International Finance Jul - Aug 2018: Italy braces for political and economic change by International Finance

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July - August 2018

Volume IV Issue 5

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Italy crisis and the impact on the economy Following the appointment of Giuseppe Conte as the new prime minister, what lies ahead for Italy?

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Note FROM EDITOR

t has been an interesting two months as newsmakers round the world have grabbed headlines, which have had a direct impact on stock markets and economies. The ripple effect of the trade dispute between China and USA is still being felt across markets, especially Asia. With India retaliating to US tariffs by imposing some of its own only escalates this inter-continental face off. Italy is on the brink of a major economic crisis, mainly due to its escalating political drama. Weeks of uncertainty over Italy’s politics are taking a toll on its stock markets and bonds. June was a tumultuous month for Switzerland, which held a referendum to vote for the introduction of the Vollgeld Initiative – a move that could potentially transform the way the world would execute banking. While the Swiss eventually voted against the move to introduce Vollgeld, the world got a pretty fair idea how banking could change had the Swiss voted in

favour of the referendum. The Middle East had its own share of political turmoil, with US re-imposing sanctions of Iran – a nation that had been grappling with US sanctions until 2016 and has just been getting back into the global trading market. With Trump staunchly believing that Iran has definite ties to terrorist activity, there is very little chance that any major business would want to transact with Iran, as they would definitely run the risk of burning a bridge with the US. Moving on to better developments in the world of business, this issue features some interesting business models such as BankIRR, a digital lending platform for infrastructure projects and Imperial College’s first student-led investment fund. There are some engaging industry pieces on the aftermath of Europe’s biggest data privacy regulation – the GDPR – as well as the impact of cyberattacks in finance. Hope you enjoy reading this issue of International Finance!

Sindhuja Balaji Editor editor@ifinancemag.com

Director & Publisher Sunil Bhat Editor Sindhuja Balaji Production Sarah Williams, Mark Miller Editorial Adriana Coopens, Jessica Smith, Lacy De Schmidt, Madhurima Roy, Sangeetha Deepak Business Analysts Dave Jones, Sharon Mendis, Sean Thomas Business Development Manager Steve Martin Business Development Sunny Shah, Sid Jain Accounts Angela Mathews Registered office INTERNATIONAL FINANCE is the trading name of INTERNATIONAL FINANCE Publications Ltd 843 Finchley Road, London, NW11 8NA Phone +44 (0) 208 123 9436 Fax +44 (0) 208 181 6550 Email info@ifinancemag.com Press Contact press@ifinancemag.com Associate Office Zredhi Solutions Pvt. Ltd. 5th Floor, Sai Complex, #114/1, M G Road, Bengaluru 560001 Ph: +91-80-40901144

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Jul - Aug 2018 International Finance

INDEX July - August 2018

Volume IV Issue 5

How the Vollgeld Initiative could transform global banking

Portugal is Europe’s go-to business hub

Infrastructure financing democratized by these two savvy investors

Imperial College leads the world’s first student-led investment fund

Seeking an RoI on industry marketing

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The impact of Chinese imports on the Indian tyre market

40 42 44

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Iran locked out again – What happens to trading favourites in Europe? International Finance Jul - Aug 2018

48 52

How firms can recover the Holy Grail from GDPR Preparing new commercial contracts differently after Brexit Australia’s banking inquiry: A crucible for change? African banking reaches new heights with Zenith Bank Cyberattacks in finance, and how to tackle them

COVER STORY

Italy crisis and the impact on the economy

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Cybersecurity for Srilankaâ&#x20AC;&#x2122;s financial services

Stopping Bad Actors: The Cost of Noncompliance is Big

The Rise of Robo-Advice in Financial Services: Time to ReBoot?

Emerging by name, emerged by nature

Trading places: How to boost post-Brexit Britain

AI for fraud detection: beyond the hype

Are we giving consent to use our data too freely?

The prominence of social media influencers in the Middle East

How will politics impact your energy bills in 2018?

100

ON THE JOB with Anna Hejka

Starbucks comes a full circle pg.98

Jul - Aug 2018 International Finance

Opinion Matters

Joe Woodbury Joe Woodbury is the director of Investor Management Solutions. He is responsible for new business and ongoing client relations primarily with regulatory lawyers, fund administrators and prime brokers /custodians. He has nine years institutional experience with Bloomberg, is technology-driven, with a deep understanding of financial technologies and focused on the application of fintech in regulation and compliance. He holds a Degree in Economics and has also completed his Investment Management Certificate (IMC) and MSTA (Society of Technical Analysts).

Thomas C. Brown Thomas C. Brown is the senior vice president of LexisNexis Risk Solutions in charge of U.S. commercial markets and global market development.

Hetal Mehta Hetal Mehta is a European economist at Legal and General Investment Management. Previously, she worked at Daiwa Capital Markets Europe Ltd. as an economist, and earlier, was employed with Oxford Economics/Ernst & Young as a economist/senior economic advisor. She routinely shares her views on the economy in the form of articles, interviews and presentations.

William Miners William Miners is an asset allocation intern at Legal and General Investment Management. He supports the team’s industry leading portfolio managers, strategists and economists, specifically on portfolio management side. He creates ad hoc analytical projects for team members as well as use, develop, create and update the team’s bespoke investment tools.

Urs Breitsprecher Urs Breitsprecher is an expert in Company Law, M&A and Tax . Urs is a member of IR Global, the world’s fastest growing global professional service firm network.

International Finance Jul - Aug 2018

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COntributors

Tim Evershed

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Tim Evershed is a freelance business journalist with over a decade’s experience of reporting on the world of business and finance. As well as contributing to International Finance his work is published across a number of titles including Global Reinsurance, Insurance Post, The Journal, Financial Solutions and Global Trader.

