial institutions will bring greater flexibility, transparency and control over how they manage their data, run their business and deploy their IT operations locally in the cloud.

There is a need to embrace agile development in order to strategically roll out innovative services quickly. Apple Pay is a great example of a mobile payment service that was strategically implemented

The Metro bank in the UK is a good example, it became the first to be awarded a banking license in the UK in 150 years. Accompanied by other new entrants such as Starling and Hampden, customers

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AMERICAS TECHNOLOGY were turning their backs on the traditional big players. All of these new players on the market are distinct for a core reason - they are each embracing the cloud. As a result, these newcomers don’t have the issue of legacy systems and therefore can hit the ground running. Don’t let fear keep you from harnessing the power of the cloud, and therefore adapting to the changing landscape. Creating Entirely New Markets Another boon for mobile banking providers is to build a strategy around new revenue potential. One such example is a newfound ability to reach lower-income customers5 who weren’t previously considered worth investing in. Between 500 million and three quarters of a billion people around the globe have a phone, but not enough balance to even use it. And it's not just an issue in developing countries. Some 68 million Americans (22 percent of the country’s total population) and 25 million Europeans are unbanked. There are many innovative mobile financial products that are transforming financial services for many people around the globe. M-PESA in Kenya, for example, is being used by 59 percent of Kenyan adults and the platform accounts for 66 percent of transaction volumes processed through the national payments systems. Users can do pretty much anything from buying groceries and paying utilities, to purchasing airline tickets, all through their mobile device and without needing a bank account. Moreover, according to Accenture6 70 percent of SMBs (small medium businesses) have a bank account but only five percent have access to term loans from banks and a mere one percent to working capital loans from banks. Banks have a unique opportunity to create a model that enables mobile banking to reach a new unbanked market, on both a consumer and business perspective. With income levels growing, access to finance is now very much on the agenda for many public and private financial institutions. The time is right for banks to take advantage of this growth area by transforming their current operating strategy and service offerings, and effectively reach this fast-growing market.

Don’t Stand Still on Security and Risk Management If the top to-do on your list is to develop a better strategy around innovation, the very next item must be a strategic vision to adapt security according to risk. It is imperative with new technological advances that you also employ the newest and best security capabilities, so that you can to react swiftly to any perceived breach or suspicious activity. As you become more innovative and strategic, it is an unfortunate fact that thieves and hackers do as well. There are risks inherent in any mobile service: things like unsecured Wi-Fi networks, mobile malware and risky consumer behavior. A review of mobile apps from RiskIQ found that the number of malicious apps in the UK alone has grown by 130 percent since 2015. Big money will be spent monitoring app location and ensuring the right apps remain on approved lists. It’s also increasingly crucial to monitor for app impersonation or is-affiliation, as well as educating consumers on their own mobile safety.

and financial service organizations that embrace it have the opportunity to redefine themselves in an entirely new economy. Diving deeper into mobile is undoubtedly a strategic necessity for the financial industry. Led by the sharp rise in the number of mobile subscribers globally, and the high volume of smartphone sales, mobile payments are expected to exceed $721.4 billion (£435.2 billion) by 20178. While gaining a share of this billion-dollar opportunity is highly attractive, banks and other financial institutions that are unwilling or unable to realign their strategy and quickly adapt their IT infrastructure, risk losing out to their digital upstart competition. The major players in this industry must recognize the need to get in now – and stay in.

Financial institutions who are investing in MFS need to ensure they have a plan in place which keeps the creation and maintenance of risk simple. Those in the “ivory tower” of executive management cannot be expected to understand or stay abreast of all the risks facing the “boots on the ground.” Strategic risk management must have a bottomup component. Bottom-up strategic risk management requires collaboration tools7 that haven’t always existed, but do now. Most organizations are naturally risk-averse, but despite their best efforts they still struggle to translate a sound strategic vision into action. Tech giants such as Google, Apple and Amazon are well positioned to absorb risk as they tackle the mobile financial services market, however that doesn't mean that smaller players shouldn't get in the game. A study conducted by IBM found that 73 percent of millennials say they would be more excited about a new offering in financial services from trusted tech brands than from their own nationwide bank in the U.S. and 33% believe they won’t need a bank at all in five years. While there is an avalanche of change, traditional banks

Craig Catley Director StrategyBlocks

"Forrester." Forrester : Playbook : The Mobile Banking Strategy Playbook For 2016. N.p., n.d. Web. 09 Apr. 2017.

2 "Mobile Banking Dominates Banks' Innovation Spending in 2016." Bank Innovation. N.p., 17 Oct. 2016. Web. 09 Apr. 2017.

3 "Financial firms still stricken with fear of the cloud, survey shows." Cloud Tech News. N.p., n.d. Web. 09 Apr. 2017.

4 "Secrets of the Cloud Leaders." Secrets of the Cloud Leaders. N.p., n.d. Web. 09 Apr. 2017.

5 "CABLE & WIRELESS PARTNERS WITH JUVO TO OPEN UP ACCESS TO MOBILE FINANCIAL SERVICES IN THE CARIBBEAN ." Global Banking And Finance Review Magazine – Financial & Business Insights. N.p., 23 Nov. 2016. Web. 09 Apr. 2017.

6 "Unbanked Population Market Opportunity Accenture." Unbanked Population Market Opportunity Accenture. N.p., n.d. Web. 09 Apr. 2017.

7 "Announcing StrategyBlocks 4.0: The Most Visual, Holistic Approach To Strategic Execution For Your Entire Organization." StrategyBlocks. N.p., 14 July 2016. Web. 09 Apr. 2017.

8 All products require an annual contract. Prices do not include sales tax (New York residents only). The reduced price / month applies to the entire contract duration. "Mobile payment revenue worldwide 2015-2019 | Statistic." Statista. N.p., n.d. Web. 09 Apr. 2017.

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AMERICAS BUSINESS

Don’t Assume Bankruptcy Remote Means Bankruptcy Proof Financial executives are generally familiar with using a bankruptcy remote special purpose entity – commonly known as a BRE – as the borrower for property-specific financings. BREs permit the lender to resell the mortgage loan as part of a portfolio to create commercial mortgage-backed securities. However, many executives assume that BREs cannot file bankruptcy, and thereby fail to fully understand the risks and opportunities if the property being financed experiences unforeseen financial difficulty. In these deals, the borrower entity is formed immediately prior to closing the loan to hold the lender’s collateral. Major ratings agencies, including Standard & Poor’s, require structural safeguards that make it unlikely that the BRE will become insolvent as a result of its own activities, while insulating the BRE from the consequences of any related party’s insolvency. The BRE organizational documents include a requirement that the BRE have an independent director or manager appointed or approved by the lender. Often called a “blocking director,” this individual’s consent is required prior to filing bankruptcy. The blocking director is generally expected to be loyal to the lender, and, as a result, will not authorize a bankruptcy against the lender’s interests. Delaware law permits this blocking director arrangement for limited liability companies and permits the governing documents to expressly eliminate the blocking director’s fiduciary duty to act in the best interest of the borrower. At least in theory, bankruptcy courts must immediately dismiss for “bad faith” any bankruptcy not properly authorized by a corporate debtor under state law.

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However, it is a mistake for financial executives to place too much confidence in the blocking director arrangement, at least in situations where the borrower, as opposed to its parent or sister company, encounters financial distress. Several bankruptcy courts have recently considered the blocking director strategy, and have determined that the creation of a blocking director, without a corresponding fiduciary duty to the borrower, is tantamount to an absolute bar on bankruptcy. The bankruptcy courts recognize a public policy against a contractual advance waiver of a borrower’s right to file bankruptcy. Therefore, a borrower cannot waive in advance the right to file bankruptcy. Otherwise, all lenders would require their borrowers to grant a pre-petition waiver and basically eviscerate the right of a person to seek federal bankruptcy relief as authorized by the Constitution and enacted by Congress. A recent bankruptcy case, Lake Michigan Beach Pottawattamie Resort, decided in 2016 by the bankruptcy court in Illinois, ruled that a BRE organizational document that eliminated the blocking director’s fiduciary duty to the borrower was invalid as a matter of public policy. The court recognized that the blocking director is the lynchpin that holds together a BRE, formed to protect assets from creditors other than the secured creditor who was unwilling to lend otherwise and for whom the structure is made. However, the court noted that an absolute prohibition against filing bankruptcy would not be enforceable. Therefore, the blocking director structure, in order to be effective, must have a saving grace that the blocking director always adhere to his or her general fiduciary duty to the

AMERICAS BUSINESS

debtor to fulfill its role. That means, at least theoretically, there will be situations in which the blocking director will vote in favor of a bankruptcy filing, even if in so doing he or she acts contrary to the purposes of the secured creditor for whom he or she serves. The Pottawattamie court found that the creation of a BRE, without the blocking director owing a fiduciary duty to authorize bankruptcy in appropriate circumstances, was unenforceable and the blocking director provision was invalid. Other recent bankruptcy cases, including Intervention Energy Holdings and General Growth Properties, emphasized the need for the blocking director to have a fiduciary duty to the borrower. In other words, even if state law permits the blocking director to only owe a duty to the creditor, it is void as contrary to federal public policy. The takeaway is that financial executives should not assume that the BRE blocking director is a guarantee against bankruptcy. Instead, they should be mindful of the potential bankruptcy filing, even without the blocking directorâ&#x20AC;&#x2122;s consent, in situations in which the borrower faces financial issues and a bankruptcy will permit the borrower to repay the lender in full and salvage meaningful additional value.

Gardner Davis Partner Foley & Lardner About the author Gardner Davis is a partner with law firm Foley & Lardner LLP and has extensive experience restructuring financially distressed enterprises, both inside and outside of bankruptcy.

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Security Policies Matter for Disaster Recovery In the past year there have been several high-profile outage incidents, affecting a wide range of organizations. In the first month of 2017 alone, we have seen both Delta Airlines1 and United Airlines2 cancel flights due to major IT issues and the internet streaming services of both Comcast and Fox Sports3 experiencing outages during Super Bowl 51, leaving some fans unable to witness the nail biting ending. These follow on from similar incidents last year that affected Amazon Web Services after storms hit Sydney, Australia in June, where services in the region were down4 for around 10 hours, disrupting a range of services from banking to pizza deliveries. And of course, cyberattacks also took their toll: we saw the worlds’ biggest ever DDoS attack5 targeting the company which controls much of the internet’s domain name system. Despite these high profile incidents, many organizations in the banking and finance sector are still stuck in the mind-set of ‘it won’t happen to me’ and are ill-prepared for IT failures. And with IT teams facing a broad range of unpredictable challenges while maintaining ‘business as usual’ operations, this mind-set places the global finance sector at serious risk of a damaging, costly outage. Therefore, it’s more important than ever to have plans for responding and recovering as quickly as possible when a serious incident strikes. As the author Franz Kafka put it, it’s better to have and not need, than to need and not have. In short, effective disaster recovery is a critical component of a business’ overall cybersecurity posture.

