Global Banking & Finance Review Issue 40 - Business & Finance Magazine

Issue 40

Interview with the CEO of Glue42, the Forerunner in Desktop Integration Leslie Spiro, CEO, Glue42 Read it on Page 24

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EDITORS LETTER

FROM THE

editor

Chairman and CEO Varun Sash Editor Wanda Rich email: wrich@gbafmag.com

Dear Readers’

Head of Distribution & Production Robert Mathew

I am pleased to present Issue 4 0 of Global Banking & Finance Review. For those of you that are reading us for the first time, welcome. This issue is filled with exclusive insights from financial leaders across the globe.

Project Managers Megan Sash, Amanda Walker Video Production and Journalist Phil Fothergill Graphic Designer Jessica Weisman-Pitts Client & Accounts Manager Chanel Roberts Business Consultants Rick Saikia, Monika Umakanth, Stefy Abraham, Business Analysts Samuel Joseph, Dave D’Costa Advertising Phone: +44 (0) 208 144 3511 marketing@gbafmag.com GBAF Publications, LTD Alpha House 100 Borough High Street London, SE1 1LB United Kingdom Global Banking & Finance Review is the trading name of GBAF Publications LTD Company Registration Number: 7403411 VAT Number: GB 112 5966 21 ISSN 2396-717X. The information contained in this publication has been obtained from sources the publishers believe to be correct. The publisher wishes to stress that the information contained herein may be subject to varying international, federal, state and/or local laws or regulations.

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Featured on the front cover is Leslie Spiro, CEO of Glue42. As the winner of Global Banking & Finance Review’s award for Excellence in Innovation – Wealth Management Software Solutions North America in 2022, Glue42 continues to exploit new technologies and industry standards in pursuit of simplifying user journeys across desktop applications and improving business outcomes. I spoke with CEO Leslie Spiro to find out about the origins of Glue42, their innovative technology and what drives product development. (Read the full interview on Page 24) Financial and non-financial performance are now inseparable. The financial value of non-financial performance is debatable, but in the long term, one cannot exist without the other, explain Franck Bancel, Professor of Corporate Finance at ESCP Business School and Henri Philippe partner at Accuracy. (Page 28) We strive to capture the latest 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 me your thoughts on how I can continue to improve and what you’d like to see in the future.

Enjoy!

Wanda Rich Editor

®

Stay caught up on the latest news and trends taking place by signing up for our free email newsletter, reading us online at http://www.globalbankingandfinance.com/ and download our App for the latest digital magazine for free on Google Play and the Apple App Store

Issue 40 | 03

CONTENTS

BANKING

10

BUSINESS

Top Identity & Authentication Concerns in Banking & Finance

18

Atul Bhakta, CEO of One World Express

12

Greenwashing: Managing the risk in the banking sector

Dominik Birgelen, CEO of oneclick AG

28

Sunil Rana, Founder and CEO of Vyzrd

14

16

FS innovation means looking beyond company boundariesDanni

How are businesses handling the cost-of-living crisis?

Financial and non-financial performance are now inseparable Franck Bancel and Henri Philippe

46

Summer parties: hosting the perfect team bonding day

Simon Hill, CEO and founder of innovation

Danni Rush, Chief Operating Officer at Virgin

scale-up Wazoku

Experience Days and Virgin Incentives and Virgin Experience Gifts

The unforeseen consequences of cyber security and hybrid working during the pandemic: the impact for the banking sector

INVESTMENT

Manoj Mistry, Managing Director, IBOS Association

20

Why investors must not overlook emerging markets Emanuela Vartolomei, CEO and Founder of All Street SEVVA and creator of Sevva.ai

36

Conquering outdated cultures in investment banking Theo Williams, Managing Director at UpSlide

48

What’s needed for ESG investing to go mainstream?

Richard Gillham, Financial Planner at Progeny and Nick Astley, Investment Manager at Progeny Asset Management

20 04 | Issue 40

CONTENTS

FINANCE

06

TECHNOLOGY

The battle against financial terrorism demands every tool in the box

08

Kuruvilla Mathew, Chief Innovation Architect

Saeed Patel, Group Director at Eastnets

22

Paying in Latin America: where digital growth meets alternative payment methods

and General Manager, UST

32

30

Remote working in a merging Finance and eCommerce world Roy Zakka, CEO and Founder of Layer

42

Global AML Trends 2022: Where do we stand?

Fran Garvey, Solicitor, Business Crime –

How low-code automation is transforming the banking industry Guy Mettrick, Global Industry Lead – Financial

Gustavo Ruiz Moya, CEO of eCash for Latin America and Global Head of Open Banking, Paysafe

Now is the time to plan for the Metaverse

Services, Appian

34

Doubling Down on Digital Differentiation Tim Hamilton, CEO & founder of Praxent

38

The Scamdemic: How digital identity could help combat the rise in social media scams Ankur Banerjee, CTO and co-founder of cheqd

Howard Kennedy LLP

COVER STORY

24

Interview with the CEO of Glue42, the Forerunner in Desktop Integration Leslie Spiro, CEO, Glue42

Issue 40 | 05 Leslie Spiro-12

FINANCE

The battle against financial terrorism demands every tool in the box Meeting the requirements of everevolving anti-money laundering (AML) and counter terrorist financing (CTF) laws, regulations and guidance is no mean feat. The sheer depth and breadth of requirements from such as wide range of bodies, can be daunting for even the most seasoned industry experts.

The first place they might look in relation to AML is the sanctions and politically exposed persons lists, to ensure the latest regulatory requirements are incorporated in the financial institution’s watchlists.

There’s a broad range of international and national regulations to comply with, including the UN Sanctions List, the US OFAC Consolidated Sanctions List, the US OFAC SDN List, the EU Financial Sanctions List, the UK Govt Sanctions List and the Monetary Authority of Singapore Sanctions List.

Other notable AML guidelines include the standards developed by Financial Action Task Force (FATF), the intergovernmental organisation formed to halt money laundering and the financing of terrorism. It aligns standards throughout 36 member states by issuing regular guidance to financial authorities.

There are 40 FATF recommendations on AML and CFT. This provides a complete set of counter-measures covering the criminal justice system, law enforcement, the financial system, regulation, and international cooperation. These have been endorsed and adopted by individual countries, regional and international bodies.

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Of the FATF recommendations, FATF 10 is notable with its requirements for customer due diligence measures prohibiting financial institutions from trading with anonymous or fictitious accounts.

Another prominent recommendation is FATF 16, known as the Travel Rule, it requires countries to collect identifying information from the originators and beneficiaries of domestic and cross-border wire transfers. The aim is to improve the traceability of transactions.

Added to this are UN resolutions, the USA Patriot Act, and the EU 6th Anti-Money Laundering Directive. The latter introduces harmonisation of AML/CFT rules across the EU member states, creating a new Anti-Money Laundering Authority (AMLA) to fight money laundering and for promoting co-operation.

Despite the complexity and plethora of different regulations, it’s crucial to ensure that financial institutions comply with the rules. Their integrity and reputation, and that of the markets they operate in, is at stake.

Financial institutions need to ensure they invest in appropriate systems and controls to detect and report suspicious activities. This means nothing can be left to chance.

New advanced financial crime risk solutions are required to tackle the dynamically changing and growing complexity of watchlists, AML rules, SAR’s and STR’s reporting obligations.

A technological solution The question is, what should financial institutions be looking for in their bid to remain compliant? The answer lies in understanding the important elements of the rules and then making sure systems are fully upto-date and fully conversant to the regulatory requirements.

In the case of AML and CTF, the key components are the watchlists that underlie compliance screening systems. They include the details of every organisation or person that has a sanction against them, including those on the Politically Exposed Persons (PEPs) list.

Most manual watchlist updates happen once a day, leaving financial institutions open to breaches between the time an entity is placed on a watchlist and the time they begin screening. There needs to be instantaneous compliance to avoid breaches and fines.

This can be achieved with Blockchain-based, real-time updates.

As soon as a country, individual, or entity is added or deleted from a watchlist, updates securely flow to AML systems. This means screening solutions are always current, ensuring the highest level of protection.

But this is just half the job. The other is putting the watchlists into action.

Screening and monitoring software needs to make use of the up-to-date watchlists by detecting potential criminal behaviour in real time or batch mode.

FINANCE

It must be able to monitor all transactions for AML including checking all financial traffic including different message types such as SWIFT ISO 20022, SEPA, ACH, Target RTGS and Ripple. It needs the ability to quickly and comprehensively screen everything from huge databases, to names, files, and messages against an unlimited number of lists and sophisticated rules.

Of course, this can create a huge amount of “noise” and potentially problematic transactions, which might be false positives. There needs to be a mechanism to monitor these and take automatic action based on rules set by the financial institution.

As the process continues, systems need to learn from previous decisions and automatically replay these on future

detections, reducing false positives and the time and effort needed to clear detections. Of course, there also needs to be reporting and audit functions so that regulators can see how decisions were made and what action taken.

By following this model where watchlists are always 100 per cent upto-date and then actioned effectively using advanced software that can make the right decisions, financial institutions stand a chance of meeting the huge pressure on them to AML and CFT. And one thing is for certain. The landscape will only get more complex, the transactions harder to detect and financial criminals to be more determined. In this context, the battle against financial criminals and terrorism, demands every tool in the box.

Saeed Patel Group Director Eastnets the compliance, payment and anti-fraud experts, explains how to protect against terrorist financing in 2022.

Issue 40 | 07

TECHNOLOGY

Now is the time to plan for the Metaverse The Evolving Internet For a generation that has grown up with lightning-fast internet connections, smartphone apps and the convenience of seamless smart integration with every aspect of modern life, it may be difficult to believe that the internet was once a far less navigable place. In the 1990s when the public internet was first finding its feet, innovators worked to turn the World Wide Web (or Web 1.0) into the intuitive digital environment it is today. Back then, cyberspace was largely made up of static web pages connected via hyperlinks and rudimentary browsers such as Archie, Veronica, Jughead and Cello were used to scour the various public FTP servers.

The past two years have been beset by uncertainty, making it difficult to predict future trends with any degree of precision. But one thing that I can say with certainty is that the metaverse – a digital ecosystem built on the convergence of blockchain, augmented reality and immersive ecommerce services – is coming.

The dawn of this new technology will change everything about the digital experience for users and brands alike. Because the metaverse will revolutionize how we interact with the internet, companies must create comprehensive engagement strategies now to take full advantage of this unprecedented shift and ensure that they aren’t left behind.

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Somewhat counterintuitively, the COVID-19 pandemic that has fostered so much disruption actually accelerated the development of metaverse technologies. The transition to a remote work culture that many companies adopted in response to social distancing regulations is an excellent example of how the internet is increasingly being harnessed to supplant or augment interactions that once took place in person. As the technology continues to evolve, other activities ranging from gaming to shopping will increasingly take place inside dynamic virtual worlds.

In the past, people had to make a conscious decision to log on to the internet but now the line between online and offline has started to blur.

The metaverse will erase it completely.

A seismic shift was ushered in by Web 2.0 with the emergence of social networks, ecommerce and a constant stream of information (not all of it reliable). The advent of Web 2.0 saw the internet emerge as a platform and was the beginning of a mass information democratization movement as users gained the ability to leverage online platforms and publish content of their own. Web 2.0 really began to hit its stride when smartphones and cloud computing made the internet ever more accessible and user-friendly.

Now, we stand on the verge of another new era, one marked not only by the unprecedented accessibility of information, but an age where information is also intelligently managed, contextualized, curated by AI, decentralized and localized. This immersive internet has been called the “metaverse” and it heralds the dawn of Web 3.0.