Susanne Jakobsen Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995. In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012. His latest venture, BankOn Mobile

Financial technology entrepreneur Gene Pranger has designed more than 500 bank branches since 1995. In 2008, he pioneered the market of video banking with the uGenius platform, acquired by NCR in 2012. His latest venture, BankOn Mobile

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

Susanne Jakobsen

platform, acquired by NCR in 2012. His latest venture, BankOn Mobile

and to know what’s latest inFinancial technology entrepreneur Financialreads technology IFM entrepreneur Financial technologythe entrepreneur Gene Pranger has designed more Gene Pranger has designed more Gene Pranger has designed more Banking, than 500 bank branchesFintech, since 1995. thanwealth 500 bank branchesManagement, since 1995. than 500 bank branches since 1995. In 2008, he pioneered the market In 2008, he pioneered the market 2008, he pioneered the market Insurance and Islamic banking Inof video of video banking with the uGenius of video banking with the uGenius banking with the uGenius Contact: Sean Thomas Email: sthomas@ifinancemag.com

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COVER STORY Economy

COVER STORY

Italy, a test for the European Union and its financial stability Following the appointment of Giuseppe Conte as the new prime minister, what lies ahead for Italy? Giovanni Puglisi

International Finance Jul - Aug 2018

COVER STORY

taly is once again in uncharted territory despite having filled its political vacuum with the appointment of ‘unknown’ law professor Conte as the country’s new Prime Minister, ending a three-month deadlock after Italians voted in an election marked by a far-right and populist surge. During his prime minister’s inaugural programmatic speech, Conte has attempted to reassure investors and both the national and European

political establishment that there are no plans in place to leave the Euro. However, experts believe the country remains on a collision course with its eurozone partners and with financial markets. James Newell, professor of Italian politics at the University of Salford, notes “what is more likely to unsettle investors is less any plan to leave the Euro than policies in relation to the public debt which might result in Italy being forced

to leave the Euro against its will”. The new government has indeed failed to give any specifics over the timing and the costs of the core economic and fiscal measures contained in its programme, including a new flat-tax, universal basic income scheme and rollback of pension reform. “I think that investors and the markets are for the moment adopting a wait-and-see attitude, we shall have to wait and see what happens in the light of more specific

plans when they emerge”, Professor Newell added. Undoubtedly, Italy’s high public debt combined with a weak growth and persistent structural problems of its economy due to the lack of needed reforms justify mistrust by some of its European partners. Professor Newell’s views are shared by Mario La Torre, an economist and finance professor at Rome’s La Sapienza University, who said: ‘the government has announced an aggressive

Giuseppe Conte, Prime Minister of Italy

Jul - Aug 2018 International Finance

COVER STORY

could push the spread between Italy’s BTP 10-year bonds and the 10-year German Bunds into the 400-500bp range. This risk could be further exacerbated by the end of European Central Bank’s quantitative easing (QE) programme as the bank’s policymakers have given their strongest hint that they are preparing to phase-out its bond-buying programme later this year. Italy has undeniably been a beneficiary of the QE, and its end combined with the end of Italy’s Draghi’s era as the Bank’s President could cause further problems for the country. Moreover, Draghi’s likely successor, Germany’s Bundesbank President Weidmann, has widely criticised the effectiveness of the programme and has a different stance on what type of monetary policy

Europe needs. The Centre for Economic Policy Research (CEPR), in a recent paper, suggested that “in normal times, debtors have a stronger incentive to default to induce more expansionary monetary policy”. This could be well the case of Italy, which new government has unofficially called on the European Central Bank to cancel the repayment of the €250 billion it holds in Italian debt. On the other hand, the CEPR also highlights “constraints on monetary policy, may act as a disciplining device to enforce repayment of sovereign debt”, something Germany has constantly insisted on with its demands for a more market discipline policy. The question is would sovereign default risk induce countries with a preference for tight monetary policy to accept a

Italian banks have put in place important actions in order to clean their balance sheets from NPLs and have increased significantly their capital Mario La Torre, economist and finance professor at Rome’s La Sapienza University

Robert Sinche, chief global strategist at Amherst Pierpont

fiscal policy but it is now explaining that not all the goals will be reached in the short term’. However, he expects a new set of goals to be unveiled before the end of summer. The new government’s spending plans have rattled markets, although the risk of a Greece-style crisis doesn’t currently seem to be on the cards at least yet, it cannot be totally ruled out in the near future due to growing financial pressure Italy has come under. Robert Sinche, chief global strategist at Amherst Pierpont, notes the markets are ‘well aware’ of the pitfalls in the programme. He said: “the markets realise the programme is not sound and, if actually implemented as proposed, would likely cause a further widening of spreads”. In his view, a full implementation of all the outlined proposals

International Finance Jul - Aug 2018

COVER STORY

laxer policy stance? Another important factor to watch in global markets is the sustainability of Italy’s highly-indebted and fragmented banking sector. Trust in the country’s banking sector has once again been undermined by a self-reinforcing and contagious cycle of financial pressure stemming from banks’ large holdings of government bonds and nonperforming loans (NPLs), which could deeper existing problems during periods of market turmoil. The banking sector has already gone through some dramatic and controversial bailouts, in particular the government-led recapitalisation of Monte dei Paschi, the world oldest bank and Italian third largest lender. The other two biggest lenders, Intesa and Unicredit, have €130bn of non-

performing loans among their assets. Professor La Torre, however, notes “Italian banks have put in place important actions in order to clean their balance sheets from NPLs and have increased significantly their capital”. According to the Italian Banking Association (ABI), NPLs stood at around 14.5% in December 2017 and its ratio is expected to be further halved to around 7.9% by 2020. Nonetheless, these figures are likely to be revised under the new administration which has already unveiled plans to undo or change some of the measures implemented by the previous government, for example a much debated cooperative banks reform. The government has pledged to present new economic forecasts and goals in September, meanwhile its. ‘hazardous’

fiscal policies coupled with the end of quantitative easing and a vulnerable banking sector could pose a serious threat to Europe as the continent’s economic future and financial stability face unprecedented challenges. IFM editor@ifinancemag.com

I think that investors and the markets are for the moment adopting a wait-and-see attitude, we shall have to wait and see what happens in the light of more specific plans when they emerge James Newell, professor of Italian politics at the University of Salford