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Most large institutions do have a contingency plan in place in case its primary site is hit by a catastrophic outage – which, remember, could just as easily be a physical or environmental problem like a fire or flood, as well as a cyberattack. This involves having a disaster recovery (DR) site in another city or even another country, which replicates all the infrastructure that is used at the primary site. However, a key piece of this infrastructure is often overlooked network security - which must also be replicated on the DR site in order for the applications to function yet remain secure when the DR site is activated.

In a year of surprises, this isn’t one.

BMO has been named Best Forex Provider – North America/China* for the seventh straight year. You can count on our team for winning solutions that help you achieve your FX goals.

*Global Banking and Finance Review Awards, 2011-2017. BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member FDIC), Bank of Montreal Ireland p.l.c, and Bank of Montreal (China) Co. Ltd and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Investment Industry Regulatory Organization of Canada and Member Canadian Investor Protection Fund) in Canada and Asia and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in Europe and Australia. “Nesbitt Burns” is a registered trademark of BMO Nesbitt Burns Inc., used under license. “BMO Capital Markets” is a trademark of Bank of Montreal, used under license. “BMO (M-Bar roundel symbol)” is a registered trademark of Bank of Montreal, used under license. ® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere. ™ Trademark of Bank of Montreal in the United States and Canada.

AMERICAS TECHNOLOGY Building security into DR Replicating the security infrastructure, however, can be more of a challenge than it may initially appear. The network at the primary site will contain routers, firewalls, servers and so on, and the DR site may be set up in exactly the same way. But the problem is, just installing the same equipment in the same configuration isn’t enough. All of those devices have security policies within them and these policies change on a daily or even an hourly basis, every time applications and users are added, amended or removed. As such, whenever a policy change is made in the primary site it is critical to ensure that an equivalent change is made on the DR site. This requires synchronization between the two sites’ security policies to automatically replicate policies every time they change. How that synchronization is implemented will depend on the exact equipment and setup the organization is using, and it’s not always easy to do.

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AMERICAS TECHNOLOGY

The most straightforward scenario is when the same equipment from the same vendor is deployed at each site – and that vendor offers a unified firewall management system. This means the same policies can be simultaneously installed on security devices on both sites; IT teams only have to make the change once in the firewall management system, and it’ll push the change out to the security devices in each site.

secondary site are going to look slightly different to the ones at the primary site – and again, you will need an automation solution to carry out the rule conversion.

Overcoming language barriers

It is essential to consider all of these aspects of security policy management when building a DR site. If you neglect these points, when disaster happens and you need to switch operations to your secondary site, then your systems and applications won’t work as you need them to.

More complex scenarios occur when organizations don’t have such a firewall management system – or if the organization is using equipment from different vendors, or different models from the same vendor, at each site. In this setup, the policies at the two sites will not be truly identical, so synchronizing the two sites’ policies will need to be done in some other way. And if you rely only on human processes to synchronize the two sides – the polices will eventually diverge. Therefore, an automated system is the right approach to maintaining the synchronization.

As we’ve seen with recent serious outages, prevention is no longer enough to ensure robust readiness to unplanned incidents and cyber threats. The banking and finance sector need to ensure that its incident response is as slick and unified as possible, so that when (not if) the worst happens, they can get critical systems back up and running quickly, to cut disruption to a bare minimum. And having your security policies configured and orchestrated across the entire organization, in both primary and DR sites, is a critical facet of this.

The last thing to consider is the IP addresses in use at the primary and secondary sites. Are they identical or, as is more likely, are the IP addresses on the main site mapped to their logical counterparts in the DR site? In this case, any rules that are installed at the

Professor Avishai Wool CTO AlgoSec

1 It's the second time in less than six months that the airline has suffered

a major IT problem resulting in travel chaos, and Angry Passengers. "Computer outage grounds Delta flights in U.S." CNNMoney. Cable News Network, n.d. Web. 07 Apr. 2017.

2 Marco, Ralph Ellis and Tony. "United Airlines resumes flights after temporary ground order." CNN. Cable News Network, 22 Jan. 2017. Web. 07 Apr. 2017.

3 Liptak, Andrew. "The Super Bowl live-streams crashed for both Comcast and Fox Sports." The Verge. The Verge, 05 Feb. 2017. Web. 07 Apr. 2017.

4 5 Jun 2016 at 22:42, Richard Chirgwin tweet_btn(). "AWS endures extended outage in Australia." • The Register. N.p., n.d. Web. 07 Apr. 2017.

5 Woolf, Nicky. "DDoS attack that disrupted internet was largest of its kind in history, experts say." The Guardian. Guardian News and Media, 26 Oct. 2016. Web. 07 Apr. 2017.

Issue 7 | 91

MIDDLE EAST INTERVIEW

Call For Entries INVITING BANKS

INVITING BUSINESS

INVITING

SHOWCASE YOUR ACHIEVEMENTS

FINANCIAL ORGANIZATIONS

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LEADERS

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

2017

MIDDLE EAST INTERVIEW

Victoria Chanza,Â Head Commercial Banking, Ecobank Malawi

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

Mr. Muhammad Hanif, CEO, PT Mandiri Manajemen Investasi

Issue 7 | 29

Mr. Bolaji Ayodele, Managing Director, Guaranty Trust Bank (Gambia) Limited and Mr. Dodou Bojang, Head Corporate Affairs, Guaranty Trust Bank (Gambia) Limited (left to right)

Mr. Thi Huy Thanh, Foreign Exchange Manager, Saigon Commercial Bank, Mr. Nguyen Duc Hieu, Deputy General Director, Saigon Commercial Bank and Mr. Phan Huy, Money Market Manager, Saigon Commercial Bank (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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Africa 96 Issue 7

AFRICA INTERVIEW

Investing in Angola Hi David, can you tell our readers about Quantum Global Group and your role within the business? Quantum Global is an African focused Private Equity firm that targets transformative industries in Africa’s growth sectors through our African Funds. Founded by Jean – Claude Bastos de Morais, Quantum Global Group’s Founder and CEO, we are one of the very few firms that invests solely in Africa and our clients consist of Central Banks, Sovereign Wealth Funds and other institutional investors. Quantum Global has a strong African homebase and our unique approach is characterised by our exceptional cultural awareness, outstanding and detailed knowledge of emerging markets, the quality of the relationships we have developed within our global network and of course our investment expertise. As Head of Private Equity, I am responsible for managing the strategic direction of the Group’s seven Africa focused Private Equity funds and supporting Quantum Global’s investment

activities in the sectors and regions in which we operate. I was previously the Group’s regional director for Angola and Mozambique where I was involved with financial advisory, actively sourcing deals and managing some of our existing investments. I am pleased to bring with me my experience in banking and investment in Angola and internationally.

What are the biggest opportunities you see in the Angola investment industry and what impact are regulations and reforms having? Angola is one of Africa’s largest economies and has undergone a great deal of structural reform since peacetime in 2002. In spite of the economic turmoil that had once tainted its past, the country has made steady progress. Political and economic liberalisation and public administrative reform – have all been driving factors in the stabilisation and development of its financial system. Up until 2013, its GDP grew at an average rate of 10.7% reaching an all-time high of 23.2% in 2007 – and maintaining stable macroeconomics since the 2008 economic crisis.

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AFRICA INTERVIEW Angola is prioritising high growth industries and consequently, attracting much more foreign direct investments, which is a critical component towards achieving economic diversification. In parallel with this national strategy for growth, our approach to African investments through the seven private equity funds managed by us (Agriculture, Timber, Healthcare, Mining, Hospitality, Infrastructure and Structured Equity), dedicates each to a high-growth industry that will generate maximum investment return and contribute towards growth.

What innovative investment products and services does Quantum Global offer? Our African investment funds operate in line with our â&#x20AC;&#x2DC;Africa for Africaâ&#x20AC;&#x2122; strategy of investing African Assets into African markets for longterm growth and development. We specialise in both greenfield and brownfield projects, widening our range of investment opportunities. Another distinguishing factor that differentiates us from other investment houses is our ability to produce macro-economic policy analysis and

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econometric modelling which supports the development of economic policy and sustainable investments by African sovereigns. This is carried out through our research team, who work with a worldclass network of experts and institutions across Africa and internationally. This unbiased research adds another dimension of knowledge transfer to various parts of the business.

How does Quantum Global support the social economic development in Angola? One of the focus areas for our investment related activities is our ability to construct comprehensive supply chains and build connected investments that generate returns and lead to longterm development. In 2016, the government of Angola had leased over 80,000 hectares of plantations and additional land bank area to Estrela da Floresta (a Quantum Global invested company) to develop large-scale wood fibre plantations in the Planalto region of Angola representing a unique opportunity on a global level. Quantum Global plans to establish infrastructure and wood

processing industries in Angola over the next few years generating employment and an industry cluster, specifically in rural communities. This forest industry park will connect raw material supply and power supply with small and medium sized producers, enabling the development of a vivid cluster. This example of our vertical industry integration will be done whilst implementing sustainable forestry practices and conservation protection of the land. Elsewhere, Quantum Globalâ&#x20AC;&#x2122;s infrastructure fund [a long-term direct equity investor in greenfield and brownfield infrastructure and industrial based assets across sub-Saharan Africa] invested in a strategic deep sea port in Caio, Province of Cabinda. This project will increase export diversification and is expected to generate up to $ 350 million in tax revenues once fully operational. In addition, access to education and healthcare will be improved, unemployment reduced (over 20,000 indirect jobs will be created) as well as a reduced cost of goods. Overall, the Port of Caio will have a significant positive GDP impact on the region and the country at large.

AFRICA INTERVIEW What are your plans for continued growth and success? As part of our investment strategy and desired outcomes for continued success, our goal is to ensure that whilst we generate maximum capital return for our investors, we execute our investments with the utmost best practice in order to forge a new development narrative on the continent. This will be achieved by strengthening our African homebase, engaging deeply in our targeted sectors and regions, and constructing comprehensive supply chains that will contribute towards Africa’s long-term development. We plan to successfully replicate this model in other focus countries, such as Nigeria and Kenya and grow our presence in other African jurisdictions in order to be the preferred partner of choice for African investments.

David Carvahlo Head of Private Equity Quantum Global Group About Quantum Global Quantum Global is an international group of companies active in the areas of private equity investments, investment management as well as macroeconomic research and econometric modelling. Quantum Global’s private equity arm manages a family of funds targeting direct investments in Africa in the sectors of Agriculture, Healthcare, Hotels, Infrastructure, Mining and Timber – as well as a sector agnostic structured equity fund. The team combines a solid track record and proven expertise to identify and execute unique investment opportunities with focus on Africa. Quantum Global works in close partnership with key stakeholders to maximise investment value and returns through active management and value creation. For more information, visit www.quantumglobalgroup.com.