TECHNOLOGY

Towards a Radical New Internet The idea of a looming transition to a new internet age dates to 2014 when the potential of decentralized digital infrastructure (also known as blockchain) first became clear. However, the anonymity and processing power of the blockchain will be supplemented by emerging metaverse technology that will power exponential leaps in the capabilities of internet platforms in the years to come as part of the transition to web 3.0 As the internet expands exponentially in both size and complexity, users will need advanced mediums to navigate the newfound wealth of information that is suddenly at their fingertips. We have already seen some aspects of Web 3.0 exemplified in technologies such as AI-driven personalization, remote workspaces, NFTs, immersive gaming, Cyber-Physical assets and crypto-currencies but there is still more potential, and it is likely that innovators have still only scratched the surface.

Innovative Applications The metaverse will allow for the creation of accurate “Digital Twins”, accurate digital representations of real-world entities or systems that can be rendered to reflect nearly anything.

Digital twins grow in effectiveness as they proliferate and are combined with other digital twins to recreate real spaces in the digital sphere.

The most exciting initial application for digital twins in the metaverse is in the sea change that they can bring to online shopping. Since its inception, e-commerce has always had a key drawback when compared to in-person shopping – the inability of users to interact with the product you hope to purchase. Instead, shoppers have had to rely on select images and customer reviews to inform their decisions. The virtual storefronts of the metaverse will create an immersive shopping experience remedying this problem while also maintaining the convenience of at-home shopping.

In the metaverse, it will become common to use highly capable 3D simulations for product and material development purposes. These advanced simulations will leverage real-time data to render the physical world in a constantly updating virtual space. Harnessing the metaverse to produce small batches of customized products (as process known as Additive Manufacturing) is another exciting potential application. This process combines the adaptability of 3D printing for prototyping and unit production with the advanced technology of the metaverse to allow for greater flexibility while reducing inventory management costs.

Finding Success in the Metaverse The metaverse is set to revolutionize the digital experience and companies must take steps now to create the comprehensive strategic plans and engagement strategies necessary for success. Strategies for growth in the metaverse era must reflect the fact that the customer is more important than ever and acknowledge that they are set to gain more power to shape and drive their online experience according to their own preferences. This is a natural consequence of the fact that the metaverse’s unique appeal is that it is a decentralized ecosystem which empowers users to create.

This decentralized experience creates new opportunities for brands to sell directly without relying on third parties.

Just as web 2.0 gave individuals a platform to speak that rivaled established media giants, the metaverse will enable smaller sellers to compete with retail giants on their own terms.

Kuruvilla Mathew Chief Innovation Architect and General Manager UST Kuruvilla Mathew is Chief Innovation Architect and General Manager at UST. He has over 25 years of experience in product and services development across a wide range of industries and has worked with Fortune 500 clients worldwide. Mathew has led several enterprise initiatives as Chief Architect and also led techno-domain consulting divisions. Prior to joining UST, he has served as Chief Innovation Officer, Chief Technology Officer, and Chief Architect, giving him expertise and insight in guiding digital transformation.

With the dawn of web 3.0 and the metaverse, it’s easy to anticipate a future where the total value of the virtual economy surpasses that of the physical economy. Brands that haven’t considered how best to find success in this radical new landscape will need to develop a comprehensive strategy for digital transformation by emphasizing creativity and the user experience.

Issue 40 | 09

BANKING

Top Identity & Authentication Concerns in Banking & Finance The finance industry is a paranoid one when it comes to security concerns. Banks and financial institutions are system integrators in their own sense with so many proprietary vendors all having their own compliance issues. As a result, there are often too many security solutions in place making it difficult for backend employees to navigate their own systems and deliver efficient customer service.

In particular, the financial sector has expressed high concern over identity and authentication issues.

In today’s digital age, every user, whether it be an employee or customer has a unique digital identity based on their online footprint. This includes very personal data such as social media activity, healthcare and financial records, demographics, login credentials, web history, and more. Like any identification, digital identities must be protected to prevent risks of identity theft and/or fraud.

Where the influx of data available online has increased over recent years, thanks to digital transformation efforts, protecting identity and providing flawless authentication has become a challenge. As technology continues to advance, securing sensitive data must be a top priority for banks and financial institutions.

Remaining Vigilant of Password Vulnerability It is advised that financial companies look first to the security of their employees' systems and their authentication processes after the UK government reported that 39% of businesses identified a cyber attack in the last 12 months. What’s more, over 80% of hacking-related breaches are tied to misplaced or stolen credentials.

10 | Issue 40

With sensitive customer financial data on the line, the cyber risks are relentless.

Changing economic and political environments usually lead to even higher threats, for example, since Russia invaded Ukraine, a sharp increase in malicious Russian cyber activity began in January. Multiple Russian-based IP addresses targeted UK-based financial institutions, scanning for weaknesses.

Enforcing regular password resets amongst employees may seem like the ideal solution, but this would only serve as a temporary fix as users typically repeat passwords across other accounts. Where password reuse has become common malpractice, stronger authentication controls can help banks and other financial companies keep customers protected and sensitive data secure.

BANKING

Dominik Birgelen CEO oneclick AG

Shielded Logins

Exploring Cloud-Based Security Opportunities Where the evolution of technology has incurred many security issues, it also helps to solve many of the financial sector’s challenges and protect various institutions through advancements in the digital landscape. The evolution of cloud computing, which was traditionally valued for its cost saving capabilities, is now invested in for its cyber security abilities. Cloud-based technologies allow banks to implement critical security measures that prove extremely difficult to penetrate including shielded logins, disconnecting the end user environment and Zero Trust Architecture.

Cloud-based solutions can help not only support the enormous amounts of data within a financial institution but also add an additional layer of security that keeps customer and company data confidential and sensitive information away from malicious intent. Many cloudbased solutions include features such as shielded logins. Using an authentication service whereby the user’s logins are transported via the browser as a client, all other authentication processes are performed by backend systems.

Logins can be dynamically generated, and unique passwords and tokens are also encouraged that are not stored by the service provider so that the login information to applications remains hidden for all other users.

Zero Trust Architecture (ZTA) The growing adoption of the cloud has resulted in the need to secure financial portals like online banking and apps at all times. Outdated security mechanisms are no longer considered appropriate in the age of the cloud.

Therefore, financial institutions must look to adopt ZTA, in which data and identity serve as new basics to be

protected. Banks must dissolve inactive identities that can enhance system vulnerabilities and expose critical resources to threats. Through a ZTA approach, no actor who attempts to access resources or services within the system is trusted from the outset.

This means every access, whether from outside or inside, is individually authenticated and as soon as a change in risk is detected, access is interrupted.

Striking a Balance in 2022 and Beyond Many banks and financial institutions have struggled to maintain a manageable yet secure equilibrium between identity security and IT admins. Overloading a company with too many security solutions actually disrupts work efficiency and in turn damages the success of the company. It, therefore, becomes important to strike a balance between identity security and ease of use for employees and customers alike.

Through the implementation of a fully scalable cloud-based solution, that includes shielded logins, ZTA and many more smart cyber security processes, employees can remain efficient while not having to concern themselves with the risk of a security breach on their behalf.

Issue 40 | 11

BANKING

Greenwashing: Managing the risk in the banking sector There is growing unease around the prevalence of greenwashing, which is threatening to put the brakes on the rapid growth of ESG investing – and a growing chorus of voices from figures in business, politics and science around the need to address it.

This lack of confidence in the market has caused some public figures, Elon Musk being one notable example, to go as far as to call ESG a “scam”.

The topic was also recently in the spotlight at the World Economic Forum’s summit in Davos, where some criticised businesses for misleading investors and the public about their “green” credentials.

According to Bloomberg, the size of the sustainable finance market is now estimated to be over 35 trillion US dollars, which means that problems with greenwashing must be urgently addressed to avoid this bubble bursting and causing significant upheaval to the global economy.

The banking sector has been actively adopting the sustainability push and has underwritten trillions of dollars of loans to various ESG projects.

However, banks face significant financial, as well as reputational, risks from greenwashing.

To highlight the magnitude of the issue, Morningstar, an influential investor services firm, recently removed 1,200 funds with a combined value of 1.4 trillion US dollars from its ‘sustainable list’. The sheer size of the combined assets is unnerving in terms of the impact this will have had on the investors in those funds.

Similarly, DWS’s 1 trillion US dollar greenwashing probe by the SEC highlights the risks greenwashing poses reputationally and in terms of material investment.

12 | Issue 40

Banks must be careful to perform comprehensive research and due diligence, rather than getting carried away with “box-ticking”, if they want to avoid similar issues with greenwashing.

In particular, there are three key factors banks will need to consider in their approach to ESG risk management.

Firstly, there is currently significant superficiality in the integration of ESG principles. Many organisations continue to apply ESG with a checklist centric approach, focussing on whether each investment can be marketed as green, rather than on whether there is actually any true intention to achieve integration and results. Often, ESG credentials are based on self-reported data.

Research has shown that up to 80% of algorithm-collected corporate data is based on self-reported data without the necessary data quality assurance.

Without a deeper dive into what the company is actually doing to address ESG issues or holding the management accountable, it is therefore impossible to assess real impact. There is a complete disconnect with today’s approaches to ESG integration and business performance for it to merit any decision-useful insights.

Secondly, we are seeing a lack of coherent ESG capability and tools.

A broad lack of ESG expertise has hampered businesses’ ability to meaningfully adopt ESG, and continues to do so today, with research suggesting that 77 percent of financial professionals report sustainability skills shortage at their organisations. Additionally, whilst ESG reporting frameworks are now commonplace, there is still a clear lack of tools that can help drive

meaningful, consequential analysis that assesses fundamental change and real-world impact.

Put simply, the surge in desire for companies to be green has led to a demand for these kinds of services that the current market cannot keep up with. Rather than finding “stop-gap”, superficial solutions, investment in technology and human resources is needed to ensure the long-term legitimacy of the impact investing ecosystem.

Finally, there is misalignment amongst ESG ratings. Confidence in, and the usefulness of, ESG ratings has been hit by the significant divergence between the different ratings produced by ESG rating providers.

For example, a recent study by the MIT Sloan School of Management and University of Zurich led by Berg, Koelbel and Rigobon, found that there was very low correlation between the ratings of major ESG rating providers. This should be of great concern from investors’ perspective given the importance and sway that these ratings have started to have on sustainable investment flows.

At the same time, it also highlights the increasing might of ESG ratings companies and the need for increased accountability amongst all actors.

While it is easy to criticise ESG ratings providers, the underlying challenge needs to be appreciated. There is a fundamental difference between ESG ratings and the traditional credit ratings business. As opposed to the financials of an organisation, the nebulous nature of a number of ESG aspects and the difficultly in quantifying and monitoring these makes the divergence in such ratings highly probable.

BANKING

A lot of innovation is coming to the market in this space and needs to be integrated with current methodologies.

However, it will be difficult for the existing large players to do so swiftly, as their frameworks have been in use for several years, and there is a wealth of data that has been built on these old frameworks. Any fundamental change could therefore threaten the lucrative benchmarking and data business for these entities. This means that many ratings companies will face an inherent inertia to evolve their frameworks.

Sustainable investing is a significant growth opportunity, and one that our planet and our businesses both need. However, execution needs to be improved significantly for it to deliver on its promise. While the regulators and ESG ratings companies explore ways to address the greenwashing challenge (expect it to be slow and painful), an integral part of risk mitigation for banks is to rapidly develop their competence in this area.

Given the current discordance in ratings, this is necessary in order to address both investment and reputational risks. Adoption of the appropriate technological solutions for analytics, monitoring and reporting will ultimately help mitigate greenwashing. This can be further strengthened through select partnerships with audit and consulting firms where such capabilities exist to augment in-house expertise. It must, however, be noted that this is a nascent area even for these firms and such partnerships will therefore need to be carefully executed.