Jul - Aug 2018 International Finance

Economy

How the Vollgeld Initiative could transform global banking 12

Switzerland just voted against the Vollgeld initiative’s proposed sovereign money, expected to have a far-reaching impact on the financial community. So what is the Vollgeld Iniatitive about and why have economists recommended sovereign money to government leaders for decades now? Sindhuja Balaji

une was a crucial month for Switzerland, which was on the brink of deciding the fate of the global financial and banking system. On June 10, the Swiss voted against sovereign money – a concept floated by the Vollgeld Initiative, which aims to make the Swiss National Bank the sole holder of Swiss Francs, and not any of the private or public Swiss banks. This referendum could have thrown the global financial system into a loop, as it essentially indicates that a major financial hub like Switzerland can radically change the way its banking system works, and could very well pave the way for other countries to follow suit. However, the final vote – more than three fourths of the Swiss voted against it. Although initial exit polls indicated a real chance for Vollgeld – 45% were against it while 42% voted in favour. Thomas Jordan, chairman of the Swiss National Bank claimed that Vollgeld was an unnecessary and dangerous experiment that would damage the Swiss economy. However, this isn’t the first time a sovereign money

International Finance Jul - Aug 2018

initiative has been suggested. So what’s the Vollgeld all about and why have economists and professors recommended to legislators for decades now? The Vollgeld Initiative The Vollgeld Initiative has two main components – a 100% reserves requirements for banks and a monetary reform policy. The reserve requirement means all deposits in Swiss Francs would have to be kept in reserves in the Swiss National Bank only – commercial banks would no longer be able to use any of deposits to finance their lending activities like they do now. Swiss money becomes sovereign money, controlled by the Swiss central bank. Why is sovereign money being sought after? Contrary to money issued by banks, base money issued by the central bank doesn’t have to be repaid, according to a paper by Urs Birchler and Jean Charles Rochet, banking professors at the University of Zurich. The ones pushing the propaganda of the Vollgeld Initiative don’t see currency issued by the Central

Economy

banks, who the supporters of VGI believe have brought about financial and economic instability. There are many other reasons what a potential vote in favour of Vollgeld means, elaborated by Birchler and Rochet in their paper.

Bank as debt of the Swiss National Bank, overriding the need to buy securities that would guarantee the value of the currency lent by the SNB. Surprisingly, there is a sufficient wave of support in favour of the Vollgeld Initiative and there are multiple reasons why. A primary reason for Swiss economists and citizens being in favour of the initiative is the avoidance of bank runs, which is a situation when depositors would like to remove large amounts of their money at the same time. This cannot happen in the current system, as banks seldom have the kind of financial reserves to pay back depositors, and this could result in bankruptcy. Interestingly, this won’t be the first time that 100% reserves has been recommended. It came up as early as 1933, around the Great Depression and possibly US’ worst financial crisis, by a group of professors at the University of Chicago. They even presented the ‘Chicago Plan’ to President Franklin Roosevelt, who was close to implementing it but was ultimately convinced by a group of American bankers to drop the idea altogether. Even the 2008 financial crisis brought back the topic of 100% reserves by many influential bankers such as Mervyn King,

governor of the Bank of England; Wilhelm Buiter, chief economist of Citigroup, Adair Turner, head of the UK Financial Services Authority and Financial Times journalist Martin Wolf. Even the governments of the US, UK, Iceland, the Netherlands and Switzerland have contemplated this initiative so far. Another school of economists argue that debt-free money would radically change the way banking is done. Supporters of VGI argue that the Swiss National Bank can keep an account of governmentapproved money, which it has no obligation to repay as its debt-free. These notes could be issued without a counter-party, by distributing it to the Confederation, cantons or to the Swiss directly. This especially comes across as revolutionary as the SNB has done away with the practice of converting Swiss Francs into gold from 2002 – the SNB doesn’t have to maintain gold reserves and foreign currency against the currency it issues. The 100% reserves requirement would imply that Swiss money in circulation coincides with base money controlled by the SNB. This notion is actually being widely debated by multiple reform groups and finance organizations, most expectedly in a bid to mitigate the power exercised by commercial

Why the Swiss should vote in favour of Vollgeld? Meanwhile, a recent report by renowned business journalist Martin Wolf in the Financial Times elucidates why Switzerland should give the Vollgeld Initiative a serious thought. Wolf, in his report, believes finance needs change and for that, requires experiments. According to a database compiled at the IMF, 147 individual banking crises occurred between 1970 and 2011, affecting small nations like Guinea to even big ones like the USA. Its simple, explains Wolf. Banks create cash, a public good, as a byproduct of their lending. So what happens during a crisis? These bank assets are risky and least safe, at a time when people who have invested or deposited their hard earned cash, need it to remain so. The Vollgeld Initiative can make banks safer – by turning liquid deposits into sovereign money. Let’s not forget that Thomas Jordan, head of the Swiss National Bank, is not in favour of this shift, which he believes will cause a mini earthquake. Besides, there is no clarity on what this sovereign money will be used for. This move would definitely place a lot of power in the hands of the central bank, but it has to be elaborated how ethical it chooses to stay and keep the interests of the public safe – the very point of creating the Vollgeld Initiative. IFM editor@ifinancemag.com

Source: http://www.batz.ch/wp-content/uploads/2017/10/Vollgeld_Summary_en.pdf https://www.ft.com/content/d27b000e-6810-11e8-8cf3-0c230fa67aec

Jul - Aug 2018 International Finance

Economy

Iran locked out again â&#x20AC;&#x201C; What happens to trading favourites in Europe? 14

International Finance Jul - Aug 2018

Economy

Iran faces economic sanctions again, but it has managed to forge multi-million dollar trade deals with many European and Asian nations. It is OPEC’s third largest oil producer, and has a treasure trove of minerals and natural resources, but with Trump’ administration coming down hard on Iran, what happens next? Sindhuja Balaji

n May 2018, Donald Trump made a surprise announcement that the USA will withdraw from the Joint Comprehensive Plan of Action (JCPoA), following reports of the nation’s supposed violation of nuclear testing, and has reimposed economic sanctions on Iran. Trump’s administration has also given a deadline of upto six months for businesses to wind down operations in Iran, else they will face sanctions too. John Bolton, national security advisor to the USA, in an interview with ABC said, “Why would any business, why would the shareholders of any business want to do business with the world’s central banker of international terrorism?” – making the country’s stance against Iran very clear. US trade with Iran In the past two years, several companies including American conglomerates went ahead to forge deals with Iran. Boeing struck a deal with Iran Air for

Jul - Aug 2018 International Finance

Economy

80 aircraft at US$17bn, with deliveries expected to begin in 2017, and another 30 airplane deal with Iran’s Aseman Airlines for US$3bn at list prices. But, Boeing hasn’t delivered a single aircraft. CEO Dennis Muilenburg, during a quarterly earnings conference call said, “We continue to follow the U.S. government’s lead here and everything is being done per that process. We have no Iranian deliveries that are scheduled or part of the skyline this year, so those have been deferred again in line with the U.S. government process.”