Issue 7 | 99

AFRICA BUSINESS

Valuable Information: The Importance of Data in M&A There’s a lot of jostling at the top of the tech leaderboard as we move into 2017. Mergers and acquisitions (M&As) are a good way for companies to climb that board. They help businesses rapidly expand their skill set, customer base and revenue. But in the digital era, how does that work in practice? When a merger or acquisition takes place, in large part it’s the information exchange that matters. But how do you merge two companies whose essential data resides in different on-premise and cloud systems? Why data? The standard M&A due diligence process is designed to evaluate the ‘fit’ of prospective businesses, but it should also evaluate the fit of their data. Good data exchange is essential to drive value from the new synergies between the two companies. Companies must be able to use their shared data as quickly as possible to drive financial value - for example, by boosting up-sell activities. It’s important to consider what insights the combined data will provide. Most importantly, the data needs to fit together for one goal. Some big names have already used a strong data-merging strategy during their M&As. For example, when BNY Mellon was

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founded, the data of its two constituent companies (The Bank of New York and the Mellon Financial Corporation) was rapidly integrated. This helped the bank to quickly reap the benefits of the merger. It reduced the cost of data integration for its Asset Servicing project by 50 per cent and combined its client base with minimal customer interruption. The challenges of data merging However, despite the potential rewards, creating value from two companies’ data is easier said than done. There are a lot of potential pitfalls. For example, how similar are the forms of data storage? Will it be possible to integrate the two sets quickly, or will it require a major re-coding? Format, volume, location and movement are all important considerations. Additionally, data may be captured and managed differently in different organisations. Standards, processes and procedures of data governance can vary widely, and the quality and relevance of the information may be far from optimal. The core technologies used to process company data can also provide an obstacle - some companies have cloud models in place; others operate large, organic legacy systems. Traditionally it has taken a lot of planning and work to integrate data during the M&A process.

AFRICA BUSINESS

Building from the ground up So how do you make it work in practice? Take customer data as an obvious starting point. The company is likely to utilise the larger pool of customer data for upsell, cross-sell, retention and win-back purposes. Unfortunately, many companies don’t have a single holistic view of that data, so it’s difficult to integrate. What’s more, M&As automatically create a split system that has to be unified. So even if both parties do have a holistic view of customer data there is still the challenge of creating a new version for the post-M&A organisation. The time and resources it takes to do this could slow down value delivery - which is a problem given rapid value is one of the main purposes of M&As. The activities that follow (marketing campaigns, for example) will also be heavily impacted by how well it’s achieved - poor data leads to poor decisions.

Data: the future of mergers and acquisitions This is a very simplified set of steps. The idea is to get institutions thinking about the potential value of the data post-M&A, and what they will need to achieve that value. This same approach can also act as a basis for reducing the risk of data leaking out during the merge through unwatched channels (old websites, for example) and to help decide which apps can be retired. Businesses considering their next M&A venture must focus on data from the earliest stages of planning. If you can’t reliably integrate with your acquisition or partner’s data stores, you risk losing much of the potential value of a merger. Information is the most valuable business asset - company leadership must put data front and centre in M&As.

Extracting value To tackle M&A data-related issues, organisations must first identify the potential future value associated with merging data sets - what are they trying to achieve? Then, with that in mind, identify the right data types to be merged (for example, potential up-sell contacts), assess their compatibility with each other, and plan how to integrate them in the new system. Once the planning is complete, companies should proceed to match and merge these ‘key data entities’. This should be done with the highest possible level of accuracy. When merging customer data, for example, companies should determine if they have separate records relating to the same customer and then use them to create a ‘golden view’ of that customer using the consolidated information. With the system up and running, it’s then essential to run regular quality assessments and remediate any data inconsistencies.

Andrew Joss Head of Industry Consulting EMEA Informatica

https://www.informatica.com/gb/about-us/customers/ customer-success-stories/bny-mellon.html

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AFRICA TECHNOLOGY

Buzzword Bingo!

Making Sense of SDN, SD-WAN, NFV and VNF Software-Defined Networks. Software-Defined Wide Area Networks. Basically the same thing? No, but related. How about Network Functions Virtualization (NFV) and Virtual Network Function (VNF)? These acronyms are easy to confuse, and while they are also not the same thing, they too are related. Everyone in the SD-WAN solutions business frequently face buzzword confusion when interacting with customers and partners learning about these newer concepts and technologies. It’s helpful first to define the four terms, before proceeding to a discussion of how they are related to one another, and what they all mean to your network.

SDN and SD-WAN A Software-Defined Network (SDN)—defined by the Open Networking Foundation (ONF)1—is an architecture physically separating the network control plane (decisions about traffic) from the forwarding plane (the actual traffic). SDN moves network control into software, where it becomes directly programmable and able to respond quickly to changes—in configuration and in policy. The SDN concept also abstracts applications and services away from the underlying infrastructure. The SDN architecture applies to all types of networks: internal to an enterprise; internal to a service provider or cloud provider; to span multiple service providers; to link enterprises to the cloud; and, particularly pertinent here, to tie together several enterprise business locations—in short, for wide area networking (WAN). A Software Defined Wide-Area Networks (SD-WAN) applies the five basic SDN architectural principles to a WAN network, and then extends them in innovative ways to address the practical realities of WAN networks, such as minimizing delays over long distances between nodes and providing predictable service quality over often unpredictable links.

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Principle #1—Directly programmable: SDN architecture decouples the control and forwarding network elements. In an SD-WAN implementation, where the physical distance between the control element and the forwarding element can be thousands of miles, local forwarding decisions are contextualized based on a combination of observed local conditions (for example, link quality) and the most recent communicated centralized policies. Local forwarding continues even if the distant control element is out of contact. Principle #2—Agility: The SDN architecture abstracts functions into software so that changes in policy and new functionality improvements can be rapidly iterated independent of the network hardware and physical infrastructure.

AFRICA TECHNOLOGY

An SD-WAN implements software forwarding capability to take into consideration both centralized policy objectives as well as real-time network quality observations. The flow of data (its routing, priority, security) supporting an application thus becomes independent of the underlying network transport (wired Ethernet, Multiprotocol Label Switching (MPLS), wireless, cellular, or a public Internet link). Principle #3—Centrally managed: The SDN architecture contains a central controller to provide a consistent network view of policy and configuration. SD-WAN orchestration allows simple centralized policy and configuration control, as well as network-wide status and analytics. The implementation extends the “central controller” concept to allow continued operation of any network node even in the absence of (or in addition to) instructions from the controller to ensure maximum uptime, optimized data delivery, and to meet service level guarantees.

Principle #4—Programmatically configurable: The SDN architecture prescribes a controller-agent model. SD-WAN technology implements Rest APIs to allow the “controllers” in the network to interact with distributed network nodes and services.

Principle #5—Based on open standards: SDN architecture is based on OpenFlow. WAN software and services are less standardized than SDN, but work is continuing to allow increased vendor interoperability by using common off-theshelf x86-based hardware and virtual machine (VM) hosted operating environments.

Why SD-WAN? Legacy MPLS connections, while reliable and secure, have proved expensive and slow to provision or reconfigure. The transport-independent SD-WAN architecture allows you to implement a WAN using a variety of link technologies, including MPLS, but more-agile technologies such as Internet broadband, wireless and cellular (LTE, 5G)—much quicker to install and often at much lower cost. SD-WAN technology additionally offers cost-effective increased bandwidth (adding more low-cost links) to branch offices, transport-independent security (securing application traffic flows over Internet or public links) and increased performance and reliability through a variety of optimization and on-demand remediation technologies. An SD-WAN is a very practical, compelling, cost-effective technology to enterprises and service providers—based on standards-based SDN concepts—to replace or augment CE equipment at remote sites, integrate new network services, virtualize services, load-share over multiple links of any type, provide dramatically simplified configuration and policy management, and optimize real-time application performance.

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NFV and VNF The terms are frequently used—inaccurately—as interchangeable. The concepts are distinct, yet related: Network Functions Virtualization (NFV) is an ETSI-inspired architecture specifying how to run SDN functions independent of any specific hardware platform. A Virtualized Network Function (VNF) is the implementation of a specific network function (think routing, firewalling, intrusion prevention) as a virtual service. The “virtualization” part of both NFV and VNF denotes that network functions are written in a generalized manner independent of the underlying hardware or firmware of the physical network devices. VNFs can run in any VM environment (a server or host platform, or IaaS) in the branch office, cloud, or data center. This architecture allows network services to be inserted in an optimal location to provide appropriate security (for example, a firewall in an Internet-connected branch office, rather than requiring an MPLS link and backhauling traffic to the data center to be firewalled),

and optimized application performance (traffic can follow the most direct route between the user and the cloud- based application using a VNF for security or traffic prioritization). In a VM environment, several VNFs may run simultaneously—isolated from each other, standardsbased, and can be independently changed or upgraded.

An SD-WAN Ties Together SDN, NFV and VNF The agility of an SD-WAN derives from both the SDN and NFV architectures. SDN- based separation of the control and data planes allows simple, consistent policy control and network-wide status, while actual data flows are handled distributed and in the context of local conditions. The concept of NFV delivers agility in that network services can run independent of location or hardware platform. They can therefore be inserted quickly into the exact location where they are needed without replacing or purchasing hardware, without IT visits to remote sites, and without wasting bandwidth and impairing performance by hairpinning traffic through distant sites because that is the only network location that has a specific service, such as a firewall, available. A core advantage of an SD-WAN over traditional WAN technology is to quickly roll out new services and locations. From the central orchestrator, VNFs can be downloaded and inserted into any network location, and new branch office equipment can be installed, configured and brought online at the remote site “zero-touch” without any IT staff being present. The combination of SD-WAN and NFV technologies offers a powerful way to build flexible, agile, costeffective, WAN services to your branch offices and remote sites, specifically:

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AFRICA TECHNOLOGY

•

An SD-WAN provides agile connectivity and policy-based service chaining, while NFV dynamically creates the services. SD-WAN architecture simplifies branch deployment, while NFV simplifies the insertion of services into those branches. An SD-WAN optimizes end-user access to cloud services, while NFV allows you leverage cloud services or moving VNF services and applications into the cloud.

Four Technologies, One Service The plethora of acronyms in the networking arena can be overwhelming. In summary: • SDN, Software-Defined Network is a standardsbased architecture separating a network’s control plane from its forwarding plane, thereby allowing cohesive, centralized, software-based control over distributed forwarding decisions. • SD-WAN, Software-Defined Wide Area Network is a specific and extended implementation of an SDN to craft a wide-area network to connect branch offices to data centers and cloud services, offering many advantages over traditional WAN technologies. • NFV, Network Functions Virtualization is the architectural specification of how to design network services such that they can be hosted in a virtual machine environment. VNF, Virtual Network Function is the implementation of an actual network service (such as firewalling or malware inspection) within the N.

Steve Woo VP of Product & Co-Founder VeloCloud

"Transforming Networks into Agile Platforms for Service Delivery." Home - Open Networking Foundation. N.p., n.d. Web. 21 Mar. 2017.

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Into Africa:

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AFRICA TRADING

For Corporates, Insider

Knowledge is the Key to Unlocking African Trade

Africa continues to grow in importance as a market for European corporates. But while enviable growth rates and positive demographics are generating strong opportunities, corporates and their banking partners still face considerable challenges on the continent due to Africa’s cultural diversity and its regulatory and political inconsistencies. Christian Nägele, Head of Sub-Saharan Africa Region at UniCredit, explains how a bespoke approach to international trade is required With strong long-term economic fundamentals, a young and growing population, and soon-to-be fastest urbanisation rates in the world – Africa is on the rise. But for European corporates looking to make their mark, overwhelming diversity in geography, culture and market maturity threaten to derail strategies that ignore these complexities. To unlock the most promising opportunities, corporates should look to banking partners that have comprehensive correspondent networks, offer tailored trade products and services, and keep an ear to the ground to provide expert local market knowledge. And, with a little luck, they might find themselves at the centre of the next African economic “hot spot”.