Sunil Rana, Founder and CEO Vyzrd

Issue 40 | 14

BANKING

FS innovation means looking beyond company boundaries

By Simon Hill, CEO and founder of innovation scale-up Wazoku, working with organisations globally to help capture and crowdsource ideas and innovation.

The need for innovation in Financial Services (FS) is well-documented.

Banks and other service providers need to offer digital products and services in order to keep pace with changing customer expectations and requirements, especially in the face of more agile fintech providers.

FS firms also need to innovate for other reasons – navigating the realities of a post-pandemic world, managing geopolitical instability, meeting UN Sustainable Development Goals (SDGs) and conducting business more transparently and sustainably. However, not only are many FS firms not set up for such innovation, but a good deal of them are not even looking in the right place for it. To achieve innovation at scale in FS, it’s time to look beyond the organisational boundaries and get the input of a broader group of experts.

A growing need for innovation The last few years have really upped the pace of innovation requirements in FS. Firstly, the way that the world does business has changed forever.

Organisations need to be more transparent about what they do and

14 | Issue 40

how they do it. They increasingly need to make a more significant contribution to society than just delivering good financial results to shareholders.

This has been driven further by the United Nations (UN) and its 2030 Agenda for Sustainable Development.

This included 17 different but interconnected SDGs, all designed to drive change in their respective areas, including sustainability, climate action and clean energy.

Some banks have made good progress on particular SDGs, while others are still finding the right path. Either way – the need for a more innovative approach has never been greater.

Similarly, the pandemic has turbocharged the need for banks to offer a more innovative array of services.

Digital and mobile banking have been in existence for a number of years now, with certain demographics conducting most of their banking via digital channels. But the various lockdowns across the world in 2020/21 meant that the need for digital services accelerated rapidly.

FS firms needed to quickly adapt to the reality of people being unable to do their banking in person. They pushed through many new digital services but still need to find ways of maintaining this innovation.

Banking (in)agility It's no secret that many banks still operate with monolithic systems, not of all which are even connected effectively. Because of the size and scale of some FS organisations, it can be challenging to adopt innovative technologies in the same way that smaller firms can. Indeed, many challenger brands in FS are founded entirely on the progressive use of digital technologies.

Yet there are always pockets of innovation to be found even within the biggest and most traditional banks. By and large, c-suites in FS are aware of the need to adopt a more innovative approach to business and are gradually investing in the systems that make that more possible. But addressing the major challenges in FS will not be achieved by pockets of innovation. Any innovation must be sustainable and scalable to have a tangible impact.

The importance of open innovation It’s also true that banks are mostly looking within company boundaries for innovation. That’s not to say that employees and associates aren’t capable of innovative ideas – they very much are – but sometimes a problem or potential opportunity needs a different perspective.

BANKING

Sometimes the best person to help will be an employee, but at others it could be a partner, supplier, customer or an expert from the crowd. That’s why open innovation is becoming such a popular trend. Open innovation refers to the practice of seeking ideas from outside an organisation, effectively creating a long tail of innovation by accessing a global crowd of experts to solve various challenges.

It's based on the idea that most of the smartest people in the world do not work for your organisation and that there are significant benefits to be had from including these people when looking for innovative approaches.

It’s a practice that has been highly effective in the public sector, pharmaceuticals and NGOs, where open innovation has proven to be faster, more cost-effective and more successful at driving innovation.

Deloitte research with pharma firms revealed that those which adopt a cooperative, open innovation framework are likely to spur product development, speed time to market, reduce costs, and increase competitiveness. This is why open innovation is starting to gain traction in FS. It can help FS businesses connect with specialist knowledge of a particular technology or even tech providers they wouldn’t normally find, and does so quickly, effectively and without incurring significant costs.

Looking to the future Given the scale of some of the challenges that banks are facing, looking to the future with any certainty and confidence requires a more innovative approach is imperative. By embracing open innovation and looking outside company boundaries for ideas and solutions, banks and other FS firms are far more likely to be able to deliver sustainable innovation at scale.

Simon Hill CEO and founder of innovation scale-up Wazoku

Issue 40 | 15

BANKING

The unforeseen consequences of cyber security and hybrid working during the pandemic: the impact for the banking sector The COVID-19 pandemic had many unforeseen consequences, not least its impact on cyber security and hybrid working. At first blush, these distinctly different issues would appear to have very little in common, but the pandemic served as a critical nexus for the banking sector as they overlapped with significant consequences. The reason is simple: financial services became a more accessible target for cyber criminals.

This happened because governments across the world mandated a series of lockdowns, requiring staff to make an immediate transition to fulltime remote working and leaving most offices entirely empty for sustained periods. To serve the online needs of their customers, who were now trapped at home, banks took the initiative, accelerating their digital transformation and enhancing their customer offering through more digital experiences.

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The sudden influx of diverse financial technologies and IT solution providers needed to achieve this encouraged hackers to seize the initiative. In presenting them with an opportunity to capitalise on increased technological vulnerabilities that affected financial services, disruption gave them the chance to strike. Cyber criminals increased their activity through carefully selected methods: stealing identities and funds, manipulating sensitive data, extorting money, and using ransomware to encrypt organisations’ data.

Although financial services companies have long been a hackers’ favourite, remote working presented an unprecedented opportunity that was notably beneficial for their criminal intent: an entire workforce that was much less protected from cyber risks in their own homes than in the ultra-secure environment of their offices.

BANKING

Such a dramatic shift in the pattern of working led staff to become completely fragmented, suddenly exposing financial services to a range of digital threats. In turn, this further underscored what steps needed to be taken in order to mitigate them.

Now that the worst of the pandemic is behind us, the shift in how and where we work seems to be permanent.

This leaves only a few sceptics and traditionalists questioning the idea that remote and hybrid working can deliver substantial benefits for employees and employers. In this new paradigm, the attendant risks continue to present a threat. For example, the use of co-working spaces can makes it easier for hackers to bypass security systems more easily.

Many commentators have pointed to the pandemic as a catalyst for change. This is particularly the case in the financial services sector which has accelerated digitalisation across a wide range of products and services. Arguably, the legacy of hybrid working is also helping to drive further acceleration. These developments are incredibly positive and the activities of hackers should not lead to any regression from the further proliferation of accessibile digital experiences.

In adapting to the new normal, banks therefore have to meet any potential risk of cyber crime head on. Despite having implemented practices to counter and minimise such risks, they need to be continually vigilant in their approach. In practice, this means deploying systems that are able to respond quickly and appropriately to multiple types of cyber attack when they happen and ensuring that a full recovery can then be achieved efficiently and effectively.

It is self-evident that prevention is invariably better than cure: severely limiting the possibility of a cyber attack being launched successfully by putting in place a range of robust measures and systems that can deliver the highest levels of protection. Key preventive measures should include: firewall protection and antivirus software, comprehensive data protection, and regular cyber security training for all members of staff to develop their awareness of risk.

effectively to the diverse threats that they face. Beyond recognising that preventive measures are essential in reducing the level of cyber threat, banks must also know precisely how they should respond and recover from a serious attack should it occur.

In their strategic response to such an event, strong disaster recovery and business continuity plans are critical.

In the same way that sufficient resources are allocated to innovation and digitalisation, they also need to be earmarked for cyber security and awareness training - both for their own staff and for third-party suppliers.

Success in banking has always been dependent on the careful and cautious management of money that is held on deposit. In moving towards a new world of financial services as it becomes fully digitalised, care and caution will need to be exercised on every step of that journey.

The continued roll out of digitalisation across the financial services sector is essential to its current operation and integral to its future success. This is welcome, of course, so long as the correct due diligence procedures are applied, executed, and monitored properly.

Banks continue to benefit from the rapid pace of technological advances, but so does the ingenuity of those who use these advances to launch cyber attacks against them. In the race to keep one step ahead of cyber criminals, banks have to innovate continuously in order to respond

Manoj Mistry Managing Director IBOS Association

Issue 40 | 17

BUSINESS

How are businesses handling the cost-of-living crisis?

It requires a considerable cache of optimism – and good fortune - to say the last few years have seen favourable conditions for businesses.

This is particularly true for those in the UK, guarding against the uncertainty of Brexit negotiations, then dealing with its reverberations after implementation, before heading directly into a global pandemic which shuttered most traditional avenues of retail, and strained global supply.

It is fair to say business leaders have needed to draw upon creativity and agility to address these problems while keeping their business afloat – let alone thriving. For a long stretch of recent history, business owners have been awaiting a return to ‘business as usual’.

Instead, with inflation on the rise, it can seem we have simply jumped out of the frying pan and into the fire.

The Bank of England’s Consumer Price Index (CPI) forecast stands at a starting 10.25% - while in turn interest rates have been hiked numerous times since December.

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All of which indicates unfavourable growth conditions – businesses will be hard-pressed to borrow to fund growth, while their operational costs will rise and consumer spending power diminish, meaning many will face a battle just to hold their ground.

Uncertainty is in the air – and for good reason. While we often view inflation and cost-of-living as an issue primarily affecting households, it is just as worthwhile to assess the impact it is having on businesses, as it is here that the seeds of rising consumer prices are sewn.

Business holding firm To take the temperature on business attitudes to rising inflation, One World Express commissioned an independent survey of 572 decision makers within UK businesses. The survey indicated that many were placing an emphasis on their longer-term survival, rather than chasing short-term profits.

While confidence is not soaring, there is a tangible sense of composure

as businesses build their response strategies to rising costs.

Of those surveyed, more than four in ten (43%) have made the decision to absorb the rising costs of manufacturing and supply, rather than passing them on to consumers. For as long as it remains unclear how long inflation will be abnormally high, this is a rational position: today’s market is hyper-competitive and bloated with the potential for a savvy business owner to undercut on price. Businesses will always, under these conditions, be reluctant to increase their prices, and hope that their competitors will budge first – opening the potential to attract vital new customers.

This is crucial given how the costof-living crisis is unfolding – most households are mostly feeling the strain due to rising costs of utility bills and fuel. While some costcutting is usually possible, for most there is a rigid level at which these services are necessities – after which the price elasticity of consumer and

BUSINESS

luxury goods spikes. As such, when consumers have less excess spending power, they are more likely to research alternatives when non-essential products increase in price.

This has borne out in the experiences of business managers so far – only 37% have observed a decline in demand for their goods so far this year. This underlines the importance of remaining competitive and looking to support customers through a difficult period.

Preparedness wins out More positively, however, businesses which have navigated the twin crises of Brexit and the pandemic throughout the previous few years have proven that they are more than capable of analysing and adapting their operations to ensure survival throughout such a challenging environment.

Half of business leaders had performed a thorough audit of their operations to identify and action cost-cutting operational adjustments, while almost half (47%) of business leaders said they had undertaken significant financial preparations well in advance of the National Insurance rate increase.

Naturally, the picture is not entirely positive; more than one quarter (28%) of managers are concerned their business will not survive the coming year, while close to half (44%) feel this year has already proven to be the most challenging they have faced – some statement considering the variety of challenges posed in the last five years.

For many businesses, the key to strong performance will be to strike a fine balance between growth and consolidation. Managers will be alert to the pressing need to retain their customers and develop loyalty; while efforts must be made where prudent to attract new consumers to the market and from competitors.

While the present conditions appear inopportune to significant financial gambles on growth, there is no reason businesses cannot explore international markets to help find this balance; modern logistics technology enables firms to keep their strategies agile to price fluctuations, and should help mitigate substantial risk exposure as businesses look to diversify to survive.