Threat of US sanctions leave European allies hanging This has thrown several nations out of gear, especially European nations such as France and Germany given the volume of contracts signed with Iranian companies after economic sanctions were lifted in late 2015. However, it appears to be that Europe isn’t willing to go down without a fight – there’s simply too much at stake.

International Finance Jul - Aug 2018

The finance minister for France Bruno Le Maire said, “We have to work among ourselves in Europe to defend our European economic sovereignty.” Le Maire also added that the EU is looking to revive blocking regulations, originally created in 1996 to protect European companies doing business with Libya and Cuba from US sanctions. Back then, their tactic of convincing Washington to back down from imposing sanctions seemed to work. Le Maire, in an interview with Europe 1 Radio, said he would meet with counterparts in Germany and United Kingdom to understand the way ahead. German chancellor Angela Merkel said that Trump’s decision has now made their situation in the Middle East more difficult, while UK Prime Minister Theresa May assured Rouhani that European partners remain committed to upholding the nuclear deal. Bolton, in a CNN interview, didn’t deny that European companies won’t be hit by US sanctions. Europeans

would face effective US sanctions because much of what they would like to sell to Iran involves US technology, for which licenses would not be available, added Bolton in a separate interview. The reason this is a contentious issue for Europe, mainly France and Germany, is the volume of trade the two nations have with Iran. According to the European Commission website, UAE, European Union and China are Iran’s primary trading partners – with the EU alone accounting for 15.8% of the trade volume. Prior to the sanctions, the EU was Iran’s first trading partner. The EU exported over €10.8 billion worth of goods to Iran in 2017. EU exports to Iran are mainly machinery and transport equipment (€5.5 billion, 50.9%), chemicals (€1.9 billion, 18.1%), and manufactured goods (€0.9 billion, 8.9%). The EU imported over €10.1 billion worth of goods from Iran in 2017. Most EU imports from Iran are energy-related (mineral fuels account for €8.9 billion

Economy

and 88.7% of EU imports from Iran), followed by manufactured goods (€0.6 billion, 6.4%), and food (€0.3 billion, 3.3%). In 2017, EU imports from Iran increased by 83.9% and EU exports increased by 31.5%. After economic sanctions were lifted in 2016, France-Iran trade grew 118% from January to October 2017, according to The Hill. French oil and gas company Total is one of the biggest benefactors of the sanctions removal – they concluded a US$4.8bn deal to build the South Pars gas field in Iran for a period of 20 years. Moreover, French aviation major Airbus too was keen on moving into the Iranian market by offering to sell 100 airplanes to Iran worth US$18bn. French car manufacturers like Renault and Peugeot already have a significant presence in Iran. Germany too has been a key trading partner with Iran. In 1975, trade with Iran was worth US$4.5bn and grew to around US$6bn in a few years. In 2017, German exports to Iran touched US$3.5bn and has been on an upward trajectory since. Trade between Iran and Austria too has been on the upswing ever since the US sanctions were lifted in 2016 – it grew 34% last year, compared to the previous corresponding period. There are plans in the pipeline to increase trade volumes further, in part to a financing agreement by Oberbank. Spain, The Netherlands and Italy too have enjoyed a robust trading relationship with Iran – Spain’s trade volume was US$1.9bn and The Netherlands was US$1.5bn. Italy’s trade volume grew 117% YoY during 2016-17. It’s not just the EU that’s in crosshairs over Trump’s sudden decision to withdraw from the JCPoA. China too has been a key trading partner with Iran in addition to UAE. While UAE continues to be an ally to the USA, China’s relations with its Western counterpart have been rigid, to say the very least. The contention continues over Iran, it appears, as China is in no mood to relent. The US withdrawal from JCPoA

can have a potentially debilitating effect on the world oil market. Iran is OPEC’s third largest oil producer, and largely supplies to the EU, UAE, and multiple Asian markets such as China, Korea, India and Japan. Reuters states that Turkey is another major buyer of Iranian oil, with flows trebling from January 2016. From the time sanctions were lifted, Iran’s crude oil production stands at 3.82mn bpd, making it the sixth largest oil producer in the world. Currently, the oil market is at its tightest in years, and a disruption in oil supply from Iran due to sanctions would have a far more adverse impact. The geopolitical risk over oil is now pushing the prices up, believe market watchers. This is especially because analysts believe Trump will not offer another waiver in sanctions this time around, given that he stated so very clearly in January only for the sake of US’ European allies. Citigroup estimates that in the eventuality of a no-waiver, 200,000 to one million bpd could be removed from the market. Mike Wittner, head of oil market research at Societe Generale told Bloomberg that with the oil sanctions returning, there would be a US$10 impact on oil prices, of which US$5 is already priced in. Worst case scenario? Sanctions will be implemented in a couple of months from now and eventually remove 500,000 bpd of Iranian crude from the market.

Yi to gather China’s support. Wang said, “China will take an objective, fair and responsible attitude, keep communication and cooperation with all parties concerned, and continue to work to maintain the deal.” He added that the agreement was “hard earned”. European leaders like France’s Macron, Germany’s Merkel and UK’s May are in talks with Trump’s administration to even things out on the JCPoA, but the US President is resolute on his Iran stance. How this affects Iran’s major trading partners in Europe and Asia will be known in the next 120 days. IFM editor@ifinancemag.com

Damage control: The complete meltdown of a financial system was one of the most adverse effects of economic sanctions. In a bid to mitigate a similar backlash, Iran has already moved to the Euro but experts believe this won’t be a sufficient safeguard from sanctions. Iranian leaders are busy working on retaining the deal with other partners of the JCPoA. Foreign minister Mohammad Javed Zarif met his Russian counterpart Sergey Lavrov in Moscow earlier this month to discuss the way ahead to save the deal. This was following Zarif’s trip to Beijing to meet his Chinese counterpart Wang

Jul - Aug 2018 International Finance

investment

Portugal is Europeâ&#x20AC;&#x2122;s go-to business hub The worldâ&#x20AC;&#x2122;s top residence-by-investment program resides with Portugal, after the Global Residence and Citizenship Program 2017/18 report was released