Of course, entering new markets in Africa is a daunting prospect. A dazzlingly diverse continent of 54 countries, over 3,000 ethnicities and 2,000 languages, it is home to an array of political, economic, cultural and geographic disparities. Even moredeveloped countries with lingua francas such as South Africa and Nigeria resist comparison. Success in one market by no means guarantees success in the other, while economic integration efforts are still a fair distance behind other regions of the world. Only in East Africa, for example, are tourist visas valid across multiple countries. In every other region, individual tourist and business visas are required for each country – just one factor that hinders corporates operating on the continent. Low levels of European trade with SubSaharan Africa, as well as the fledgling status of inter-African trade, mean that clear and consistent taxes and regulations are also lacking in many countries. Indeed, the less mature trading economies of SubSaharan Africa vary wildly in the reliability or stability of state institutions such as central banks, treasuries, regulators, law courts and public protection authorities.

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Aligning with the unique regulatory, market and cultural characteristics of their target markets is therefore vital for corporates looking to expand – a blanket approach to cross-border trade is not enough.

Expertise clearing a path forward Corporates therefore need expert support, which is where banks can help. They can provide insider knowledge to monitor the progress of regulatory reform. They also understand local complexities and can help them develop strategies for managing risk and such obvious concerns as local currency liabilities.

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Expanding into new African markets also invariably involves managing complex supply chains with unfamiliar parties across a fragmented continent. In such an environment, open account agreements are often insufficient as they require wellestablished client-supplier relationships within a robust legal framework, so trade finance solutions such as letters of credit become crucial to mitigating any risks.

Smaller clients, meanwhile – and even larger ones, if they have no existing reputation or experience in a new region – may struggle to access local financing based on the strength of their credit profiles alone. In these cases, a partner bank with a wide correspondent network will be invaluable – working in tandem with local banks to secure otherwise unviable financing agreements.

And this isn’t just relevant to European companies mitigating counterparty risk in Africa. The strong brand recognition they enjoy at home may not extend to the African markets they enter, so a variety of guarantees such as performance bonds and prepayment bonds – as well as letters of credit and standby letters of credit – will be important for both sides to trade with confidence.

Many banks are pulling out of such arrangements, shied by the rising costs of due diligence. Yet correspondent banking remains a crucial element of trade finance. Our policy at UniCredit, for example, is to maintain correspondent relationships with at least the top three banks in each of the major African economies where our clients operate – seeing this as essential to serving them in this region.

AFRICA TRADING

Invest early, win big Indeed, growing in Africa – whether increasing import/export business, setting up a local subsidiary or entering new markets – is a priority for many corporates who recognise that, despite the challenges, the continent has vast potential. In particular, retail and automotive companies, along with infrastructure providers, are acting on rising demand. One example is the increasing preference for new, rather than second-hand, vehicles in many countries across the continent. German and Japanese auto companies already have factories in economic hubs such as South Africa for domestic consumption and overseas exports, but the opportunity is now there to sell their products right across the continent – provided they can negotiate the challenges.

Of course, while everyone wants the inside track on the next African economic “miracle” or “hot spot”, insights are hard to come by due to the constantly shifting economic, political and regulatory conditions. Angola and Nigeria have been recent success stories, for example, but low oil prices have reduced demand, taking swathes out of state reserves and drastically limiting the availability of foreign currency to pay for exports. East Africa, more than any other region, is where we see the brightest prospects today. Ethiopia, for example, is attracting corporates with its strong growth, investment in infrastructure and its large population. Meanwhile Rwanda – although smaller – has a fast-growing economy with an efficient transport and logistics network. While opportunities in the region – and the rest of Sub-Saharan Africa – may be at nascent stages today, early movers stand to benefit the most from any future growth. Along the way, support from a trusted banking partner with a historical regional presence, a strong understanding of different local customs, and a trusted network of correspondent banks will be vital to navigating the trading terrain and striking rich in these markets of promise.

Christian Nägele Head of Sub-Saharan Africa Region UniCredit

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Contributing to Africaâ&#x20AC;&#x2122;s growth story

www.quantumglobalgroup.com

Private Equity Active Management

Investment Management

Research

Quantum Global Group delivers investment expertise on unique gateway opportunities between African and global markets. We invest in high growth sectors across Africa with an aim to diversify our investment portfolio and create value for our investors in a region that offers huge potential. Strategically positioned to be your global partner of choice for African investments, our unique approach is characterised by our exceptional cultural awareness, outstanding and detailed knowledge of emerging markets, the quality of the relationships we have developed within our global network and above all, our investment expertise.

AFRICA INVESTMENT

Following the Herd If you meet with an asset manager these days, either as a technology provider or an operations consultant, to discuss the efficiency of their operations or changing their business model to improve their market position, very early on in the conversation you will be posed the question: ‘Who else have you done this for?’ or ‘What are my competitors doing in this regard?’ I suspect that nine times out of ten, the answer that they want to hear is perhaps not the answer they should be seeking. In fact, more often than not the asset manager wants to hear that the provider has undertaken the operational transformation project in question for all of their competitors and that everyone in the market is doing the same thing. In fact, often what they should be hoping to hear is: ‘We have had this conversation with none of your competitors and there is an opportunity here to be a first-mover.’ There is a slightly bizarre competitor mentality in the asset management industry whereby firms wish to be recognised as innovative and forward thinking, but they also want the reassurance of knowing that all their competitors have got there first. Asset managers should be horrified, or at least extremely disappointed, if they are told that all their major competitors have already taken on board an ‘innovation’ that they are only now being asked to consider. Instead of which, you can often see the relief on senior executives’ faces when they are told that they are not first to market.

In my 30 years in investment management technology, I cannot recall a single instance where a firm expressed disappointment when told that they were simply following the herd. In operational terms, it appears that no one wants to be seen to be different. Yet we are on the cusp of some significant changes in the market, from political, social and technological perspectives, and now is the time when asset managers should be looking to seize the opportunity and steal a march on their competitors – not seeking peer group comfort. In some ways asset management is, I imagine, rather like a hospital considering a revolutionary new medical device. The questioning would probably be along the lines of ‘So in which hospitals have you already installed this?’ or ‘Which surgeons are using this technology’. If the answer were no one, then the potential buyer would be inclined to say ‘Come back when someone else has bought it.’ To ensure the future health of the asset management firm that they are working for, senior Operations executives should be looking for the polar opposite response to the questions that they are asking. One might argue that the explanation for this mentality is that asset management firms tend to be more inward looking rather than market facing, but I think that the main reason is that asset managers are culturally risk-averse. The ‘nobody got sacked for hiring IBM’ approach is the one that generally prevails in the industry. Generally the motive is self-protection.

There are some areas of the business (often back office ‘backwaters’) where it is very hard or impossible to differentiate; in these situations it makes sense for asset managers to work together to share the cost by forming a utility model. In areas where there is opportunity to differentiate, however, asset managers need to be bold and seek to take the first step. Many asset management firms say they want to hear about digital, Blockchain, artificial intelligence and so on, but they want to hear about it in the context of everyone else in their market having already deployed the technology. If this really is exciting, emerging technology, it’s time to stop following the herd and seek to lead it.

Steve Young Managing Partner Citisoft

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The Shifting Tides of Asian Trade Dominic Broom, member of the International Chamber of Commerce (ICC) Banking Commission’s Executive Committee, and Global Head of Trade Business Development at BNY Mellon, discusses the changes occurring across Asia, and how collaboration could be the key to success. The shifting tides of Asian trade The economic power and potential of Asia is both great and varied. Global trade growth in recent years has been buoyed by trade activity in the region, despite relatively sluggish trade growth in China. Yet, as a fragmented region with a heavy reliance on China, commodities and manual labour, Asia is facing a period of significant change. Not only will Asia face the impact of the political and economic pressures present across the global trade landscape as a whole, it has its own economic shifts (to consumerism and digitization, for instance) to manage – tackling challenges and seizing opportunities. For a fragmented region to be able to adapt to change successfully, collaboration is crucial.

Asia and the superpower Consider Asia’s relationship with the US. Looking at the figures alone, the relationship between Asia and the world’s economic superpower appears fairly sturdy. For example, 2016 figures demonstrating US imports from Southeast Asia – its fourth-largest export market – increased by 0.88% year-on-year in 2016, and the region as a whole has become a larger source for

lower-value US imports in recent years. Looking specifically at goods exported to the US from ASEAN countries in 2016, these totalled over US$150 billion – with Vietnam, Thailand, Indonesia, Malaysia, and Singapore accounting for most of these exports. Figures on Indonesia’s (hosts of this year’s ICC Banking Commission annual meeting) exports to the US in 2016 indicated a growth by 8.8% compared to the previous month. Looking at the whole picture, however, these strong trading relationships – on which many Asian businesses thrive – look less secure. A shift in the West towards protectionism raises concerns that, instead of creating trade relationships, governments around the world (including and perhaps even led by the US) will instead opt for trade barriers, jeopardising the potential growth and success of countless Asian companies. Asia has already felt the first blow of protectionism, with the US pulling out of the Trans-Pacific Partnership (TPP). While the TPP may well go ahead without the US, the impact if it does not, could be significant. Vietnam, for example, which stands to benefit from an 11% rise in GDP by 2025 as a result of the TPP, could lose out on a significant opportunity.

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Changes from China

A region of opportunity

The economic slowdown and shift in focus away from commodity consumption by China is also of concern. China needs to ensure that the growth of its consumer-driven economy is able to address the gap left by less skilled manufacturing moving to lowercost locations such as Vietnam and Bangladesh. Further, it is feared that the reduced appetite for commodities will have a significant impact on Asian trade.

China does still play a role in supporting Asian economies. Economic relations between China and the ASEAN economies have been growing, with Chinese foreign direct investment (FDI) in the six largest economies of ASEAN expected to nearly double year-on-year to reach US$16 billion. Indonesia alone observed an increase in FDI from China by a staggering 291% (to US$1.5 billion) in 2016. As far as trade is concerned, ASEAN markets are ambitious: setting a target of US$1 trillion in trade flows with China by the end of 2020.

The reality of Asian trade, however, is far more positive, with the region as a whole – particularly ASEAN markets – proving to be relatively robust. In 2016 ASEAN markets observed an increase in GDP growth to 4.7% from 4.5% the previous year. And it is expected that the combined GDP of five of the ASEAN nations – Indonesia, Malaysia, the Philippines, Thailand, and Vietnam – could rise to US$3 trillion by 2020.

China is also keen to maintain its economic influence on the region. The China-led Regional Comprehensive Economic Partnership (RCEP) – a 16-member bloc that includes all 10 members of the ASEAN, as well as Australia, New Zealand, Japan, Korea, India, and China – will act to lower barriers to trade, and importantly, could provide an alternative to the TPP, should the latter come apart.