Atul Bhakta CEO One World Express Atul Bhakta is the CEO of One World Express, a position he has held for over 20 years. He also holds senior titles for other retail companies, underlining his vast experience and expertise in the world of eCommerce, trade and business management.

It is this hardiness which has created the conditions under which businesses are still engaging in growth-seeking behaviour despite unfavourable wider economic conditions, with almost four in ten (39%) saying they were considering expanding into new international markets this year, demonstrating a healthy but cautious risk appetite.

Issue 40 | 19

INVESTING

Why investors must not overlook emerging markets

Just over a month ago, the UK government announced it would enshrine in law ‘the world’s most ambitious climate change target’ to cut emissions by 78% by 2035 compared to 1990 levels. The Bonn Climate Change Conference, taking place from 6-16th June, will bring together a multitude of political leaders, non-state actors, activists and other stakeholders to prepare for COP27, where new commitments will undoubtedly be made.

As the EU, US and other developed economies take action to achieve carbon neutrality, it is easy to get caught up in the bells and whistles of these ambitious emissions reduction targets. Yet in the race to net-zero, we must not forget that the global energy transition will only be successful if it is carried out in a holistic manner, leaving no nation, or sector, behind.

This means that alongside developed countries, a transition in emerging and developing economies is essential.

Not only are emerging markets set to be disproportionately affected by rising global mean temperatures, but emissions from these economies are on track to grow by 5 billion tonnes over the next two decades.

Overlooking how developing economies are dealing with climate goals would therefore render much of the work to cut emissions elsewhere fruitless.

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Standard Chartered predicts that emerging markets will require nearly $95 trillion to transition to netzero. However, only 20% of global investment in clean energy is directed towards emerging and developing markets, despite these countries’ growing importance in the global fight against climate change. To put this in context, the world’s top 300 investment firms have only 2%, 3% and 5% of their investments in the Middle East, Africa and South America respectively.

This shortfall in investment exists for a number of reasons. First and foremost, emerging markets are associated with governance and macroeconomic concerns that have a significant impact on credit risk, and are not easily balanced out by a company’s environmental considerations, which traditionally have a low impact on credit scores.

The COVID-19 pandemic and resulting uncertainty compounded this problem, with clean energy investment in emerging and developing economies declining by 8 percent over the course of 2020. The issue has been exacerbated even further by the geopolitical turmoil caused by the war in Ukraine, which prompted investors to withdraw $9.3 billion from emerging markets in March.

Most ESG rating providers only cover larger enterprises, often with a focus on developed economies due to limited resources and problems with scalability, and this will intensify even further now in the current environment. But this is a massive black hole in information that puts the possibility of a holistic and inclusive energy transition at great risk. The lack of accessible data and ESG ratings for companies in developing economies greatly reduces the attractiveness of emerging market stocks to green investors, who simply don’t have the necessary information to take on the risk and volatility related to them.

The trouble with the current gap in financing is that while the green transition accelerates in developed economies, emerging markets will be left even further behind, being forced to rely on fossil fuels to generate revenue which will only harm the global economy in the long run. Moreover, developed countries are largely responsible for the climate crisis, and owe their help to those in the earlier stages of economic development.

In light of this, there must be a concerted effort to find ways to facilitate increased engagement from developed economies with the green economy of emerging ones. Climate

INVESTING

Action is, in fact, being addressed by 55% of companies in emerging markets, compared with 43% of companies in more advanced economies, according to a report by fintech All Street SEVVA. This challenges the commonly held assumption that companies in rich countries are leading the way in addressing ESG issues, and suggests that investment in emerging markets could see significant gains over the long term. Companies in emerging markets have the opportunity to grow into the green transition organically and are producing many of the technologies and innovations that are needed for net-zero.

At a high level, policy makers therefore need to accelerate the process of creating harmonised international ESG standards, which can be applied across both developed and developing economies, and accepted as a framework for assessing a company’s ESG credentials and progress. Innovators, in the form of fintechs, also have a major role to play.

Not only can they provide pathways for cash flows in markets that lack developed financial infrastructure, but can also help give investors access to the data they need to make informed investment decisions in emerging markets.

It is understandably much harder for investors to assess the ESG or non-financial risks associated with companies in emerging markets. Yet this sizeable information gap where emerging and developing markets are concerned must be addressed in order to clear the way for increased access to green finance for these companies and, ultimately, meet global net-zero goals.

Emanuela Vartolomei CEO and Founder of All Street SEVVA and creator of Sevva.ai

Issue 40 | 21

FINANCE

Paying in Latin America: where digital growth meets alternative payment methods With eCommerce’s hypergrowth and record smartphone adoption, Latin America is the next stop for merchants which successfully meet customer payment preferences.

Paysafe’s latest Lost in Transaction survey offers insights on how Latin Americans pay.

Latin American countries’ increased digitalization (260.2 million digital shoppers in 2022), support of instant payments (such as Pix in Brazil), and population keen to adopt APMs (63% had used a digital or mobile wallet, eCash, or crypto in the last month) has made this a market with huge potential.

In April 2022, Paysafe deep-dived into Latin America to better understand consumers’ payment habits through a survey that drew responses from 3,000 people across Brazil, Chile, and Peru. Here are the highlights around payments in the region.

Large unbanked population, preference for cash and the need for financial inclusion

eCommerce: Hypergrowth Latin America has seen the rise of eCommerce accelerated by the pandemic and subsequent lockdown measures. This has been accompanied by the increasing use of alternative payment methods (APMs), such as eCash, digital wallets, and bank transfers. In 2022, it’s been reported that eCommerce in the region is in hypergrowth mode.

With such momentum in the region, it’s an exciting time for consumers and merchants. Access to the internet and eCommerce through mobile phones – smartphone adoption reached 72% in 2020 and is forecast to be nearer 81% in 2025 – and different ways to pay are driving greater choice and inclusivity for consumers.

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In Latin America, there’s a general tendency towards an informal economy with a big unbanked population – 45% according to the World Bank – and a preference for cash over debit or credit cards. This is largely driven by the turbulent economic climate over the last decade, access to credit, an air of mistrust of the economic system, and high fees and interest rates of debit and credit cards.

In this environment, alternative payment options such as eCash are drivers of financial inclusion.

There are numerous benefits to the consumer: they avoid high fees, they conveniently pay in their neighbourhood merchants, no need to go through complex application processes, there are no credit checks, and they don’t have to share a load of sensitive information online. From pretty much every angle, it’s just a hotbed for cash-preferred customers.

The use of eCash in Latin America is on the rise. Results show that 20% of respondents use eCash more frequently than they did a year ago, with 17% saying they use it about the same amount compared to a year ago. Paysafe’s study – which also gathered responses from 8,000 consumers across the UK, US, Canada, Germany, Austria, Bulgaria, and Italy – highlighted more use of eCash in Latin America: 15% said they used eCash in the last month compared to 9% across Europe and North America.

Sharing data online is a concern Paysafe’s data shows that 45% of consumers said security is the most important factor when choosing how to pay for an online purchase.

Further, 66% don’t feel comfortable entering financial details online and 78% are more comfortable using a payment method that doesn’t require them to share their details with merchants.

Payments methods such as eCash give people access to eCommerce in a way that makes them feel secure, without having to enter their financial or personal details online. With greater awareness, combined with increasing smartphone adoption (81% by 2025, as mentioned above), eCash is likely to become a more everyday payment choice across the region.

FINANCE

Rising costs driving payments behaviours The cost of living has had a significant impact on Latin American consumers’ choice of payment method for online purchases, with 63% saying they’ve changed the way they use certain payment methods, compared to 36% in Europe and 39% in North America.

This seems to show a willingness to adapt payment habits to avoid high fees or interest rates: 63% are avoiding using pay-by-instalment plans and 58% are using their debit cards more often, while 45% are using direct bank transfers more regularly. The digital wallet has also seen fast adoption: 35% of consumers say they use them more often as a result of the rising cost of living. And 27% are using eCash more often for the same reason.

Crypto starts to gain traction in adoption, with 8% using it more frequently compared to a year ago.

When we look at the wider picture, this figure is almost identical to responses from the other regions surveyed, with 7% in Europe using crypto more than they did a year ago, and 9% in North America.

Based on consumers’ feedback, the adoption of APMs is on the rise – more so in Latin America than in other markets. This trend is expected to continue expanding especially among those consumers who rather pay with eCash as they become more aware of the solutions and how to use them.

Gustavo Ruiz Moya CEO of eCash for Latin America and Global Head of Open Banking Paysafe

Issue 40 | 23

COVER STORY

Interview with the CEO of Glue42, the Forerunner in Desktop Integration

As the winner of Global Banking & Finance Review’s award for Excellence in Innovation – Wealth Management Software Solutions North America in 2022, Glue42 continues to exploit new technologies and industry standards in pursuit of simplifying user journeys across desktop applications and improving business outcomes. The software services provider is based in London, New York and Sofia, and has developed a family of platforms that deliver integrated desktop experiences to financial institutions around the world.

Interestingly, he pointed out that the underlying tech for each of these platforms is the same.

“Indeed, the kernel of each shares the same source code. Every time we acquire new clients, we can see that the potential for Glue42 is significantly greater than we dared believe in 2012. As of now, we firmly believe that Glue42 and the ability to seamlessly integrate desktop applications is a first-class citizen of every desktop machine – and ultimately, we believe that Glue42 will become an integral part of the desktop operating systems and/or browsers.”

Wanda Rich, editor of Global Banking & Finance Review, recently met with CEO Leslie Spiro to find out more, and learned that the origins of Glue42 go back to 2012, when JP Morgan was looking to acquire a platform to help integrate the Wealth Management desktop application estate. “At that time, no vendors were able to offer integration between legacy and modern applications and as a result, we were engaged to build what would eventually become Glue42 Enterprise v1.0,” Leslie explained.

While there have been challenges along the way, the biggest one faced by Glue42 was not technical, but marketing related. “In the early days, we struggled to establish our position in the market, perhaps in part due to our relentless focus on product architecture and technology innovation. In hindsight, those early years were a mixed blessing. Sure, we could have acquired an even larger number of clients, but today we have easily the most scalable, robust and feature-rich platforms – and these plaudits are coming directly from our customers.”

As of 2022, Glue42 is currently three distinct integration platforms designed for specific scenarios, and Leslie talked Wanda through each one. “Glue42 Core is an open-source platform designed for simple web application integration. Glue42 Enterprise is the fullservice platform designed to integrate applications of any type. Glue42 Core+ sits between these two offerings and is the first commercially available, web-deployed, zeroinstall platform, and is designed for large to internet-scale deployments.”

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If Leslie were to sum up in a single word what differentiates Glue42 from its competitors, the word would be innovation. “We were the first to bring to market multi-machine interop, universal search, unified notifications, workspaces, user behaviour analytics, Citrix support and, of course, an open-source platform. Many of these features are still unique to Glue42, despite having been deployed in mission critical environments for years!”

COVER STORY

To understand the benefits available to the investment managers, financial institutions and traders that use Glue42, Leslie explained that we need to look at the problem that they are currently facing on their desktops. “They use a number of different applications to get their jobs done. However, none of these applications have been made to talk to each other, so these users end up being confined to the data and workflows within the walls of each application, and have to swivel-chair between them to access the information they need to make critical business decisions.

“This is where Glue42 helps. We stitch up and automate workflows across applications so that the data is delivered to the users at the point they need it,” he continued. “This is what we call Straight-Through Workflows™ - one of the key differentiators of the Glue42 approach. In the first instance, Glue42 eliminates the need for copying, pasting and rekeying the same data into different applications, removing the swivel-chair latency.”