International Finance Jul - Aug 2018

investment

ccording to information released by the Investment Migration Insider, the Golden Residence Permit Program in Portugal has been listed as the best residence-by-investment in the world — for a consecutive third year running. The program achieved a score of 79 out of 100 after being assessed on ten indicators: citizenship requirements, compliance, financial requirements, processing time and quality of processing, quality of life, reputation, taxation, time to citizenship, total costs, and visa-free access. Dr. Christian H. Kälin, an international immigration

and citizenship law expert and Group Chairman of Henley & Partners, was keen to point out: “The Global Residence and Citizenship Programs report is an indispensable tool, not only for all those interested in alternative residence or citizenship but also for professionals such as private client advisors, private bankers, and lawyers, as well as for governments operating investment migration programs.” Why does Portugal have such an appeal to investors around the world and what are the benefits of a Portuguese residence? This brief guide will shine the spotlight on the country’s Golden Residence Permit Program and also look

Jul - Aug 2018 International Finance

investment

into other investment opportunities available within the nation.

An insight to Portugal’s Golden Residence Permit Program Those who live outside of the EU and European Economic Area are eligible for Portuguese residence permits via investments. This provides them with the opportunity to obtain residence status and contributes towards their eligibility for a citizenship application following six years as a legal resident. A residence in Portugal entitles an investor to: Benefit from family reunification. They may also gain access to a permanent residence permit and Portuguese citizenship in accordance with the current legal provisions. Enter Portugal without the need for a residential visa. Live and work in Portugal — bearing in mind that the minimum residence requirement to qualify for the renewal of a Golden Residence Permit is seven days in the first year of residence for entitlement to the first renewal and then 14 days over the two subsequent two-year periods required for the next renewals. Apply for Portuguese nationality, via naturalization, in compliance with Nationality Law requirements. Travel visa-free within the Schengen Area. It was evident that once the Golden Residence Permit Program was introduced there would be a higher demand. Between the scheme beginning in 2012 and BBC News spotlighting the program on March 19th 2014, the Portuguese government stated that 734 permits had been issued — generating over EUR 440 million in the process through property sales, investment in capital, and the creation of new jobs across Portugal. Why are investors investing in Portugal? Regardless whether you can gain a Golden Residence Permit or not,

International Finance Jul - Aug 2018

there’s a lot of benefits to investing in Portugal. However, it’s known that the prices in Portugal are rising due to the amendments in tax policies — yet Portugal remains one of the countries with the low living costs. Its businessrelated and labor costs are both considerably lower when compared to many other Western European nations too, while the country also has one of the lowest crime rates throughout all of Europe. Above all of that, Portugal has great geopolitical relationships with both Africa and the Americas, as well as Europe. Not only is the nation an EU member, but it also still has close ties with Angola, Brazil, Macau, and Mozambique and can be a gateway to other Portuguese-speaking markets. If you’re looking to conduct business activity within this country, it’s also worth knowing that it has a great IT and physical infrastructure in place. Meanwhile, property investors will have many appealing locations to choose from; Portugal plays host to many sites of natural beauty, owing to its various rivers, mountains, and clean sandy beaches. When it comes to investing in property, clientele can cover all types of people. For instance, Portugal proves very appealing to tourists — surely helped by the fact that the nation enjoys over 300 days of sunshine each year — and has a quality of life that is favorable to those looking for a peaceful destination to retire to. This is not forgetting the sports fans, who are likely to find Portugal attractive for being the largest area covered by golf courses in the whole of southern Europe. It can sometimes prove difficult when choosing where to invest in around Portugal. The capital city, Lisbon, is a cultural melting pot, helped along by the fact that the annual Web Summit conference attracts tens of thousands of business people to the district every year. Meanwhile, the island of Madeira was shown in a recent INE report to

have the second highest rate of recent property value growth and the Algarve is an area of Portugal that is regularly in demand. With all stated above, Portugal is undoubtedly a great place to invest in. Will you be next to invest in the country? IFM editor@ifinancemag.com

Sources: https://www.henleyglobal.com/ residence-portugal-golden-residenceprogram/ http://www.livinginportugal.com/ en/moving-to-portugal/goldenresidence-permit-programme/ http://www.bbc.co.uk/news/worldeurope-26636829 https://en.portal.santandertrade. com/establish-overseas/portugal/ foreign-investment https://www.propertyshowrooms. com/portugal/property/investment/ why-invest-in-portugal-property.asp https://www.propertyguides.com/ portugal/news/three-investmenthotspots-portugal/

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Infrastructure financing democratized by these two savvy investors

International Finance Jul - Aug 2018

Scott Gillam, Cofounder, BankIRR

Jul - Aug 2018 International Finance

Gaurav Singh, Cofounder, BankIRR

International Finance Jul - Aug 2018

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BankIRR, a soon-to-be launched online platform that connects institutional investors with infrastructure projects, is aiming to address inefficiencies in infrastructure financing. Cofounders Scott Gillam and Gaurav Singh speak exclusively to International Finance about their lending platform Sindhuja Balaji

On launching an online platform like BankIRR Scott: “There are clear inefficiencies in infrastructure finance when it comes to connecting supply and demand. Other traditional industries have conquered similar issues by re-channelling origination via platforms. This has given interesting results, and to use the best-known examples: Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content, and Airbnb, the world’s largest accommodation provider, owns no real estate. The reason these platforms have been so successful is not only that they shrink the implicit costs of matching supply and demand, but because the scale of their user bases simultaneously gifts them the advantage of unlocking superior quality matches. They save both time and money. Since Uber launched, ride-hailing in San Francisco is now six times more prevalent than it was previously. Perhaps, if we can re-wire the bad origination habits of our old industry, then we may also be able to unlock a higher benchmark for transaction volumes in infrastructure. This would be a great step towards alleviating the issues stemming from decades of insufficient global infrastructure investment.” Gaurav: “Having previously led renewable energy project finance at an investment bank, I frequently received

inbound enquiries from sponsors seeking debt finance for their projects but we were unable to finance otherwise ‘bankable’ projects because they do not fit the bank’s geographical or technological preferences. This is consistent across the debt landscape. Whilst the market continually speaks of an oversupply in liquidity and an undersupply of assets, I believe there remain an abundance of assets seeking funding but the asset owners or sponsors don’t always know or have the network – even via their advisors – to tap into the right pocket of money, which ultimately hinders their project. On the other side of the platform, we provide smaller and/or less conventional lenders the opportunity to identify projects that they would otherwise never come across, again potentially boosting the rate of infrastructure and energy projects securing the funding needed. “ On the unique nature of the platform Scott: ”We have the largest deal pipeline, at launch, of any funding platform in history. We are also the fastest growing infrastructure / project finance platform. We put this down to the fact that our backgrounds cover both tech and infrastructure finance (via all angles: buy-side, sell-side and advisory). The platform is built specifically to provide the things that we know would have been useful to us, from the perspectives of both lenders and advisors to projects requiring debt finance.