Part of this is that, while China has dropped its commodity demand, ASEAN markets have increased commodity consumption, creating robust levels of intra-regional trade. As ASEAN markets – particularly Indonesia, Malaysia, the Philippines, Thailand and Vietnam – grow their economies and populations (with populations predicted to reach 700 million by 2030), the need for infrastructure, and therefore commodities, grows in kind.

Furthermore, China’s One Belt, One Road project – representing the physical path from Hong Kong, through Europe, to Scandinavia; and the maritime Silk Road from Hong Kong to Venice – could cover 65% of the world’s population, a third of the world’s GDP, and approximately one quarter of all global goods and services, presenting significant opportunities for Asian markets.

This requires political stability – something that is currently relatively fragile following an election in the Philippines, leadership transition in Vietnam, and a cabinet reshuffle in Indonesia. Secondly, it means adequate access to trade finance. The trade finance gap currently estimated at US$1.6 trillion globally – and US$692 billion in developing Asia alone – is leaving companies without the vital injections of capital they require for business sustainability and growth. Finally, it means jettisoning inefficient and less secure manual trade processes, in favour of faster and safer digital systems – something trade finance has so far been slow to accept. The solution is collaboration: between global and local banks, and also within the trade finance industry as a whole. Banks have a significant role to play in guiding companies through the coming changes in Asia. While certainly a challenge – in an increasingly complex trade, regulatory, political, and financial landscape – through collaboration, increased focus on digital techniques, and strong correspondent relationships, there is great potential for success.

Finally, opportunities exist across the whole of Asia in the form of digitization. The rise of fintechs, paperless trade, and the use of distributed ledger technology – such as blockchain – could significantly change the way Asian companies trade, making transactions faster, more efficient, more secure, and less expensive.

Seizing opportunities

For a region facing such change – both challenging and exciting – a major question will be whether or not Asian companies are able to seize the opportunities available. Part of this comes down to the trade and business landscapes in which they operate.

Dominic Broom Member of the International Chamber of Commerce (ICC) Banking Commission’s Executive Committee, and Global Head of Trade Business Development BNY Mellon

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ASIA BUSINESS

Product Development Team Structure: Identifying the Unmet needs of B2B Customers In our Global Innovation Excellence survey, “Identifying customers’ unmet needs” was identified as one of the most important factors for innovation success, with the best practitioners outperforming others by over 20%. However, finding the best way to organize and manage customer interaction is anything but simple, especially when the product is technically complex. For example, often the marketing or sales functions “own” the customer relationship, but are they the best people to uncover highly technical customer needs? In this article, we review the highlights from the analysis and offer some guidance to help companies organize their customer-needs intelligence teams. Our research shows that most companies tend to either use a one-size-fits-all approach, or else approach the situation with ad hoc arrangements. However, it also shows that “getting it right” can lead to doubling of innovation success rates and have significant impact on R&D effectiveness. This is something B2B companies cannot afford to ignore.

Identifying customer needs and characterizing a team skill set First of all, it is helpful to consider what sort of typical organizational approaches companies choose when their R&D and commercial functions interact with customers. Four stereotypical approaches are commonly used. 1. Direct R&D approach: R&D gathers information on customer needs first-hand through direct contact with customers, with little or no involvement from the commercial functions 2. Hybrid approach: a combination of direct R&D contact with customers and input from one or more commercial functions (e.g. marketing, sales, technical service, sales engineering, etc.) in a cross-functional joint team

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ASIA BUSINESS 3. Indirect multichannel approach: several commercial functions interact directly with the customer; each function has a specific role, depending on functional expertise; one commercial function is the customer’s primary point of contact. R&D takes inputs from the various commercial functions without direct customer contact 4. Indirect single channel approach: one commercial function (typically marketing) is primarily responsible for providing R&D with information relating to customer needs In order to decide which organizational approaches might work best in each situation, it is helpful to consider the different types of customer needs that have to be identified in B2B industries, and therefore the skill combinations that may be required within the team. Two dimensions are important in this respect: •

Expressed or latent customer needs: Latent customer needs are those which are implicit, unclear, undefined or unconscious.

•

Expressed or latent technology needs: One of the features of B2B industries is that business customers may themselves possess significant technical competencies and be intimately familiar with the products they are buying. It is therefore quite

possible that B2B customers express specific technology needs in addition to more general customer needs.

“Customer Needs/Technology Needs” matrix. (Table 1) Having the right solution design skills on the team to suit customer or technology needs is critically important. With this in mind we can consider each quadrant of the matrix in turn:

By identifying the degree to which B2B customer needs are clear (expressed) or unclear (latent), and the degree to which technology needs are known (expressed) or unclear (latent), we can start to characterize the most appropriate skill set that a multifunctional product development team will need in order to develop a winning product. The ability to identify latent needs and translate them into concrete product requirements can be referred to as “solution design skills”. Different situations call for different solution design skills, and the availability of the right solution design skills is of critical importance for effective needs recognition. Because latent needs are highly dependent on context and difficult to tease out of data sets, product development practitioners must be familiar with effective approaches to identifying latent needs and know when to apply a given approach.

•

Expressed customer and technology needs – an indirect, single-channel approach: The simplest situation, in which both sets of needs are clear and applicable to a broad range of customers.

•

Expressed customer needs, latent technology needs – a direct R&D approach: The customer needs are clear, but the technology needs are not, so R&D has direct contact with the customer.

•

Latent customer needs, expressed technology needs – an indirect, multichannel approach: Customer needs are not clear at the outset, although the technology requirements are known, and a heavier approach led by commercial functions is the most suitable.

•

Latent customer needs, latent technology needs – a hybrid approach: A customer need has been identified, but the solution is unclear in terms of both commercial and technical aspects. The solution design skill set for this situation is often varied, and a truly crossfunctional team approach is most suitable. •

Organizing teams according to a needs “matrix” Companies can use the analysis above to help make informed decisions about how best to organize their teams. The four approaches described above can be mapped to the four quadrants of a Latent

Indirect multichannel approach What? Products developed for a broad range of customers When? Various commercial functions are needed to identify tacit/changing customer needs How clear are the technology needs?

Expressed Indirect single channel approach What? Products for a broad range of customers or for a niche, marketing is often exploited When? A commercial function has the solution design skills best suited to the project

Hybrid approach What? Development for lead user(s) followed by broad roll-out When? Both R&D and a commercial function have appropriate solution design skills

Latent Direct R&D approach What? Customized / complex engineering-to-order projects When? R&D has strong solution design skills that are well-suited for the project

Expressed

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How clear are the customer needs?

Five key success factors

The approaches detailed above and their applications may seem relatively straightforward. However, the study showed that in practice few of the sample companies actually followed these optimal approaches, and most were unsatisfied with their current efforts. Analysis of the most common shortcomings revealed five key success factors:

Table 1: Optimal customer needs intelligence approaches

ASIA BUSINESS

•

Avoid “one-size-fits-all” approaches: This means that often the wrong solution design skills and expertise are being applied.

•

Ensure good knowledge sharing: Organizational silos, dispersed physical locations and inadequate knowledge management infrastructure may cause valuable intelligence to be lost or poorly disseminated. Be responsive and adopt regular customer interaction: The most successful companies have processes that ensure customer interaction along the whole development cycle, with R&D functions that actively use intelligence stimulated by the availability of a fact base, rather than just “opinion”. Deploy the right resources: Not just those who “happen to be available” or who “own” a customer relationship.

•

Understand internal competency needs: Companies need to be aware of competencies they need to develop and deploy, especially in the light of rapid technology development and digital convergence.

As part of our research we asked companies to categorize recent newproduct development projects in terms of whether they used the “optimal” or “non-optimal” organizational approach (as described above), and whether these projects were “successful” in terms of reaching their objectives. The results showed that the project success rate was actually doubled by using the optimal approach.

Conclusion Obtaining a deep understanding of B2B customer needs is central to any newproduct development process. In a complex customer relationship, finding the best way to organize and manage customer interaction is anything but simple, especially when the product is technically complex. Rather than adopting a “onesize-fits-all”approach, companies need to choose the best organizational method for their particular needs.

Chandler Hatton is a Manager in Arthur D. Little’s Amsterdam office and a member of the Technology & Innovation Management and Strategy & Organization Practices.

Michael Kolk is a Partner in Arthur D. Little’s Amsterdam office and a member of the Technology & Innovation Management Practice.

Martijn Eikelenboom is a Partner in Arthur D. Little’s Amsterdam office, and a member of the Strategy & Organization Practice.

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

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ASIA TRADING

Starf

your premier

Trading in Asia Earlier this year Global Banking & Finance Review journalist Phil Fothergill met in London with Dav Liew, Chief of Strategic Marketing in Asia for Starfish FX and Steve Hansen, Chief Operating Officer for Starfish FX to discuss the company’s success and trading in Asia.

which allows them to meet their financial goals. We provide premium execution, tight spreads, we keep clients’ funds safe, but so do lots of other brokers. So we’ve pushed the envelope and we have provided educational seminars as a means to differentiate.

Phil Fothergill: Well, Steve, welcome to London. Congratulations on the awards. Sensational achievement. Really great job.

We’ve also extensively localized into different regions to provide better client support. And the main thing is, we offer binary options on top of MT4 through proprietary technology. We’re actually an industry first, so we’re very proud for that, and it really helps differentiate us against the competition. So I guess, to sum up—the main thing is, we provide traders an environment which meets, and often exceeds, their expectations. And we bring institutional opportunities—trading opportunities—to retail traders. So those are the main things that help us stand out from the competition.

Steve Hansen: Yea, thank you very much. It’s been a great honor to be here to receive the awards on behalf of the organization. We’re very happy about it. Phil Fothergill: That’s fantastic. Let’s talk about some of the work that StarfishFX does, if we may. First, well, the obvious question—what do you think makes StarfishFX stand out from the other competitors? Steve Hansen: StarfishFX, we’ve been around for over a decade now. We’ve experienced rapid growth, and I think we can attribute this to the main founding principle of the company, which has always been to provide our clients an environment

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Phil Fothergill: Would you say technology was a very important part of that as well? Steve Hansen Yea, technology is probably the underlying thing. I mean, the fact that we have our own independent proprietary

trading technology which sits on top of MT4—this is very key, you know? At the moment, nobody else has that, so it’s a good differentiator for us. Phil Fothergill: I know that StarfishFX has grown its presence a lot in Asia and China. Can you give me your evaluation of what you think the trading situation is like in China at the moment? Steve Hansen: Yes, yes of course. Well, China, it’s very much a key region, and we have put lots of focus on expanding into the region. You have to understand that China is in its economic growth infancy, and we know that there’s going to be lots of growth for many years to come. Now, what does this mean? It means that a lot of the investors in China, they are becoming financially literate, and they’re really getting a grasp of finance and how they can make money through finance. The thing is that most Chinese investors, they look at local stocks, they look at bonds, but when you talk to them about spot forex or binary options, it’s often quite an unfamiliar concept for them. So it’s a great opportunity for brokers that want to differentiate themselves by providing education and a client centric service.