Issue 40 | 25

COVER STORY

Leslie emphasised that the more impactful, more valuable benefit to the business is how this enables wealth managers, fund managers and traders to behave differently. “For wealth managers, having the relevant client information at their fingertips when a client calls, emails or chats enables better conversations and hyperpersonalised experiences. For traders, having the relevant pre-trade analytics embedded into their workflows at the point of executing an order enables them to make better execution decisions.

So, while there are many efficiency and operational gains using Glue42, the bigger prize for our clients is the high-value business gain.”

Even though business operations have undergone considerable change as a result of the current pandemic, organisations supported by Glue42 have mostly enjoyed minimal disruption. “In the early days of the pandemic, we helped organisations with their unplanned move to home working. One of the advantages of the workflow-based approach is that these constructs can easily deal with changes to the number of machines or monitors,” Leslie observed. “This helped give home workers a similar experience to what their office environment had previously offered. We then saw a renewed focus on web-based desktops as these are, by definition, a great deal more portable than environments in which applications are installed locally.

“Fortunately for us, the start of the pandemic coincided with the release of Glue42 Core,” he went on. “This platform was designed from the ground up to be web deployable and zero-install. Combine that with business applications that are also web-based, and you then have a truly portable work environment. At last, the reliance upon locally installed desktop interop ‘containers’ had gone – although our competitors still require their use to this day.”

When it comes to product development, Leslie didn’t hesitate to pinpoint the number one driver behind new ideas.

“Our clients! I’ve just been reviewing our latest product roadmap, and approximately half of the new features come from the field.

We love learning about new use cases, and we are fortunate to have clients across wealth management, asset management, investment banking, brokerage and retail. This gives us a fantastic understanding of the market need and how best to support our current and future clients.

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Following a busy couple of years, a number of new products and features are in the offing.

“We did a closed launch of Glue42 Core+ in Q1 and are set to hit the button on a public launch in June 2022. We are constantly releasing new features including Notification Groups, Workspace Controls, Web-Groups, Frameless Windows, Banner Windows and many, many more. Elsewhere, we have grown our Glue42 consulting division to help deal with the increasing pace of client onboarding for those organisations that don’t have their own IT teams.

Finally, everything is gearing up for a truly major multi-platform release in early ’23. This will be the most significant thing to happen to the desktop integration market and will help us achieve our vision of ‘Workflows Everywhere.’ More on this later!”

COVER STORY

Leslie Spiro CEO Glue42

Issue 40 | 27

BUSINESS

Financial and non-financial performance are now inseparable

The financial value of non-financial performance is debatable, but in the long term, one cannot exist without the other, explain Franck Bancel and Henri Philippe.

Over the past two decades, the pressure on companies in terms of non-financial performance (or ESG performance) has increased significantly. Several reasons explain this major development.

One is the regulatory framework, which has imposed new rules on companies in terms of non-financial reporting and has reinforced transparency obligations. Another is the financial community, especially large institutional investors, which considers that respecting the

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environment (E), taking on social responsibilities (S) and setting up effective governance mechanisms (G) are all essential to a company’s long-term development. Institutional investors are now sensitive to ESG criteria and analyse non-financial performance carefully before deciding to invest in a company.

However, although ESG performance may be a source of competitive advantage, it also generates additional costs for companies. These costs may be significant and may have a negative impact on company cash flows. This is why understanding the relationship and interactions between ESG performance and financial performance is critical.

For example, do investments that

improve ESG performance necessarily translate into higher profitability and/or higher stock market performance? How can we define the level of investment required to reach a “good” level of ESG performance? What does a good level of ESG performance mean? Investors also have to face similar issues.

Does investing in companies that perform well on non-financial criteria necessarily create value for investors?

Will this value be integrated in stock prices in the short term, or do investors have to wait a certain period to benefit from that value creation? Should we consider that companies with poor non-financial performance destroy financial value and that the only option for investors is to sell their shares in such companies?

BUSINESS

Researchers have tried to answer these questions and there is now a wealth of academic literature focusing on the relationship between financial and non-financial performance.

However, the answers are not always so clear-cut. Although the majority of academic studies show that companies that perform well in terms of non-financial criteria are more profitable, incremental profitability appears limited. In the same way, the majority of academic studies conclude that companies that perform well on non-financial criteria are valued more highly, but again, the results are not particularly significant. It also seems that companies with a better ESG rating are structurally less risky and have a lower cost of financing, but even this difference is narrow. In other words, the academic literature does not clearly conclude on the financial value of non-financial performance.

Researchers consider that additional work must be carried out to try to answer these questions. The fact is that researchers are struggling to resolve two major issues: the direction of causality and the measure of what non-financial performance is. It is not clear whether ESG performance improves financial performance or vice versa. The most profitable companies can more easily invest in ESG; perhaps, therefore, the direction of the relationship is reversed. The other difficulty is defining what constitutes a “good” company according to nonfinancial criteria. For example, nonfinancial rating agencies can attribute different ESG ratings to the same company because these agencies use different methodologies (they do not evaluate the same aspects of ESG performance). Beyond that, measuring the externalities that condition a company’s non-financial performance is a particularly complex exercise.

In light of all this, what would we say to a company that is hesitant to invest in order to improve its nonfinancial performance? Paradoxically, we do not think that our advice would relate directly to financial arguments. We would explain to this company that by not managing its non-financial performance, it risks being increasingly ostracised by financial investors, more broadly by its customers and even by the future employees that it hopes to recruit.

Furthermore, regulatory frameworks are set to be strengthened; it would be better to prepare for such a development, or even to help build it, rather than to suffer as a result of it. This means that non-financial performance will affect access to financing, for example, as well as the quality of recruitment and ultimately the company’s ability to be competitive. In this sense, financial and non-financial performance are intrinsically linked, and one will not exist without the other in the long term. This is a real paradigm shift for investors and companies alike.

In this context, the question for companies is no longer whether they should invest in ESG; the answer is positive. However, the question now is how to make progress in managing non-financial performance. This will require a better understanding of the level of investment and the organisational changes necessary to achieve this new objective.

Franck Bancel Franck Bancel is a Professor of Corporate Finance at ESCP Business School, where he was Associate Dean for Research and Director of the doctoral programme.

Henri Philippe Henri Philippe is a partner at Accuracy, a corporate finance consulting firm.

Issue 40 | 29

FINANCE

Remote working in a merging Finance and eCommerce world While hybrid and remote work will certainly remain the norm after the pandemic has finally subsided, enhanced security and privacy requirements in banking mean digital transformation should be top of the agenda, writes, Roy Zakka, CEO and Founder of Layer It goes without saying by now that remote work was a relatively minor practice before the pandemic forced large swathes of society to quickly and unexpectedly adapt. For financial institutions, this led to significant headaches, due to data protection and privacy laws being that much more strict in banking. More than two years one, how have British banks dealt with this huge change and more importantly, where are they struggling?

First, let’s look at what the workers are saying. More than 85% of UK finance workers no longer view the office as their main place of work, highlighting the challenge that the industry faces as it tries to persuade bank employees to return to the office.

The UK’s Financial Conduct Authority (FCA) has set out what it expects regulated firms to consider if staff are continuing to work remote or hybrid in the wake of the pandemic.

They will need sufficient systems and controls to support remote working, be able to meet regulatory demands for the activity it is doing, and must also consider the impact on staff and their well-being.

So now that we know the workers don’t want to go back to the office, but regulation says they do. What can new technology do to solve this problem?

This is where new financial technology platforms come into play.

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They can provide banks with a secure way for employees to connect to their work network via any device. This is important as it means staff can remain productive no matter where they are, without having to worry about potential security breaches.

What’s more, by using this new technology, banks can also track employee activity, meaning they can be sure staff are adhering to best practices even when working remotely.

These platforms are already ISO certified and allow bank employees to work from anywhere on any device in a safe and secure environment.

So, there is no reason for any bank not to allow its staff to work from home, even permanently if they so choose.

Work flexibility will only grow in the coming years as 5G networks are rolled out and more powerful mobile devices become ubiquitous. So, if you work in banking, now is the time to start pushing for a more flexible working arrangement – it’s good for you, good for the environment, and good for the bottom line.

Additional digital infrastructures With the technology now available for banks to serve their customers from anywhere, it becomes necessary for bank employees to have the right tools and devices available to serve them to the highest level. With these technology platforms, bank employees can use their smartphones, a tablet, a laptop, or even a desktop computer. The banking systems are all responsive to any screen size so that employees can access them and serve them even when they are on the move.

Giving bank employees access to the right tools and devices enables them to serve their customers to the highest level.

Speed in innovation - time to turn digital The speed at which banks can turn digital varies greatly depending on the size of the bank, its IT infrastructure, and the number of employees.

The COVID-19 pandemic had a significant impact on the digital transformation, creating a direct need for banks to communicate with their customers through digital channels, such as platforms and apps, while social distancing was the norm.

The number of digital users has increased by 23% since the start of the pandemic.

Digital transformation is top of the list for most banks. Changing employee demands, changing user behaviour, together with a need to reduce costs and increase efficiency are leaving banks with no option but to turn to modern technology.

Gone are the days of a five-year core banking migration project that had a 66% success rate. The new platforms at banks' disposal are far superior, and can turn a bank digital in a matter of months. This results in a more efficient business for the bank and better user experiences for the banking customers.

The pros and cons of technology taking over the banking sector For all the positives that come with new technology, old customs and ways of life get left behind.

FINANCE

Years ago we used to have a personal relationship with our bank manager. We could meet them for a cup of coffee or a beer and discuss our financial plans and get genuine personal service. Those days are sadly disappearing, especially as smaller banks, credit unions, and lending institutions are being swallowed up by the bigger banks.

However, what we do get with technology is efficiency, simplicity, and experiences that are matched to our behaviours and desires.

If you take Artificial Intelligence and Machine Learning models, for example, we now have access to an unlimited number of data points that we can deliver the right message and the right time to the right customer without any human interaction. It is all done automatically, and it is all self-learning. The more data the platform has access to, the better it performs.

The evolution of the mobile banking industry in recent years If it’s not on your phone then does it exist? For something as important as your money, you want access to it at all times. How much do I have? How little do I have? How much do I owe?

These are the basic needs of money management. From there, the opportunities are endless. What started as a way to check your account balance has now become a onestop-shop for all your financial needs.

Where is it all going?

Embedded finance is becoming more and more popular as a way to streamline financial operations. By embedding financial functionality into other applications, businesses can save time and money while improving their bottom line.

Embedded finance can also improve customer satisfaction by providing a more seamless experience. Finally, embedded finance can help businesses tap into new markets and reach new customers.

Roy Zakka CEO and Founder of Layer

We will see over the coming years that every brand and every business will be offering financial services.

It will be so simple and seamless that one will barely even notice that it’s there, until you need it. This is where these new platforms are playing now. At the intersection of Finance and Commerce.

Money is an essential fabric of society. It is the language of value exchange. Without it, society suffers. The financial world as we know is changing fast, and technology is making this happen faster than ever before.

Issue 40 | 31

TECHNOLOGY

How low-code automation is transforming the banking industry Operating with more intelligence and automation will be the key to securing the future of the financial services sector. There’s much optimism around how automation will change the industry and how modern consumers do banking. Not only will we be able to do existing tasks more efficiently, but the most exciting element will be the way automation will completely change services.

With little to differentiate banks when it comes to basic current account functions, companies need to offer more to their customers. This is especially important with the threat to traditional high street banks from the newer, more agile app-based challenger banks and other fintech competitors. Incumbents may be laboured with legacy systems, but they do have the experience and data about their customers’ preferences that they can use to their advantage.