On being different from conventional brick-and-mortar banks? Gaurav: “Unlike banks, who form part of our user base, we don’t actually manage any capital. We match these institutions with projects requiring debt. This has both benefits and drawbacks; The lack of a physically limiting factor in our structure allows us to move much faster and scaleup dramatically, however achieving such growth in infrastructure finance requires both attaining and retaining consistently strong adhesion with a notoriously sophisticated client base. It’s a tough ball game!” On the challenges of working in a market dominated by big banks Gaurav: “We are seeing the lender base diversify at an unprecedented rate, with the emergence of institutional investors, infrastructure funds, debt funds, hedge funds and more recently, family offices looking to deploy debt capital. Lenders – including banks – are therefore forced to adapt and embrace change in order to stay in the game, and the continuation of this mentality shift will be a fundamental pillar to our success. Scott: “The strength of our existing networks in the banking community has been fundamentally important to starting BankIRR. The importance of those ties remains, and we are fortunate to have continued to attract

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW INVESTMENT

fresh interest from the community ever since.” On choosing the optimum projects Gaurav: “Projects are vetted by our team and if they pass our initial screening test, they are uploaded to the BankIRR for lenders to view. At this stage, information viewable on the platform is synonymous to a no-names teaser, whereby there is no commercially sensitive information whatsoever. Lenders can request to be connected to the sponsors of any projects they are interested in, and we make that connection happen. It’s really as simple as that. “

On procuring major projects Gaurav: “We are contacted by advisors and developers regarding projects ranging from a few million dollars to portfolio or pipeline opportunities reaching close to a billion dollars. We find that the larger projects are often fronted by advisors. As such, this user category

International Finance Jul - Aug 2018

is pivotal to our user base as they not only help quality assure projects, but they are able to aggregate some of the larger projects.”

size, thus saving time and, by virtue of being able to select projects that meet their specific criteria, improving deal conversion rates.”

On their most popular financial offerings and services to clients Gaurav: “Our two most popular offerings mirror one another: a simple teasermarketing service for shovel-ready projects to seek debt funding and a service allowing lenders to originate opportunities from a pool of live infrastructure & energy projects. By empowering project gatekeepers with a vastly larger audience of lenders, it not only saves them time but provides borrowers with access to the ‘whole of the market’ rather than one’s black book of contacts, building competitive tension and helping to ensure borrowers get the best value for money. Conversely, lenders now have the ability to originate projects via their desktop, filtering opportunities according to their specific criteria such as geography, technology and ticket

On their portfolio Gaurav: “Our platform is both geographically and technologically agnostic. However, having platform-level perspective gives some interesting insights into the trends that we are seeing. For example, more than half of our lenders are headquartered in the western hemisphere, and though some seek opportunities only locally, there is a growing trend towards those seeking to take advantage of the higher yields presented by the emerging markets. Balancing this nicely, we see that a little over half of our projects are opportunities within those emerging markets. Around two thirds of our capital demand comes from the energy sector, of which the vast majority is via renewables. Most of the projects hosted on the platform are ‘shovel-ready’, with the balance

INTERVIEW INVESTMENT

We are currently in the process of developing a database with information on our core sectors in various markets. This will help our users to identify and tap into new markets and ultimately, bolster support for the development of infrastructure projects

being operational projects looking to refinance existing debt or free up equity for reinvestment in pipeline projects.” On their popularity and goals Scott: “We receive a lot of interest from emerging market projects in particular. All projects that are submitted to BankIRR are vetted by experienced infrastructure financiers before they are allowed onto the platform. Therein lies its own set of challenges; however, less mature markets naturally need more stringent vetting to meet the demands of our lenders. We have a long-term vision for where we would like to take BankIRR, which involves adding more functionality and empowering our users. For example, we are currently in the process of developing a database with information on our core sectors in various markets. This will help our users to identify and tap into new markets and ultimately, bolster support for the development of infrastructure projects. On Bank IRR’s immediate future plans Gaurav: “BankIRR will continue to build out its project and lender user base. Through our own network as well as the various channels of communication, we believe our biggest initial hurdle will be to shift stakeholders’ mindsets in moving away from relying on limited personal networks, to what is fast becoming the ‘no-brainer’ way of doing business.

We have been developing the idea for the past 12 months or so, during which we have met with dozens of project developers and lenders to ensure we create something the market needs. We will continue to personally engage with the market to refine the concept and over time, make this a household name in the world of project finance.” IFM editor@ifinancemag.com

About Gaurav Singh: With a graduate degree in chemical engineering from Imperial College, Singh’s career in energy and infrastructure finance spans 14 years, with stints at E&Y, Octopus Investments, the Green Investment Bank and at NIBC Bank N.V. He has advisory, investment and lending experience and have financed over GBP 2 billion of projects. In 2016, Singh founded NICL, a corporate finance boutique focused on energy and infrastructure finance, which he runs in parallel with BankIRR.

About Scott Gillam: After leaving uranium enrichment, Gillam moved to a small boutique called Prime Numbers Infrastructure Finance, which advised a US energy-from-waste giant on their entry into the UK market. He then moved into Private Equity, where he invested in multiple technologies across the renewables space. He found inspiration in daily dealings with founders of portfolio companies, and before long had caught the entrepreneurial bug. Since then, he’s been involved in a mixture of project finance advisory and tech ventures. Eventually, a lightbulb moment occurred, and he brought the two sides together in the form of BankIRR.