ASIA TRADING

We have a team in Asia. The team actually, they have a lot of experience in finance, and they have a lot of experience working with the Chinese region. And they’ve helped to develop our offering around the Chinese market. We’ve customized it exactly for the Chinese markets. We provide educational seminars face-to-face, and the main thing that we found works well is to actually provide traders easy-to-understand and easy-to-use trading strategies which they can develop themselves. This is something which has really helped us out. And China, it’s just an amazing market. With 1.3 billion people, it’s rapidly growing. The potential seems limitless, and I have to say I think that China should be in any broker’s top plans for expansion. Dav Liew is chief of strategic marketing in Asia for Starfish, and he explained what the biggest headlines affecting the market in Asia are at the moment. Dav Liew: I think let’s talk about global scale. What people are looking for in terms of investments, and how is it affecting Asia. We know Asia is a big market today. And investors today look for one single thing: If I were to place my money somewhere else,

what is the amount of profits I’m looking at? What’s the growth pattern? But if you look at the market today, global-wide, be it Asia or the Western part, we see that things are really sensitive today. People are getting a little bit jittery. We look at the environment and we see that people are not as confident as they were before, basically because of market uncertainties. The political situation, the financial stability of each country, of each corporation, it’s showing that they are not able to sustain and they can come up with very surprising news. People are worried. They don’t know what’s the next step to take, so they prefer to be on a very conservative scale, or not do anything at all. So this is one thing they are looking at. Previously, when people invest, they also look at the fact of what is it the time frame that we actually hold on to. But if you look at the market today, anything that has been said has not been viable. They can see three years, four to five to ten years. Which is a long time, and the amount of growth is really not really realistic. It’s too small. They can’t even beat inflation. So these are things that people are looking at. They cannot gauge, there is a lack of transparency, they can’t make a

proper decision. One other thing is that investments that we see in today’s market, be it equities or fixed income, they are more complicated in nature. People cannot understand—even for professionals. So this is something that they feel that, hey, I can’t even gauge for myself. So what can I do next? So they say—is there something that we can do which is simple to understand and we can use to gauge for the future growth pattern. So simplicity is something that we want to look for, and this is something that we are targeting. Now, if we look at the various asset classes, we see that the growth pattern is not sustainable today. Whereas in the foreign exchange market, nowadays, it is very different. If we look statistics based on June 2016, the highest trade amount is 43 billion per day. Which is a very big amount, and it is still the biggest market. Now, if we look at the foreign exchange market, it is a good example of what we see as perfect competition, because pricing in the market is very transparent, determined by market forces. Who demands how much, who can supply so much. And it’s fast. It is quick. So people are able to make quick decisions that are able to look the amount of

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Phil Fothergill Interviewer Global Banking and Finance Review

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Steve Hansen Chief Operating Officer Starfish FX

ASIA TRADING

sustainable losses and the growth pattern is more viable. So what we see is that, on a long term basis, the foreign exchange market is something people may look for to again. And I’m completely looking in that market direction. One, the risk and reward is good. People are able to gauge, and it’s very transparent. So in the upcoming few years, we feel that the growth pattern is there and revival in this market is increasingly strong. So this is what we’re looking at. Phil Fothergill: So an interesting overview of the situation. Let’s look at your own organization. What is StarfishFX’s business strategy actually in Asia, then? Dav Liew: What we are looking for is what we can provide for our clients. Now, we are in the business of trading. And why do people trade? That is a simple question that we need to answer. The simple answer is people trade looking for profits, correct? That is something that we want to look for, and we are answering that question and we are providing that simple solution to the public. And that is what we’re doing. What we’re doing is that we are looking at binary options trading as an option for clients. Conventional foreign exchange trading has always been in existence, and today it is still very active. But there’s one catch to it. The tenure for learning how to trade can be long, and it can be a little bit more complicated. Because when it comes to conventional trading, you look at two aspects: technical analysis, and fundamental analysis, which means how well you are understand the economy is growing, and how well the global economy is growing as well. Which can be intimidating to the public, and there are various factors you need to consider. If I were to do conventional trading, certain factors I need to look is what are: the margin I’m doing, can I leverage, can I calculate the swaps, what is the environment providing, how is the interest rate growing? So these are factors that may create a little bit more confusion to the public. So what we have done is that we have simplified these particular forms of trading by offering binary options trading, which is a simple way of trading in a very

structured manner, in foreign exchange. And by doing so, we are telling the public that you can do so by simply understanding how price movements work. It is one thing. On top of that, what we have done is that we do not only offer the particular platform—which we use Metatrader 4 as our platform. It’s a very renowned platform which is being used worldwide today. But we’ve been able to instill binary options trading into this platform, integrated it well and effectively. Unlike traditional, predominantly web-based forex trading, which is a little bit lagging in time. Whereas we focus on real-time trading. And the fact that binary options trading has given us the option to buy in any direction, up or down, be it in a volatile or low volatility environment, it makes things easier for the clients be it you are a professional or novice. It appeals to the mases. It’s simple. All you need to know is what we are able to share. We educate the public on how to use technical analysis as a tool to trading, how to apply it on the platform, how to gauge, how to study the risks and rewards, and we share with them. They learn it quickly, effectively, and they’re able to do the same. Phil Fothergill: You mentioned binary options there. Perhaps you can encapsulate that in a brief statement and say: what will the advantages be using binary options system that you provide? Dav Liew: Number one, it is a very simple method of trading that uses technical analysis as its base. That is how we actually do binary options trading. It is simple in the sense whereby we only look at the direction of the FX movements. Be it up or down, all you need to do is apply higher probability in forecasting the direction of what you want to buy. That’s what we’re looking at. And to help the market with that, we do not only provide the platform for them to use, but we also provide the educational part. That means we’re able to teach the public how to make use of technical analysis as a tool and use it as part of their knowledge and use that knowledge to trade. Now, for example, in China, which is our biggest market today, we host a lot of educational tours around China. Every single month, we hold more

than a hundred seminars country-wide. We engage the people, we teach the people, we share our experiences with them. And they focus on what we know, learn from us, and then apply it to their daily trading ability. That’s what they are doing, and that’s what we are also doing alright! And on top of that, we understand that market trends change, so we’re constantly in the market to engage them to help them understand, so that they their confidence remains and they’re able to trade consistently having a higher probability in winning. Phil Fothergill: It does seem, from what you’re explaining extremely well, that it’s a great asset to be able to be taught a little more about trading and how to be an expert. I know one of the other services you provide is the Binary Options Auto-Roller, which sounds wonderful. Tell us how that works. Dav Liew: Now, the Auto-Roller, number one, as the name states, is automatic. Now, the difference between normal binary options trading and the auto roller is the time spent alright! So it’s a longer timeframe for customers to trade on. However, the methodology is still very much the same. The only difference that we are creating in this environment, which is quite a big innovation for starfish, is that number one, the clients get to set their own parameters. If they are able to gauge a certain direction well enough and capture that trade, that trend, they are able to capitalize on major profits moving in a single direction. On top of that, they are also able to use conventional trading methods as well and apply it to the same option. Meaning to say, for example, they can set their own stop-loss and profit taking levels as well. It makes it more wholesome in nature and for clients to capture without supervising. It makes it much, much easier for them as well. Phil Fothergill: So it’s all about making it easier for people who trade. Dav Liew: Yes. Phil Fothergill: And you’ve also introduced

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ASIA TRADING

a Broker Affiliate Program. What’s special about that? Why is that perhaps, maybe, superior to other competitors? Dav Liew: You can look it from this perspective. Starfish is one huge franchise. Now, when people understand that, look, if I can make a career or business out of this, why not make use of a platform that has helped people make money, right? So what we do for the IB program is that every single IB with each individual who’s interested in owning a small part of the franchise, and what these people do is that they basically introduce other clients who are interested in trading with starfish. One, we are helping them by giving them a product which sells itself, which is well known in the market and is easy to adapt to. And two, we offer them the resources they can use to tap onto their clientele, and offer that product to them to have the option to make profits or better investment opportunities. So this is what it is all about. Now, for the IBs, it’s actually very simple. All they need to do is to look into people who are interested, come to the platform, and the rest, we’ll help them. They build a career out of it for two purposes. One, helping people with their investment opportunities, which is very well known. And number two, gaining an income stream for themselves, which is quite phenomenal in itself. Now, for the IBs themselves, we have also been able to help them to the full extent. We don’t tell them, look, this is what we have, go do it yourself. Unlike a lot virtual brokerages that are in the market, we offer a personalized service. We have a program in place where we attach account managers to each individual, independent broker, to help them at each phase of their career growth. From the very start, from how they want to move the market, to how they grow the market, to helping them with strategy, to solving their problems. And for every single IB that is in place, we have a back office system to help them monitor their income growth. They understand, on a real time basis, on a daily basis, how much

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you’re making, what’s your growth pattern like, what are the resources we can offer, and what we can help them with. On top of that, when we go over the country doing our tours, we help them by engaging their clients through seminars as well, so they have the full range of services to help them and these are at low cost to them. Phil Fothergill: It’s excellent that you provide that kind of support, but there will be those traders who want to learn more and be more educated in systems. What’s your attitude towards educating traders themselves? Dav Liew: Number one, as quoted earlier on, we go around hosting seminars on a daily basis around the country. When we go on these seminars, we focus on three different things. Number one, understanding what is the foreign exchange market about. Number two, we share our experiences and our strategies with them. And number three, we answer their queries. So it’s on a more personalized basis. Any questions that they have, we will attend to them and we will engage them. So the seminar is not only: I talk, you listen. It’s basically a scenario whereby after I’ve finished, I’ve shared with you, I’m more than happy to answer any queries that you have and will attend to whatever with questions. We may not be able to have the perfect answer at that point of time, but we will give you an alternative on how to do what you need to do. So this is what we’re doing. Phil Fothergill: Obviously in any organization that is as successful as you are, it’s right to have a good team of people supporting you. How important to StarfishFX is the team that you actually work with? Dav Liew: We are very proud of our team here in StarfishFX. Our team, we do not talk only about running seminars. We talk about people engagement. We talk about client service excellence. So our team is divided into three different departments. We have our client service ambassadors, we have

our education consultants, and we have our independent broker account mangers team to engage different segments. Now, when we talk about our client service ambassadors, these are our very frontliners that engage the client in terms of solving their problems and questions. We provide around-the-clock service to them and it can be in the language that they desire. So they can always be approached at any time to have their problems solved. For our education consultants, these are the people that actually make a difference. They actually go the extra mile to engage clients on a day to day basis. Be it questions, be it queries, be it on how to trade—they’re able to be there for them, engage them, show them what to do. And we are doing it consistently. And we feel that when it comes to wealth management as an aspect, people engagement is very important and we will stand by that. For the IB account managers, these account managers also have a very important role, and they are an integral part of our operations. Number one, as each IB grows, on every single step of the way, the account managers are always there with them. From beginning to end, and to where they want to be. So with each department attending the segment, we have come to become one strong unit, and we will continue doing so. And this is what makes a difference, because we have one saying—we are here for you and we will stick by you all along the way, from the start, in the middle, all the way to the end. This is a part of our business and we will continue doing so. Phil Fothergill: Well, obviously it has proved to be extremely successful, both this year and in previous years. Once again, congratulations on the awards and thank you so much for coming to London and to talk to us today as well.

Dav Liew: Thank you very much for your time.