Companies need new products, new approaches and new ideas to attract and retain customers. They also need to deliver them quickly and be able to change them to meet changing business and regulatory needs, if they are to remain competitive. This leads to automation – it is viewed as one of the most important technologies during the next 12 months by 31% of financial services executives.

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However, innovation cannot come at the expense of security. A report by the Economist Intelligence Unit with Appian found that cybersecurity will be a top focus for automation. Four in 10 (43%) named it as a top-three area of significance. This was followed by innovation and R&D (35%), and customer-facing processes (34%).

business directors. In addition, FS leaders face other considerations when looking at improving their services, from the budget, resources, skills shortages, and regulatory pressures, to delivering business results.

Cybersecurity remains a top concern in the UK because criminals stole a total of £753.9 million through fraud in the first half of 2021 alone. That’s an increase of 30% compared with the same period in the year before.

It’s a major problem that is growing in severity. Security systems need to become smarter by using AI and automation to spot and flag nuances in patterns of behaviour.

Low-code is emerging as a way to help firms innovate with pace without the heavy lift and lengthy timescales associated with traditional software development.

With low-code, visual design tools are used to specify aspects of software behaviour without resorting to coding. The technology then generates executable code from these visual designs.

Unsurprisingly, low-code was a shining light in the pandemic when firms had to roll out new applications quickly to help workers and customers adapt while working and living in lockdown. Looking ahead, it now has a purpose in enabling FS firms to accelerate their delivery of emerging technologies.

The less time spent on the technical side of developing the code, the more time spent using, creating and improving the solution.

Looking at the other top focus areas for automation – innovation and customer-facing processes – we’re only just scratching the surface of what’s possible, but there are issues to address. Although a third of execs see the importance of automation, there’s a disparity between IT decision-makers and business leaders with regards to how much improvement is needed.

IT leaders are more likely to call for a faster improvement to technology systems and processes than

Innovating with speed

TECHNOLOGY

Low-code improves collaboration across departments because business decision-makers can see and contribute to the software being developed in real-time. This makes projects something they can be fully invested in and help shape from the outset, rather than handing everything over to IT teams and not seeing the output until it’s already completed.

There’s a faster time to value and a reduced reliance on specialist coding skills. Low-code and automation free up the software development team from mundane, time-consuming tasks, leaving them able to deliver missioncritical programmes and modernise technology infrastructure.

Creating real differentiators With low-code making software development easy and accessible, we’re able to think ambitiously about the future of the financial services sector. With financial services being such a dataintensive industry, there’s a huge amount of information to process, understand and act upon. The industry would benefit from increasing its use of Intelligent Document Processing with more reliance on AI for handling complex customer documents, transactions and interactions.

That includes conducting due diligence when onboarding new customers, running credit analysis reports, processing lending applications, and deciphering tax forms.

In commercial banking, we are seeing a shift in how content recognition can accelerate processing times for onboarding, KYC, credit decisioning, invoicing and more. We will also see the use of low-code software to speed up their delivery of Robotic Process Automation (RPA) for fast, error-free data updates to external legacy systems.

This is an exciting time for the FS industry where it can finally begin to shake off its reputation as being slow to adapt to new technologies. Yes, customers are more expectant than ever in terms of ease of access via mobile banking apps and security, as they expect banks to proactively detect and prevent fraud, reducing their risk exposure. But banks can use low-code to not only become a more secure organisation, but also a more innovative one. They will be able to move faster and stay ahead of the competition by creating genuinely unique solutions that will increase loyalty and ultimately the bottom line.

Guy Mettrick Global Industry Lead Financial Services Appian

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TECHNOLOGY

Doubling Down on Digital Differentiation

The financial services landscape grows increasingly crowded as fintechs, neobanks and even major tech companies and retailers vie for relevance and market share. To keep up, banks and credit unions must evolve; the longtime approach of relying on a branch-centric strategy simply won’t cut it for the next generation of account holders. It’s time to focus on digital differentiation and customization, delivering the transformational products, services and experiences that draw customers in and perpetuate loyalty.

Heeding design best practices Today, institutions are continuing to make errors when it comes to front end design and development.

While there are many scenarios in which off the shelf technology makes sense, such as for internal, backend processes, the customer-facing experience should be customized based on the institution’s core competencies. When an institution leverages off the shelf technology that closely resembles the same experience offered by the bank down the street, they’re emulating a brand

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of sameness, which fails to spark loyalty and evangelism.

There are several best practices to follow when designing a digital experience to accentuate differentiators and stand out. The first is to break the cycle of leading with system-centric, rather than human-centric, design.

Over the past several decades, the banking industry has centered its designs around systems heavily based on paper, like records. The result is a clunky, slow and often confusing experience for users. There is an exciting trend of banks breaking away from this approach, instead leading with experiences designed with humans in mind. Banks should keep an ear out for the phrase ‘we’ve always done it this way’ – this can be a lightening rod moment to embrace innovation and reimagine the experience.

The next best practice is to embrace user research, instead of simply making decisions based on intuition.

Effective designs consider how users will interact with the system, as well as which features and functions will be used most frequently.

However, leaning into user research

requires a philosophical shift. Many are apprehensive of interviewing customers and initiating a discussion because they are afraid that it will bring frustrations to the forefront and the user will abandon.

However, we’ve actually found that engaging in user-centric research actually does the opposite and actually creates loyalty instead.

Finally, keep in mind that design problems aren't limited to new products. As a business grows, it's common for information architecture, or how new content and features are introduced and managed, to fall by the wayside. When new features are added hastily, the result is clumsy navigation with too many tabs and extensive menus. Rather than cramming all user pathways into a single navigation menu, think about how time-saving features or important information may be displayed in the context of use, at the point of need, and without taking the user's attention away from the work at hand. If done right it, this can significantly increase digital engagement and uncover opportunities for new product and service innovations.

TECHNOLOGY

Identifying and solving unmet needs Perhaps the most important consideration is what need the product or service is solving for. If the purpose behind the design isn’t clear and relevant, the best UX in the world won’t make a difference. Banks and credit unions must focus on meeting the unmet needs of niche groups across their customer base.

As a first step, institutions must fully grasp who their customers are and where the gaps lie. This doesn’t mean categorizing customers based on generic characteristics such as Millennials, urban dwellers and mass affluent. Instead, this means creating niche groups based on unmet needs.

That’s easier said than done. How can these unmet needs be identified? A combination of mining many existing data sources (such as delivery channels, payment and core systems) and identifying previously untapped data sources as well, such as payroll, assets or even health insurance.

Fintechs can often be a strong partner to help with data collection, organization and analysis.

Once the data has been examined, niche groups can be formed depending on where traditional financial services fall short and what unique needs are left unfulfilled. Perhaps this looks like customers that value sustainability as a core principle or young adults that have fallen into a habit of leveraging BNPL. Such narrow segmentation and a deep understanding on unique needs empowers institutions to deliver greater value to those customers, presenting meaningful, relevant, empathetic products or services to support these customers’ lifestyles and beliefs.

By prioritizing the identification of niche groups based on unmet needs and then leveraging strong design practices to create transformation products and services, banks and credit unions will be able to increase digital adoption and engagement, fostering lasting loyalty. In an environment fraught with disruptors and rising customer expectations, it’s one of the best practices to retain relevance and market share.

Tim Hamilton CEO & founder Praxent

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INVESTING

Conquering outdated cultures in investment banking There are three things that immediately spring to mind when we think about investment banking: long hours, challenging workloads and high salaries. But this merely scratches the surface of what’s going on under the metaphorical hood of the industry.

In such a busy and resource heavy sector, investment bankers are inundated within spreadsheets, presentations, and pitchbooks, all having to be meticulously produced, going through multiple rounds of reviews before being sent off to other departments and clients.

Naturally, the responsibility of making manual changes to these documents falls onto the shoulders of junior employees, with senior staff sometimes requesting edits late at night with a deadline of the next morning.

This is a heavily ingrained culture, so it’s going to be a significant challenge to introduce a shift in the sector.

But before any genuine change can happen, we first need to understand three of the main barriers that would need to be overcome.

1. High expectations Like all industries, there is a pressure on junior staff to go above and beyond their usual responsibilities.

From both a personal growth and promotion standpoint, this is common practice for all ambitious workers. And Investment Banking is no different.

Junior bankers can be expected to be on-hand, even later in the evening, to handle urgent client requests that come in. Often there will be tight deadlines attached to such requests with the expectation that these are

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met. Ultimately this means a late night for the junior banker looking after the request. An example of such a request could involve adjusting assumptions in a model and then updating the relevant data points throughout the corresponding pitchbook; an uncomplicated but arduous task for junior bankers whose time could be better spent on tasks that generate more value for the bank’s clients.

Quite often, various senior figures will also have different preferences on how pitchbooks and reports should be formatted and styled. One individual may want their tombstone titles in bold, but another may prefer them to be underlined. This means junior bankers will need to manually alter each report, model, and pitchbook to fit the style of each banker – and again, such requests could come late in the day.

2. The rite of passage In some cases, there is also the feeling that it is okay for junior bankers to work late nights and complete manual tasks because this was something more experienced senior bankers had to go through too. If there is a view that these more time-consuming and manual tasks are necessary for junior bankers’ progression, it’s understandable that there could be a reluctance to look for solutions that would make junior bankers’ lives easier.

There is of course great value in junior staff understanding processes on a granular level, which is why the solution cannot be to solely introduce new, innovative tools to replace the manual work – it needs to be accompanied by a more general shift in culture across the

bank. Technology will undoubtedly play a crucial role however, as it can facilitate this cultural shift, as well as provide immediate relief for overwhelmed colleagues.

3. Live to work Finally, there exists a certain pressure for work responsibilities to be prioritised over other areas of life.

This in turn can make it harder to maintain a healthy work-life balance.

For example, there can be occasions where a senior banker may ask a junior banker to complete a client request over the weekend, despite other personal plans they may already have. Last minute jobs for clients are part and parcel for most industries, but there should of course be some consideration for staff resources, and client expectations can be managed more realistically. Again, wherever new tools are able to help in this regard can only be considered a positive and necessary step.

Changing the culture Change, however, is coming to the industry, with retention, productivity, and employee wellbeing increasingly becoming front of mind for leadership.

The addition of extensive media coverage on banker burnout last year further intensified the interest and resolve to enact real change, with committees now being introduced to give analysts more influence.

But there’s still a way to go and shifting the culture of an entire industry is a lengthy task. However, in the meantime, many junior bankers are still expected to meet these same expectations in highpressured work environments.

INVESTING

Evidently, technology, and specifically automation, will play a crucial role in triggering immediate improvements.

Tools that reduce the number of manual tasks will not only allow employees to focus on valueadded responsibilities, but will also streamline processes, and remove the risk of human error, which, when staff need to make last-minute adjustments late at night after an intensive 15-hour day, is fairly high.

At the end of the day, everyone must start somewhere, but it doesn’t need to be the same starting point as it was for those who joined the industry 30 years ago. Times change, technology evolves. Ultimately, the question the industry must ask itself is: ‘why spend hours completing manual tasks – restricting staff productivity levels – if there’s a viable alternative?’

Theo Williams Managing Director UpSlide

Issue 40 | 37

TECHNOLOGY

The Scamdemic: How digital identity could help combat the rise in social media scams

From the eponymous Tindler Swindler – a Netflix true crime documentary covering the stories of victims of a dating app-based swindler – to the notorious Anna Delvey – who posed as a wealthy German heiress while living in New York - the media has exploded recently with stories of cunning individuals who have weaponised false identities to attain large sums of money, power and influence. Arguably, these seemingly outlandish stories fascinate us less because they seem too exceptional to be true, but more because they run strikingly parallel to our own reality, re-enacting on a much larger scale a threat that has increasingly been playing out in our lives.