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW

Honing future investment analysts 28

London’s Imperial College has initiated the first ever student led £100,000 investment fund aimed at providing real-life practical skills to be analysts and fund managers while pursuing their studies. Cofounder and CEO of the fund Jonathan Fielding tells us more about this unique idea What is the student investment fund all about? The Fund was designed as a complement to classroom learning, so it’s about giving students an opportunity to develop practical skills in buy-side investing. Therefore, we welcome all students from the Business School, whether they have previous investment experience or not. It’s also about bridging the diversity gap in the investment and broader finance industry – one of our key aims has been to develop a fund with a diverse and inclusive membership and analyst base. Currently, we have around 150 members of 25 different nationalities, and 25% of our members are female. Our analysts are 19% female, and we are currently working on strategies to attract and retain female talent at all levels of the Fund (member, analyst, Executive Team, and Advisory Board). Furthermore, we are committed to upholding Imperial College Business School’s key value proposition – blending business and technology. To our knowledge, our fund is the first student-led investment fund to run both fundamental

International Finance Jul - Aug 2018

and quantitative strategies. In line with the Business School’s technological focus, our investments are divided 70/30 across our quantitative and fundamental strategies, respectively. We also work alongside innovative start-ups, like QIARK, which allows us to make democratic investment decisions. In theory, this platform could allow us to open up the Fund to the entire College in the future. How is this expected to benefit students? The key benefit to students is the practical experience that they’ll gain as an analyst. By equipping students with skills that they can apply on the job, they are better placed to step into an equity analyst role after graduation. A secondary benefit is the network that surrounds the Fund – we are supported by a group of renowned industry professionals and senior faculty. Our Advisory Board is comprised of professionals from JPMorgan Asset Management, Tikehau Capital and Aviva Investors, to

INTERVIEW

Jonathan Fielding, Cofounder and CEO, Imperial College Business School Student Investment Fund

Jul - Aug 2018 International Finance

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name a few. Students have the opportunity to network with industry professionals at our events, including our regular stock pitches, where analysts receive feedback on their analysis and presentation skills from these professionals. Take me through the genesis of this idea. One of our co-CEOs, Davide Sciuto, previously set up Lancaster University’s student investment fund during his undergraduate studies and wanted to create a similar initiative at Imperial. The idea for the Fund was thus dreamt up by Davide, and then brought to life by a group of MSc Investment & Wealth Management, MSc Finance & Accounting and MSc Strategic Marketing students. Our aim in creating the Fund was to close the gap between classroom learning and best practice in the asset management world – given that breaking into the investment industry is a highly competitive process. In addition, we’re hearing from employers that graduates are entering the workforce with a great grounding in academic theory, but few practical skills. The Fund thus assists

International Finance Jul - Aug 2018

students who seek employment in the buy-side industry both by cultivating practical skills and by exposing them to Fund’s network of industry professionals, and eventually, the Fund’s own alumni. In addition, the Fund also encourages learning outside of one’s core discipline – our membership base includes students from across the Business School, from financial and non-financial backgrounds. What does the fund entail? The Fund works under the following structure: It is run by an Executive Team of 6 MSc Investment and Wealth Management students, a MSc Finance & Accounting student and a MSc Strategic Marketing student, these are: - Co-CEOs - Jonathan Fielding and Davide Sciuto - Chief Investment Officer – Nicola Zanetti - Chief Risk Officer – Atiba Jackson - Head of Research – Edoardo Pediconi - Head of Communications – Katherine Tunaley It is overseen by an Investment Committee, which

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ensures that we are complying with requirements and risk controls agreed upon by ourselves, the Business School, central College and the Endowment, this is: - Professor Walter Distaso - Chairman of the Investment Committee (Professor of Financial Econometrics at Imperial College Business School) - Professor James Sefton - Investment Committee Member (Chair in Economics at Imperial College Business School) - Professor Paolo Zaffaroni - Investment Committee Member (Professor of Financial Econometrics at Imperial College Business School) - Professor Alexander Michaelides - Investment Committee Member (Professor of Finance at Imperial College Business School) As previously mentioned, we also have an Advisory Board, made up of several industry professionals, including: - Guillaume Benhamou (Investment Director at Tikehau Capital) - Victor Li (Fund Manager at JPMogan Asset Management) We run two types of strategies: a discretionary strategy, based on fundamental analysis, and quantitative strategies, based on algorithms. We will be dividing our investment across these strategies by about 30/70 respectively. It’s our aim to showcase Imperial’s unique value proposition – that of a technologically innovative university – in the type of investing we do. As such, our quantitative strategies are allocated a larger proportion of our available funding. In terms of the actual investment process, equity analysts produce tear sheets, which they use to present their ideas for new investments. If approved, this tear sheet forms the basis from which they produce a proper equity research report. These tear sheets are presented at our frequent stock pitches. Then, stocks that are approved by the Executive Team are implemented within the portfolio. There are limitations to what students can do with the investment money. Like all funds, we have restrictions on what we can and cannot invest in. For example, our quantitative strategies are run only in the US market, as such, students can only invest in US publicly listed stocks under this strategy. On the other hand, those working on the fundamental side are only able to invest in publicly listed stocks in the European market, in Euros only (e.g. not in Switzerland or the UK). In terms of specific stocks that are prohibited, we are not permitted to invest in tobacco stocks, among others. We aim to invest responsibly.

depth company analysis. Do you think Imperial College is setting a new trend among business schools with such an initiative? Yes – while many business schools also run studentled investment funds, they do not run quantitative strategies. As such, our fund may serve to encourage a more quantitative focus within existing and forthcoming student funds. How will this activity prepare asset managers better? The Fund gives students real life experience in investing and allows students to refine the practical skills required for a successful buy-side career, such as the equity research component of the fundamental strategy. Members and analysts can also attend frequent industry-led lectures to bolster their practical experience and ensure they remain up-to-date with emerging trends in the industry. For example, our most recent seminar on Practical Investment Theory was run by Ryan Shea, Head of Research at Amareos. What is the future of an initiative such as this? We have worked closely with the Imperial College Business School’s finance faculty, alumni relations and student experience managers to develop handover plans that will ensure that the initiative continues well beyond our graduation in September. To ensure continuity, we are also working with the Business School’s admissions teams – and particularly the MBA cohorts – to ensure that we are attracting students who will be with the College for more than one year (as all MSc degrees are 12 months only, whereas two of Imperial’s MBA programmes are 2 years). Our goals for the short-medium term future include growing our AUM via donors, driving sustainability by ensuring our fundamental and quantitative strategies adhere to the principles of responsible investment, and eventually, opening access to the Fund to the entire College. IFM editor@ifinancemag.com