ASIA TRADING

Phil Fothergill Interviewer Global Banking and Finance Review

Dav Liew Chief of Strategic Marketing in Asia Starfish FX

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ASIA BANKING

Can retail banks attract the tech experts they really need to thrive? The future of everything is digital. It would be difficult to name one sector that has not seen change of some form as a result of technological developments. Given this evolution of the digital field in all aspects of our lives, it is no wonder that demand for specialists with tech expertise has risen dramatically in recent years. In fact, according to PwC’s 20th CEO survey1, 83% of business leaders in the UK are placing greater emphasis on sourcing digital talent, but the same percentage are worried about how to get hold of key skills. In amongst this general picture stands what I certainly feel is one of the most impacted fields when it comes to digital transformation: retail banking. Change in the sector in the last ten years has been rapid; the fallout from the 2008 financial crisis has seen greater pressure on firms to better guarantee compliance and risk procedures are secure, the growth in cyberattacks and online fraud have presented a minefield of challenges online for banks, and customer demand has driven a real evolution of products, with the emphasis being placed on digital innovation and ease of use for the customer.

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Behind this need for new and revolutionary products and services often lies a myriad of legacy systems that have been patched together following the mergers and acquisitions of multiple retail banks. All of the above is further exacerbated by the challenges around sourcing the tech talent needed to ensure firms deliver against demand. In the first instance, the industry itself is living with a challenging reputation following the fallout of the Lehman Brothers collapse, one that has made it globally - much more difficult to attract new talent into the sector. On top of this, retail banks face competition for digital talent from the likes of Amazon, Google, ebay and many arguably more ‘attractive’ firms, at least in the eyes of tech talent. And this competition is extended further than some of the tech leaders in the UK. FinTech companies and challenger banks have managed to learn from much of the compliance and risk challenges that resulted from the financial crisis, allowing them greater freedom for digital innovation than many retail banks can afford. As a result, the aforementioned financial services firms can often prove a more exciting prospect for digital professionals who arguably seek out opportunities to drive positive change.

It’s certainly a challenging environment for retail banks, but in amongst this lies vast potential for those firms able to embrace change, capitalise the opportunities technological developments present and, perhaps most importantly, attract and retain the staff to manage this. So how can this be achieved?

A focus on culture The first, and arguably biggest, step will need to be a review of the existing culture within a retail bank. There’s a real mismatch between the preexisting values in many firms and what digital talent wants from an employer. Understandably, compliance and risk has become even more ingrained in the culture of the sector in the last ten years, with every role – from receptionist to CEO – requiring some form of compliance checks and responsibilities. As such, there are often very rigid structures and strict controls in place that are not conducive to change and innovation. However, if we take a look at the generation currently in work with the biggest understanding of technology – millennials – the existing cultural set-up is less likely to appeal to them. There are multiple nuances of this demographic that conflict with the values that are now prevalent in retail banks.

ASIA BANKING

For example, according to a PwC report Millennials at work: Reshaping the future2, this generation actively seek innovative environments that creatively blend work and life – not necessarily a description all retail banks can confidently claim in such a compliance heavy environment.

Changing perceptions There have of course been many firms seeking new ways to address this mismatch without compromising compliance and risk requirements. The creation of innovation and digital hubs that sit outside of the usual remit (and in some cases off-site) is just one case in point. Santander, for example, has developed a Future of Work hub that operates from a completely different building than that of the main operations, allowing for better management of the two cultures. However, while there has certainly been progress in order to make the sector more attractive to tech talent, cultural changes must be replicated throughout the employee lifecycle; otherwise retail banks risk losing individuals soon after a placement has been made as they look to leave a culture that simply does not match their initial perceptions.

Given that the PwC millennial report found that 56% of these would consider leaving an employer that did not have the values they expected, it is vital that retail banks look into how they can redevelop their cultures across the board, rather than just focusing on employer branding developments. On top of this, millennials have initiated a growing demand among almost all generations to work in a position that allows an individual to really make a difference. Whether it be to the company, customers and clients, or through CSR initiatives, employees now want to work for a company that enables its staff to ‘do something good’. Given the negative image that the sector has battled against since the financial crisis, this is understandably going to be a challenge. However, building a strong employer brand that emphasises the opportunities to drive change and innovation within the company will certainly help to attract digital natives.

Use tech to attract tech people

handling, but this ability is not maximised when it comes to talent management. Better use of a banks’ people statistics can result in greater internal hires for digital positions. It’s common to see employers instantly look externally for tech skills that are actually already available within the business – they just have not yet been identified. Improving employee data management and assessment can, therefore, solve a number of skills headaches for many banks. Looking externally, there’s a plethora of tools at hand to help firms identify where they can find the digital experts needed, but again this is something that many retail banks have yet to make the most of. Predictive analytics, for example, analyse an individual’s online activity, frequency of updates and tone to assess when they are ready for a job move – information that can be of huge value to retail banks seeking to get ahead of the competition when it comes to talent attraction. And given the type of individual that firms are looking to source, utilising tech tools arguably makes sense.

It is also important that retail banks consider how they use tech to attract tech talent. Firms in this field are used to data

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Merits of Achievements with Recognition World Finance Investment Management Awards 2016 • Best Investment Management Company, Hong Kong1

Global Banking and Finance Review Global Banking and Finance Review Award • Best Fund Management Company Hong Kong 20162

CAPITAL CAPITAL Merits of Achievements in Banking & Finance 2016 • MPF3 • ETF3

Economic Digest The Outstanding Brand Awards 2016 • MPF Fund Manager4

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Source: World Finance. Evaluated by World Finance according to its judging criteria. For details of the award, please refer to the website at http://www.worldfinance.com/awards/investment-management-awards-2016.

Source: Global Banking and Finance Review. Data as of March 31, 2016, evaluated by Global Banking and Finance Review according to its judging criteria. For details of the award, please refer to the website at http://www.globalbankingandfinance. com/global-banking-finance-review-awards/.

Source: CAPITAL. Evaluated by CAPITAL according to its judging criteria – the votes were cast by Panel of Judges (50% of the votes) and CAPITAL Editorial Board (50% of the votes).

Source: Economic Digest. Evaluated by Economic Digest according to its judging criteria – the short list was decided by Economic Digest; whereas the votes for the final winners were cast by the judging committee (30% of the votes) and the public (70% of the votes).

The award information is for reference only. You should not solely rely on this stand-alone information to make any investment decision. Past performance is not indicative of future performance. This document is for informational purposes only and the information contained herein does not constitute any distribution, offer or solicitation to buy or sell. Investment involves risks. For product details, please refer to the Principal Brochure of product for further details. This advertisement and the Manager’s website have not been reviewed by the Securities and Futures Commission of Hong Kong. Issuer: BOCI-Prudential Asset Management Limited

中銀保誠資產管理 BOCI-Prudential Asset Management

ASIA BANKING

Embrace change Finally, retail banks need to accept and embrace change as it is the future. So much has transformed in the sector in the last ten years and the pace of change will only continue to snowball. Failing to adapt to meet development head on – particularly in terms of talent acquisition and management – will only stall a bank’s’ progress. Sticking to historically ‘safe’ processes simply cannot be maintained. For example, many retail banks are still very rigid when it comes to the criteria for talent. It is not unusual to see roles advertised seeking specific experience in financial services or coding, which quite simply restricts an already limited talent pool. This approach needs to change if firms are to secure their position as tech innovators. As a case in point, given that mostly everyone is digitally savvy nowadays, retraining of existing staff or potential talent in order to fill tech roles should not be overlooked. Technology is certainly a real driving force for the world of retail banking at the moment, but can these firms really attract the talent they need to thrive? I would certainly say yes, they can, but not without a commitment to change.

Vanessa Byrnes Sector Managing Director Retail Banking & Insurance Alexander Mann Solutions

PricewaterhouseCoopers. "People and talent - 20th CEO Survey - PwC UK." PwC. N.p., n.d. Web. 21 Mar. 2017.

2 https://www.pwc.com/gx/en/managing-tomorrows-people/ future-of-work/assets/reshaping-the-workplace.pdf

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Finance Global Banking

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ASIA FINANCE

Payments Evolution

– happening so fast, everyone is out to win the race! On the evening of Nov 8, 2016, Indian Prime Minister Modi announced a surprise demonitization policy effective immediately. While the ultimate impact will not be known for some time, the move has already put an exclamation mark behind efforts to electronify payments in the second most populous country in the world. The question looms: how many payments industry players are positioned to take advantage of this cash displacement and how many will fail to keep pace? Change doesn’t always happen this fast; but living in an ‘always on’ world – where smart phones and connected devices are our constant companions – presents a huge opportunity for innovation in the financial services sector. This opportunity has already accelerated the pace of change particularly as it relates to how we pay for goods: mobile and wearable payments are set to reach $100 billion by 20181, and the value of digital payments worldwide are forecast to soar to $3.5 trillion by 20192. That’s not all. We are seeing an emergence of government-backed ‘smart city’ initiatives, aimed at helping over-populated cities better manage transport by tapping

into payment technology to increase efficiency. Transport for London, for example, is said to be one of initiatives leading the cashless trend with 3.2 million commuters (some 35,000 people a day) paying for journeys with their mobile devices since 2015. But, ultimately, it is the consumer of today who is truly driving all this change and for whom technology is creating muchpreferred alternatives to traditional ways of paying. The bar is constantly being raised to provide people with the speed, convenience, flexibility, and control they have come to expect, as well as peace of mind that their transactions are safe and secure wherever and however they choose to pay; and above all, ensuring simplicity in how these services are provided.

Future proofing your business – are you payments ready? Keeping up with changing needs of consumers is no easy task. Due to the significant costs of upgrading technology infrastructure, many established financial services players are still relying on outdated systems that have been in use for decades.

As a result, they are often unable to deliver innovation to customers quickly and at scale. Some 83 per cent of leaders within the world’s top financial institutions worry about losing business to FinTech firms3 -- this is not surprising when you consider that, of the $200 billion in financial IT spend in 20154, three quarters was used for system maintenance rather than investment in new services. It should come as little surprise, then, that one study suggested that 62 per cent of financial institutions lack the flexible infrastructure and back-end technology needed to succeed in the digital age5. In order to succeed in a competitive landscape it is vital that the right infrastructure is in place to enable payment services to operate effectively. Integration and the right partner are the key to success here. Integration is key Older systems that have been in place for many years are not likely to go away given the financial and operational obstacles companies would need to face. But they don’t have to go away entirely. Investments need to be made in more contemporary,

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Mike Manchisi President MasterCard Payment Transaction Services

1 Juniper Research, 2016 2 KPMG, Mobile Banking 2015, July 2015. 3 PWC, 2016 4 BNY Mellon 5 Bain. And only 8% have committed to a complete core systems replacement.