According to UK Finance, the prevalence of scams beginning on social media increased significantly in 2021, with social media becoming the most profitable way for scammers to operate. The US has witnessed a similar social media scamdemic too. Data collected by the Federal Trade Commission shows that more than 25% of people who reported losing money to fraud in 2021, said it started on social media with an ad, a post or a message.

All of this comes at a time when the internet has become opaque and more difficult to navigate than ever. Users are continually forced to assess whether a piece of news is fake or real, whether an image has been Photoshopped or filtered - or even a “deepfake”. In an era where social media has normalised

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unreality, it has become increasingly challenging to validate who or what we are interacting with online. What these stories bring into focus, then, is the extent to which there’s a lack of fundamental infrastructure needed to ensure transparency and trust. Self-sovereign Identity (SSI) technology could prove key to solving this issue, serving as a key building block that could help re-instil a level of certainty and security to our interactions online. SSI is a method of identity that centres the control of information around the user. It safeguards privacy by removing the need to store personal information entirely on a central database and gives individuals greater control over what information they share.

At cheqd we experienced first-hand the need for such infrastructure when attempting to partner with YouTubers last year. In order to verify that the people who approached us were in fact the Youtube stars they claimed to be, the Youtuber updated their page biography with the words ‘XXX’ to prove the ownership of the page. While a seemingly logical way to verify their identity, this method nonetheless possessed a set of problems of its own. What if this person had simply hacked the real Youtuber’s page? What if they were not who they claimed to be? Moving forward with this interaction would require us to invest a large amount of trust—potentially misplaced trust that could have disastrous consequences.

This experience is testament of the value of Self-sovereign Identity technology, which could help dispel some of the uncertainty clouding our interactions online. Instead of data being administered and owned by third-party institutions, individuals would instead be able to create a single digital profile that they can share with other parties as and when they choose. This has two benefits.

Firstly, the widespread adoption of digital identities could help prevent instances of ‘catfishing’ or scamming by granting social media platforms a quick and efficient method of verifying that you are who you say you are.

Secondly, this process of verification can be done in a decentralised manner without other people or platforms needed to see or retain control of your data. Other parties can simply see that you are ‘verified’, preventing the creation of centralised data siloes that

TECHNOLOGY

could potentially prove ripe ground for hackers. Instead of online encounters being underwritten by a precarious sense of trust, SSI would instead enable interactions that are trustless by design, meaning that individuals or platforms would no longer need to know or view all the personal details of who they are dealing with— passport, license, bank statement— to know they are safe to engage with.

Dating apps such as Tinder and banking services like Revolut have attempted to address security concerns by implementing a selfie facility to prove your identity. But this process nonetheless remains time-consuming and inefficient for the individual, who must upload their details over and over again for each new organisation or platform. This process can also be costly for the organisations paying for verification services. Instead of having to submit multiple applications, SSI would allow you to house all of your credentials

in a single digital identity wallet that you can share securely with third parties as and when you choose. This would in turn make the verification process simpler and more efficient, removing the need to fill out multiple different applications for each separate platform.

The evolution of the internet is fast outpacing security, transparency, and privacy. As Web 2.0 develops into Web 3.0 and individuals begin to spend more of their lives online, it will be of paramount importance to introduce infrastructure that can ensure the same degree of clarity and safety that we enjoy in our everyday encounters, while still remaining streamlined and efficient. By enabling the creation of trustless transactions, SSI could remedy some of the internet’s vulnerabilities as well as help prevent those who wish to exploit them, resulting in the creation of a more secure online experience for all.

Ankur Banerjee CTO and co-founder of cheqd – a market-leading solution enabling individuals and organisations to take control of their data.

Issue 40 | 39

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2022

FINANCE

Global AML Trends 2022: Where do we stand?

Anti-money laundering (AML) regulations and enforcement globally have never been stricter. Corporations face an ever-expanding list of obligations and expectations from regulators as the world adapts to the threats of post-pandemic working practices, cryptocurrencies and virtual assets and political uncertainty. As we stand at the mid-point of 2022, we are in a good position to assess global AML trends this year, where we thought we might be, and where we actually are.

Increased regulation across the globe 2021 saw a number of countries address AML risks with more stringent regulations:

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• China expanded its AML/counterterrorist financing (CTF) legislation, growing the list of organisations subject to the legislative requirements to include various additional financial institutions, widening the definitions of money laundering activities, enhancing supervisory powers by the People’s Bank of China and increasing fines.

• Hong Kong's Securities and Futures Commission (SFC) introduced new guidelines to tackle money laundering in the changing landscape of the way banking and finance transactions are carried out.

• The European Commission proposed a major AML regime reform, setting out a plan for a European AML Authority alongside an ambitious AML package to strengthen the EU’s AML/CTF regime. This came after the introduction of the EU's 6th Anti Money Laundering Directive which came into effect in December 2020.

• The US enacted the Anti-Money Laundering Act of 2020 (AMLA), a substantial package of legislative reforms to US AML/CTF laws. Amongst other things, the AMLA expands subpoena powers and increases whistle-blower incentives with the aim of creating transparency in financial markets to address potential money laundering.

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As anticipated, this trend has continued into 2022. Regulators across the globe continue to step up their regimes, increasing corporates' obligations when it comes to AML policies, procedures, oversight and monitoring as well as improving authorities' enforcement powers and focusing on corporate transparency.

In the UK, in response to the crisis in the Ukraine, the Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent on 15 March 2022, just a fortnight after the draft bill was first tabled. While the Act enhances existing sanctions regulations, it also introduced a new register of overseas owners of UK property and includes provisions to strengthen the system of unexplained wealth orders. A second economic crime bill is expected to be introduced swiftly, likely later this year, which amongst other things will introduce measures to provide businesses with more confidence to share information on suspected money laundering and is likely to be a substantial piece of legislation.

A bipartisan group in the US Congress is working to pass a piece of legislation called the Establishing New Authorities for Business Laundering and Enabling Risks to Security Act which, if passed, would extend existing AML requirements to various other actors in financial transactions including lawyers, accountants, art dealers, and thirdparty payment providers.

In New Zealand, the government has announced plans to introduce legislation by the end of 2022 for a public beneficial ownership register that would allow domestic businesses to know who they are transacting with.

Enforcement trends: a changing tide?

Systems and controls failings

Commentators and the industry in general anticipated increased AML enforcement globally in 2022.

2021 saw a sweep of similar enforcement actions across the globe relating to the failure to prevent money laundering and inadequate AML systems and controls. Interestingly, a number of these cases were criminal rather than regulatory or civil.

Interestingly, and with the benefit of hindsight over 2021, Kroll's Global Enforcement Review indicates that there has in fact been a decrease in fines issued to financial services firms for AML failings, with the global total falling from $2.2bn in 2020 to a new low of $1.6bn in 2021, just half of the $3.3bn seen in 2018. It appears that instead, regulators are focussing on imposing AML-related fines on crypto-businesses. This decline can be seen continuing into 2022. In the UK, for example, the Financial Conduct Authority (FCA) has so far in 2022 made only one enforcement action relating to AML failings by a financial institution, which related to inadequate oversight in relation to one client rather than any broader issues.

It may be the case that, given the large number of major banks and financial institutions that have been sanctioned for AML failing in recent years, regulators are confident in the resulting implementation of robust systems and controls at most of the world's key financial institutions and so are turning their attention to the less regulated and more challenging area of crypto.

The decline in enforcement against financial services firms could also be a symptom of the effects of Covid-19 which created a large backlog of cases for investigation at regulators around the world. If this is the case, 2022 may see a boom in enforcement actions as authorities push through more cases and catch up with the workload accumulated during the pandemic.

• In the UK, the FCA gained its first criminal conviction of a UK bank for failing to prevent money laundering offences under the UK’s Money Laundering Regulations 2007, imposing a fine of £264.8m on NatWest. The financial regulator also published its "Dear CEO" letter which warned retail banks about the perils of any failings in their AML systems and controls, and identified in a major review that challenger banks need to improve how they assess financial crime risk, with some failing to adequately check their customers’ income and occupation and others lacking any financial crime risk assessments for their customers at all.

• Authorities in Hong Kong took action against two licensed firms over AML-related systems and controls failings, with the SFC imposing fines of HK$8m and HK$3.6m respectively.

The Hong Kong Monetary Authority (HKMA) took its first enforcement action against an online payment service provider for failure to fulfil the minimum criteria relating to AML/ CTF measures as required by Hong Kong AML regulations, resulting in a fine of HK$1m. The HKMA also took disciplinary actions against four banks over similar failures, imposing fines totalling HK$44.2m.

• Swiss authorities in December 2021 handed down the first criminal conviction against a bank for failing to maintain effective internal controls and compliance systems.

Issue 40 | 43

FINANCE

• Elsewhere in Europe, the Dutch bank ABN Amro reached a settlement with prosecutors to pay €480m for serious shortcomings in combatting money laundering.

• The US also brought its first criminal charge under the Bank Secrecy Act (BSA) against a broker-dealer, Central States Capital Markets, LLC, due to the company’s wilful failure to file a suspicious activity report.

The Financial Crimes Enforcement Network (FinCEN) enforced a notable penalty of $390m against a US bank for failing to report millions of suspicious transactions, which although not a criminal penalty, is interesting for its focus on the systems and controls failings which allowed the wrongdoing to happen and the size of the fine.

Moving into 2022, this trend towards enforcement for systems and controls failings has continued. In February 2022, Swiss prosecutors announced criminal charges against Credit Suisse for failings which allowed an alleged Bulgarian drug trafficking gang to launder millions of euros through its accounts. FinCEN announced in March 2022 a £140m civil penalty against a Fortune 500 financial services company which admitted that it wilfully failed to implement and maintain an AML programme that met the minimum requirements of the BSA. Similarly, the Australian Transactions and Reports Analysis Centre brought action in March 2022 against Australia's largest casino operator Crown Resorts for alleged systemic breaches of AML/CFT laws. We can expect this to remain a focus for authorities going into the second half of the year and onwards into 2023.

Crypto-focus The focus of regulators and companies alike in 2022 has been, as expected, on managing the risks associated with cryptocurrencies and virtual assets.

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In October last year, the US Department of Justice (DOJ) published its Cryptocurrency Enforcement Framework and announced the creation of a National Cryptocurrency Enforcement Team dedicated to investigating and prosecuting cryptocurrency cases.

Moving into 2022, President Biden has shown his administration’s desire to establish a comprehensive federal approach to crypto-policy and regulation in an Executive Order on 9 March 2022. Recent US enforcement action reflects this: on 24 March 2022, the DOJ charged two individuals with conspiracy to commit wire fraud and conspiracy to commit money laundering in connection with a million-dollar NFT fraud. On 8 February 2022, the DOJ announced a landmark seizure of 94,000 Bitcoin valued at over $3.6 billion, their largest seizure of cryptocurrency ever and the largest single financial seizure in their history. Two individuals were arrested and charged with conspiracy to commit money laundering and conspiracy to defraud the US. On an international level, in late October 2021 the Financial Action Task Force (FATF) published updated guidance on AML requirements for virtual assets and virtual asset service providers (VASPs), which clarifies important questions for the industry in evolving areas, such as stablecoins, peer to peer transactions, non-fungible tokens and decentralised finance.

Over the past six months of 2022, we have seen many countries update their AML regulations in line with FATF guidance to address cryptorisks. For example, from 1 July 2022 the "travel rule" will commence in the Cayman Islands in relation to VASPs, which requires that they report to the regulator with any identifying information from the originators and beneficiaries of domestic and crossborder wire transfers over a certain value in order to create a suitable AML/CFT audit trail. Several other

countries have introduced the same requirement, recommended by FATF, and will continue to do so throughout 2022. FATF has confirmed that this rule should also apply to crypto-asset exchange providers and custodian wallet providers.