API-driven solutions that can sit on top of these systems and enable them to take advantage of the payments technology available today. Though this would require an investment, adding formal middleware or other integration platforms – like those provided by dedicated outsourced issuer or acquirer processor partners who have already taken on the cost of upgrading payment technology – is far less burdensome than a full system swap out and can make your business more competitive in less time. Partner to drive success It is no secret that larger, more highly regulated institutions face increasing barriers when trying to drive innovation inhouse. Partnering with external technology providers tasked with delivering innovative solutions can help these companies

sidestep the internal barriers. It also means they can remain agile, current, and competitive as new payment trends emerge, so that consumers can continue to access innovative, safe and secure ways to pay. These sorts of partnerships take on an even more important role when looking specifically at emerging markets. In these markets, the need for payment systems that can cope with the speed of change is even more acute. The increasing ubiquity of mobile technology is creating opportunities for financial services infrastructure that can ‘leapfrog’ the current systems of developed nations. If banks and businesses can get this right, the opportunities for growth are tremendous, but only if the back-end technology can reliably support these developments.

No time to waste The payments industry is likely to see greater change in the next five years than it has over the past five decades. As the shift to digital escalates, we must all continuously innovate to stay ahead of the change, and keep up with the latest payment technologies available to meet the demands and expectations of today’s technologically savvy consumers. New ways of paying are here to stay, and keeping up is essential; if you can’t offer them to your customers, simply, quickly and safely, they are likely to turn to someone who can.

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ASIA TECHNOLOGY

Better control and protection of software-based intellectual property in the financial services market -why it matters and how to achieve it

With digital data and other content at the heart of how most financial services operate today, these ‘soft’ assets have become an increasingly important and critical part a firm’s intellectual property (IP) assets. At the same time, visibility and control of those digital assets has become more difficult, thanks to a progressively more complex operating environment. Today’s financial products not only have more elements, they need to be updated more frequently, yet banks and other financial institutions need to keep legacy products ‘live’ for long periods of time to satisfy not just existing customers, but regulatory authorities too. The ability to have access to all past versions of code and other digital assets is essential for auditing purposes. Financial products also have to be made available across multiple delivery methods, including mobile devices and different software operating systems, plus the need to satisfy the increasing cry for smoother, real-time exchange of data between different banks and bourses. The situation is further exacerbated by the frequently siloed environments in which these largely software-based financial products are created, distributed and maintained. This is particularly true of software development teams, who – in common with many other industries – traditionally work in isolation, with their

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own processes and tools, giving the rest of the business little visibility of work-in-progress. All this matters for one very big reason close to the heart of the world’s financial services industry: risk. If how these digital assets are being developed and brought to market is not transparent, then who’s to know what problems might have crept in? With regulators demanding to see the inner workings of every aspect of a bank’s activities, right down to every single piece of code, then that is a pretty big risk to take in terms of security and compliance.

Trace metrics for quality and audibility So what’s the answer? First, financial institutions need processes and technology tools that can easily and quickly show what changed, why it changed and who made that change. That has to be applied across the entire lifecycle of the digital assets associated with a particular financial product and provide that immutable history in both real-time and historic views.

ASIA TECHNOLOGY If the full history of software development processes is not easily accessible, then days, if not weeks or months, might be spent by teams trying to unearth and create that information (time that would be better spent on other tasks). And finally, there is not visibility around who can access what (and whether they did or not), then there is always the spectre of a security breach, caused by a valuable piece of digital IP being inadvertently or deliberately compromised. Transparent traceability makes it easier to see how two different digital ‘artefacts’ relate to each other or are inter-dependent. Also, essential software processes such as QA, testing and real-time code reviews are better supported, while it also becomes easier to automate processes and engender improved collaboration between different contributors. A single source of truth Mitigation of these risks is why an increasing number of organisations in the financial services market are investing in ‘single source of truth’ strategies and systems. There are different ways of tackling this goal, but a common thread is the desire to create a collaborative and transparent environment that is a single place for all the digital assets associated with a product at every stage of its lifecycle. Another attribute to which pioneers of this approach aspire is an environment that allows individual teams to carry on working with their existing tools, systems, workflows and processes, yet still have that ‘common ground’ in which to see what each other is doing (who did what, when and how) share and collaborate. The concept of the ‘single source of truth’ is already well established in software development circles, where version control systems have long been championed by software developers and IT admins for this very purpose. However, organisations are increasingly realising that they need to extend the ‘single source of truth’ to encompass every aspect of a project, from ideation, design, development, test, deployment, release and maintenance. In the software world, it may be coined application lifecycle management (ALM) but

that is probably too limiting a terminology in this day and age, because the breadth and variety of assets is so wide-ranging. When successful, this approach can reap some powerful and tangible benefits: better connection across teams to keep a project’s vision on track and out to market more quickly, easier extraction of data to satisfy auditors, easier bug-tracking and fixing, plus reduced security risks. However, success depends on augmenting the theory with some very practical ‘best practice’ steps. Here are a few examples. Version everything – store every digital asset at every step, so that every change is recorded. Think beyond code and incorporate every asset associated with a project. Make sure that the version control system supporting this approach can support a wide variety of file types and also creates an immutable source (in other words, changes cannot be made at a later date) to meet regulatory requirements. Balance control over flexibility – the best tools are those that allow users to carry on working with their own workflows, processes and favourite tools, rather than imposing new ways of working or technologies. It’s human nature that people will always find a workaround if they don’t like a piece of software. For instance, Git is in widespread use by software development teams worldwide, so look for tools that will allow them to carry on using Git, but in a framework that gives management the visibility needed over code changes. Similarly, make sure that the ‘single source of truth’ ‘plays nice’ with other systems already in place and can scale to support large projects or growing numbers of users, regardless of their location or operating environment.

people are given. In so many instances, access is carte blanche, with users having unnecessary levels of access. This is not fair on them or the organisation. Instead, implement ‘fine grained’ access control, whereby users are given access to what they need, but no more. Protect digitally-based intellectual property (IP) across IP address, user and group, with enforceability at code repository, branch, directory or individual file level, locally or across authorised locations. This will also contribute to compliance and regulatory processes. Educate – this may sound obvious, but users do need to understand why this level of visibility and control is so important and top-level management endorsement is important. In addition, any financial services organisation implementing Agile, Continuous Delivery or DevOps in their software or digital projects will appreciate the benefits that the ‘single source of truth’ brings, in terms of underpinning the transparency and collaboration on which these methodologies depend. There is no overnight silver bullet to achieving all this and the reality is that most organizations are going to have to put in a lot of work into making the ‘single source of truth’ a success. However, choosing the right support tools and approaches will go a long way towards achieving that goal and in today’s increasingly competitive, timepressured and regulated financial services market, with such a high dependency on digital assets, this level of traceability and management over the entire product lifecycle is fundamental.

Keep it simple – don’t inhibit the nontechnical users who need access to this single source of truth. Make sure that the version control system is intuitive enough for them to use. These individuals might include product or marketing managers, creative teams, even senior management and external third parties, such as auditors and regulators. Control access – security involves a multi-layered strategy of attack, but within the context of the ‘single source of truth’, do think about what access

Konrad Litwin Managing Director International Perforce Software

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ASIA BUSINESS

Taking the Plunge Why new software deployments are always worth it…in the end It’s a terrifying prospect when your midsized business outgrows the capabilities of its old systems for one reason or another, but selecting and implementing new financial software is something that many companies experience every 6-10 years to support growth. Perhaps you are expanding internationally, broadening your product or service offering or adding links to your supply chain. The reasons are many and varied; it could be you forged a new partnership or made an acquisition that changed your operational needs. With the right catalyst, change is required. And then it’s out with the old and in with the shiny new system. Finance professionals may know the excitement that comes with a new financial system deployment, but with this excitement, there will always be a certain level of apprehension. On the one hand, there’s the knowledge that the new software will bring clear benefits to the business – enabling expansion and giving you improved business insight, for example. But, on the other, there’s the acceptance that there’s a long road of deployment challenges to get through before you get there. That could be anything from navigating staff expectations through a plethora of internal communications through to migrating data

from previous systems. Perhaps it means getting the new system to work with your nominal structures and ironing out any glitches as quickly as possible before they impact your customer relations. That’s just to name a few. So, is it all worth it? Clearly it depends! The most important thing to do before you start looking at any new system – and the subsequent logistics involved in a software roll-out – is to take a step back from your day to day operations and try to establish if you are hurting enough from your existing system and processes to want to put yourself through it. It’s important to look at the market here, as the art of the possible will almost certainly have changed since you last deployed a financial system. If the benefits outweigh the pain, plan wisely to avoid the pitfalls that can strike when rolling out these types of projects.

Don’t let deadlines slip At the beginning of the project, work with your provider to formulate a feasible plan for the roll out of the new system, including timelines and – most importantly – deadlines. Allow more time than you think you need, then stick to these meticulously. In many cases, customers will let one

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ASIA BUSINESS

deadline slip, but the ripple effect this can have on the rest of the roll-out has the potential to be huge. How to stop deadlines slipping? Make sure all invested parties know and agree to the deadlines before starting, and ensure you have a determined and strong-willed project manager running the deployment at both ends.

Get staff buy in When you’ve decided to implement new financial software, there’s nothing worse than staff either slipping into old habits or failing to embrace and make full use of the functionality you’ve invested in. That doesn’t just mean training staff before the software is fully rolled out, it also means taking the time to speak to them before you make the purchase, ensuring you have their buy in and that the software is truly something they can use and benefit from – and comes with the functionality to make their job easier too. Our partner Amethyst Associates accredits their successful roll-outs to this. Lisa Miles, MD at Amethyst noted: “Always get ’buy in’ to begin with. We’ve seen lots of different approaches to project implementations. Some are very good – others less so – but a project’s success or failure nearly always comes down to the ‘buy in’ from a customer. That’s not the people to whom you’ve presented and demonstrated the solution. It means speaking to – and getting feedback from – the people who need to be using

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the product day in, day out – to identify how it can help their problems. Otherwise they won’t feel involved, and will not use the new solution – and the deployment will be doomed from the start.”

Know the business’ goals It should almost go without saying, but, if you’re deploying a new finance solution, ensure you know the business goals inside out – and work closely with the vendor or partner implementing it to ensure they understand them too. This means everyone is aligned on the strategy for getting the solution in place – and know the priority functions that will be most important to get up and running. Greentree customer Comvergent worked closely with our partner Prerogative. The success of their deployment was in large part because the key stakeholder at Comvergent knew the business inside out. A true champion of the business, she therefore knew what was important and what wasn’t, understood all the processes, could rally staff internally to do what was needed – and was pragmatic about what was achievable in time and what wasn’t. That made project management so much easier for everyone.

when the software is up and running and you remember exactly why you were so excited to invest in it in the first place. This is the point where the rewards start to show – and the benefits, be it cost savings, simplified processes, automation, innovation, better customer service or increased productivity – should far outweigh any of the challenges. Plan carefully and be aware of both the opportunities and challenges, and you can chart a smooth course through your next finance system upgrade, helping prepare your business for the next wave of growth.

The Turning Point The deployment is always going to be the toughest part of a new project, but, ultimately, there will come a turning point

Harry Mowat Greentree

MIDDLE EAST INTERVIEW

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CLIENT EXPERIENCE, A VISION THAT PAYS OFF

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

Desjardins Wealth Management Private Wealth Management is a trade name used by Desjardins Investment Management Inc. and Desjardins Trust Inc. Discretionary portfolio management services are provided by Desjardins Investment Management Inc., registered as a portfolio manager and as an investment fund manager. Trust services are provided by Desjardins Trust Inc., federal trust and financial planning firm.