A post-Covid world Individuals and companies alike are still adjusting to hybrid working. Many employees continue to work from home, and this is unlikely to change as the workforce appreciates the benefits of agile working.

AML policies and procedures need to reflect this new working model.

Companies should ask themselves practical questions to find out where changes need to be made. How can we implement a suitable tone from the top when employees are not in the office to absorb the culture? How can we appropriately monitor and oversee our employees' work to ensure compliance with our policies and procedures? Is virtual training as effective as in-person training? What should our policies and procedures be in relation to the use of personal device and the corresponding use of apps like WeChat and WhatsApp? Banks and financial institutions in particular must be aware of their role in combatting money laundering in this new working landscape and bolster their policies and procedures accordingly. Now two and half years since the beginning of the pandemic, regulators will expect firms to have updated their approach to AML and already be implementing updated policies. They are unlikely now to accept the difficulties caused by this new working environment as an excuse for any failings.

We have yet to see any enforcement actions in 2022 based on issues resulting from changing working practices. However, in the coming months and years we can expect to see this being a key reason for fines

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and other penalties. Companies should pay close attention to the decisions made and reasoning given by regulators in these cases and learn from any mistakes highlighted.

Where next?

The world of AML has largely followed its expected path so far in 2022. Companies, and in particular banks and financial institutions, should continue to pay close attention to the ever-changing regulatory landscape and monitor the outcomes of enforcement actions. Crypto-assets continue to be a source of concern for authorities, entities and individuals alike, and will only pose larger and more complicated risks as their popularity rises. As we try to manage in a post-Covid world, corporations must continue to devote sizeable resources to their AML programmes in order to face these new threats and meet the expectations of authorities across the globe.

Fran Garvey Solicitor, Business Crime Howard Kennedy LLP

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BUSINESS

Summer parties: hosting the perfect team bonding day Summer is well and truly on the horizon meaning summer social season is upon us. For many businesses, it’s the first time they’re able to host a workplace party without social restrictions – especially after a lot of Christmas parties were cancelled last year!

As well as bringing employees together to bond and socialise with each other, hosting a workplace summer party is a perfect way to reward your employees for all their hard work over the past year.

A little thank you gesture goes along way, especially in a time where more people than ever are prepared to leave their job if it’s making them unhappy given job vacancies have now outnumbered unemployment figures.

So, what are the benefits of hosting a summer party and what makes it a memorable one?

Many business leaders also understand the importance of using summer socials to bring a dispersed workforce together. In the new world of work, many companies have adopted a hybrid way of working.

Gone are the days of five days a week in the office, meaning employees get less face time with their colleagues.

Hosting a fun, in person, social event, that all employees are encouraged to attend, is a great way to bring teams together, foster a better team dynamic and keep morale up – especially in such challenging times.

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Either way, employees will feel rewarded and connected to their employer but there still are some considerations for business leaders to make sure their summer social is one their employees remember.

Top tips to hosting a summer social

But ultimately, the main benefit of hosting a summer party is to reward employees for their hard work and to celebrate their participation in the company. Employees that feel valued are likely to be happier which will only play in their employer’s favour.

The intimate affair VS the big summer party

The benefits of hosting a summer party One of the main benefits of hosting a summer social event for employees is it engages employees in their company’s culture. If employees are more engaged in their work’s culture, then they’re less likely to change jobs as they have more to consider.

for teams that are dispersed all over the country or even worldwide, but can also be costly and take a lot of organisation. Alternatively, smaller more intimate team socials or away days may be a more viable option for some businesses.

It’s clear summer socials have many benefits, but it’s important to consider what type of social to host.

Some business leaders opt for large, company-wide parties and bring the entire business, regardless of where each employee is based, to one location. This is a great option

Firstly, employers should remember that if it’s a company wide social, all employees should be invited, even the ones on maternity leave and those on leave for other reasons. You also shouldn’t shy away from asking for feedback, getting employees to contribute suggestions is a great way to foster an inclusive company culture that all employees feel a part of.

It’s also worth considering partnering with a third party for smaller team bonding days or summer socials. You can lean on their expertise and try something new and different – a great way to engage your employees.

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Another key factor employers need to think about when planning a summer social is the venue – finding the right one in the right location is crucial. A venue that has both indoor and outdoor space should be a consideration, especially in the summer months when days tend to be warmer, and people are keen to make the most of the sunshine.

The venue should also be in a convenient, well-connected location to ensure everyone’s able to travel home safely and at a reasonable price. If this is not possible, consider offering employees taxi allowances at the end of the night to ensure everyone’s able to travel home.

Employers should also make sure there’s enough food and drinks, including soft drinks for inclusivity, at their summer social event. It will ensure guests feel well looked after and catered for, but also ensure

employees are able to conduct themselves in a ‘semi-professional’ manner and not get too intoxicated.

Finally, all these factors will be determined by how much budget you are prepared to allocate towards a summer social. The key component to any good social event is ensuring there’s enough food, good entertainment, and a variety of drink options. Business leaders should prioritise these components and be prepared to adjust the venue or entertainment options if they’re finding their budget isn’t stretching.

There are lots of benefit to hosting a summer social and business leaders should look to embrace them and recognise the importance of rewarding and celebrating your employees. Not only do socials bring teams together, but they also help to engage employees in a company’s culture which is crucial in today’s world of work.

Danni Rush Chief Operating Officer at Virgin Experience Days and Virgin Incentives and Virgin Experience Gifts

Issue 40 | 47

INVESTING

What’s needed for ESG investing to go mainstream?

Industry minds from all sectors are increasingly focused on plotting their path to net zero emissions by 2050, in line with the UK Government’s Net Zero Strategy published last year.

Investors have an important role to play in supporting the transition to a green economy and investing within an Environmental, Social, and Governance (ESG) framework has been the fastest-growing investment approach. Global sustainable fund assets have almost tripled in the past three years, reaching $2.77 trillion at the end of the first quarter of 2022, according to Morningstar data.

But what is needed to support the transition from the fastest growing investment segment to the one that is chosen most often?

In this article, an Investment Manager and a Financial Planner give their views on some of the challenges within their own sector that need to be overcome if ESG investing is to make the move into the mainstream.

Nick Astley – Investment Manager at Progeny Asset Management ESG investing has come a long way in even the last three years. In 2019, not one respondent to a major BNP Paribas ESG survey envisaged a future whereby at least 75% of an investor’s portfolio would integrate ESG by 2021. Whereas by 2021, over a fifth of investors (22%)* integrated ESG into at least 75% of their portfolios.

This illustrates a rapid upward trajectory and it begs the question, will ESG investing soon become the norm? Despite demand skyrocketing in the past few years, there are a number of areas that need attention before I can envisage this happening, however.

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Lack of international standards for ESG investments The lack of an agreed international standard for measuring the validity of ESG investments is a key barrier.

Currently, it’s very difficult for companies to manage the inconsistent sustainability standards, frameworks and metrics. We have companies scoring well when looking at one data provider and scoring badly with another data provider and we have some companies disclosing lots of information and others very little.

To move forward therefore, homogeneity, transparency and set regulation must be at the forefront.

The formation of the International Sustainability Standards Board (ISSB) is a positive step forwards for example, in terms of enabling companies to report on ESG factors affecting their business in a more unified manner but data quality and consistency still remains a significant concern for the industry.

term returns. For instance, last year, we saw Engine No. 1 shake the big oil industry and as a tiny hedge fund that owned just 0.02% of Exxon Mobil’s shares, they managed to gain an unthinkable 25% of the seats at the Board table, based largely on their activism in relation to reducing Exxon’s carbon footprint.

Another example is when Shell announced that it was planning to become a net-zero emissions energy business by 2050. This announcement on its own wasn’t enough and investors asked for tangible evidence this was a credible strategy, pushing Shell to set carbon targets over three-to-five years and then link the targets to executive pay, incentivising leadership on climate change from the top.

The collective action of all investors is what I believe will shape the future landscape and hopefully one where ESG investing is at the vanguard. *BNP Paribas ESG Global Survey 2021

We are also starting to see regulatory bodies showing their teeth here, with BNY Mellon, DWS and Goldman Sachs all recently under the spotlight for ‘greenwashing’. This is vital, as in Schroders 2021 Institutional Investor Study, 59% of institutional investors cited greenwashing as the major challenge to sustainable investing.

The power of collective investor action However, I believe the most influential driver of change will be investor sentiment, which can already be seen to be having a significant impact on how companies think about their activities, especially in relation to managing risk, having a fully integrated ESG approach and generating more sustainable long-

Richard Gillham – Financial Planner at Progeny Interest in sustainable investment solutions from clients is increasing rapidly and is only likely to grow further post-COP26.

A key challenge however is that in the absence of an over-arching framework or current regulatory guidance, advisory firms are having to use their own discretion and judgement to decide how they will integrate ESG and responsible investment into their proposition.

This includes how they incorporate clients’ sustainability preferences as part of the overall suitability process and explore if ESG investments

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should be considered as an appropriate recommendation. There is currently no timetable for implementing the forthcoming changes to MiFID II in relation to sustainability preferences in the UK for example, although it can be viewed as a significant sustainable regulation tailwind.

The importance of ESG education A strong sustainability narrative is needed to enable clients to improve their understanding and knowledge of what is at stake. Better sustainability education by advisers, via thought leadership, workshops and webinars, will therefore be a fundamental building block to enable and empower clients to make informed decisions about their investment choices.

Advisers must then have a clear ESG proposition to offer to their clients, however with no standardised description of what constitutes a green investment, the key is understanding a client’s values and expectations, as investors will all have differing perspectives of what sustainability means.

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In my own experience, most clients are generalists who care about climate change and broader sustainability issues, but who care more about maximising returns in the context of their risk appetite. There will of course be those who want specialist fund advice e.g. multi-asset ESG or impact investing, who may need to access specialist advisers or DFMs. Standardisation of climate related disclosures Moving forward, the financial sector needs both quantity and quality in climate-related disclosures and standardisation to streamline the process and to avoid any confusion and potential greenwashing. However, the conundrum is that financial firms cannot wait for perfect methodologies to start their net-zero transformation, as they have a critical role to play in encouraging more sustainable behaviours and influencing and directing capital flows.

In my view ESG investing can and must go mainstream, but the right frameworks are urgently required to enable such a transformational shift in investment strategies.

Nick Astley Investment Manager Progeny Asset Management Having joined Progeny Asset Management in 2017, Nick was named one of the three rising stars in the Wealth Management industry by Spears Wealth Manager Index in 2020.

His day to day roles include performing due diligence on securities and portfolio level analysis. His areas of interest include fixed interest and small cap equities.

Nick is working towards becoming a CFA Charterholder and graduated with a First Class Honors degree in Financial Economics from the University of Leicester.

Richard Gillham Financial Planner Progeny Richard joined Progeny for a new career in wealth management in January 2021, following more than 20 years in investment management, primarily with Legg Mason.

He was made a Managing Director at Legg Mason in 2010 and covered equity strategies as well as macro strategy for a diverse global client base. He was also responsible for leading a diverse team of investment specialists.

Richard has an expertise in sustainability having worked closely with firms that integrate sustainability factors and balance profit with purpose. He believes that the linkages between sustainability, the economy and the financial markets are stronger than ever following the health crisis.

Outside of work, Richard likes to spend a lot of time with his three teenage children. He is also interested in politics and investing in companies that have a positive social impact and can help the transition to a more sustainable economic growth model.

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