What is the criteria to enrol in this fund? Currently, membership to the Fund is open to any Business School student. In the future, we hope to open the initiative to the wider College. The student analysts we look for must have a real passion for research and investment management, a systematic and methodical way of thinking and an analytical mind set - they should truly enjoy in-

Jul - Aug 2018 International Finance

INVESTMENT

Seeking an RoI on industry marketing A comprehensive and realistic market analysis of why investments are necessary across key industries

International Finance Jul - Aug 2018

INVESTMENT

n 2016, car dealers in the UK invested around £115.9 million in online display and direct mail according to results from Google’s Car Purchasing UK Report in April 2017. However, this is only because car manufactures have a notoriously high budget to play with when it comes to marketing their products. With increased interest in online platforms, digital visibility doesn’t come cheap — but is it worth the cost? Audi dealership, Vindis, investigates. Automotive Marketing From the Google’s Drive To Decide Report, it was found that 82% of Britain’s population aged 18 and above have access to the internet for personal reasons, a high 85% use smartphones and 65% choose to use their smartphone over any other device when accessing the internet. These figures show that for car dealers to keep their head in the game, a digital transition is vital. The report also found that 90% of auto shoppers carry out research online. Fifty-one percent of buyers starting their auto research online, with 41% of those using a search engine. To capture those shoppers beginning their research online, car dealers must think in terms of the customer’s micro moments of

influence, which could include online display ads – one marketing method that currently occupies a significant proportion of car dealers’ marketing budgets. Out of all the UK Digital Ad Spending Growth in 2017, the automotive sector was responsible for 11% — putting them second to retail businesses. The automotive industry is forecast to see a further 9.5% increase in ad spending in 2018. But how is online marketing influencing the decision of car buyers? 41% of shoppers who research online find their smartphone research ‘very valuable’. 60% said they were influenced by what they saw in the media, of which 22% were influenced by marketing promotions – proving online investment is working. We’ve known the automotive industry to invest a lot of their budget into both television and radio advertisements, however the past five years have witnessed a change — with expenditure in digital marketing increasing to 10.6%. Fashion Marketing Online sales in the fashion industry hit £16.2 billion in 2017, showing that online investment is crucial to deliver success. This figure is expected to continue to grow by a huge 79% by 2022. So where are fashion retailers

investing their marketing budgets? Has online marketing become a priority? E-commerce websites accounted for almost a quarter of purchases — driven by successful websites like ASOS and Boohoo last year. ASOS experienced an 18% UK sales growth in the final four months of 2017, whilst Boohoo saw a 31% increase in sales throughout the same period. Trying to grab the attention of online shoppers, companies such as M&S, John Lewis and Next have invested millions into their online marketing. John Lewis announced that 40% of its Christmas sales came from online shoppers, and whilst Next struggled to keep up with the sales growth of its competitors, it has announced it will invest £10 million into its online marketing and operations. Shopping online has become an easier alternative for consumers, as it allows them to browse from any location at any time — whether this is on their mobile device or their tablet. Influence marketing is now on the horizon, and PMYB Influencer Marketing Agency revealed that 59% of fashion retailers increased their budget around this area. In fact, 75% of global fashion brands collaborate with social media influencers as part of their marketing strategy. However, more than a third of marketers believe influencer marketing to be more successful than traditional methods of advertising in 2017 – as 22% of customers are said to be acquired through influencer marketing. Utilities Marketing When it comes to finding the right utilities supplier, many consumers are looking at comparison websites to find the best deal possible. Comparison websites are spending millions on television advertisements so it’s crucial for utility businesses to be listed on the actual website because essentially, it’s free exposure when a viewer then goes to look on the site and stumbles across your business.

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Not only that, but Compare the Market, MoneySupermarket, Go Compare and Confused.com are within the top 100 companies that spend the most on advertising — highlighting the importance of associating your business with such sites. There can be a key difference when it comes to comparison websites — offering either a high rate of customer retention or delivering new customers. If you don’t beat your competitors, then what is to stop your existing and potential new customers choosing your competitors over you? For example, British Gas has changed its marketing objectives and is looking to retain their current customers rather than acquire new ones. Whilst the company recognise that this approach to marketing will be a slower process to yield

International Finance Jul - Aug 2018

measurable results, they firmly believe that retention will in turn lead to acquisition. The gas company hopes that by marketing a wider range of tailored products and services to their existing customers, they will be able to improve customer retention. Taking into account the value of the customer, their behaviour and spending habits over time — £100 million is being invested into a loyalty scheme, which will in turn offer discounted energy and services. The utilities sector is incredibly competitive, so it is vital that companies invest in their existing customers before looking for new customers. Research released by Google’s Public Utilities Report in December of 2017, the utilities industry has become more present digitally. 40%

of all searches in Q3 of 2017 were on a mobile device; not only that, but 45% of ad impressions came from mobile too. As mobile usage continues to soar, companies need to consider content created specifically for mobile users as they account for a large proportion of the market now. Healthcare Marketing When it comes to marketing in the healthcare sector, there are rules and regulations that must be followed. The same ROI methods that have been adopted by other sectors simply don’t work for the healthcare market. Despite nearly 74% of all healthcare marketing emails remaining unopened, you’ll be surprised to learn that email marketing is essential for the healthcare industry’s marketing strategy.

INVESTMENT

Online sales in the fashion industry hit £16.2 billion in 2017, showing that online investment is crucial to deliver success. This figure is expected to continue to grow by a huge 79% by 2022

Over the past few years, the number of people who use email as a primary way of communication has increased and an estimated 2.5 million people do so currently. This means email marketing is targeting a large audience. For this reason, 62% of physicians and other healthcare providers prefer communication via email – and now that smartphone devices allow users to check their emails on their device, email marketing puts companies at the fingertips of their audience. One in 20 Google searches are queries surrounding healthcare, which shows that online marketing is essential. This could be attributed to the fact that many people turn to a search engine for medical answer before calling the GP. Discovered by Pew Research Center, it was found that 77% of all health enquiries start at the search engine and 72% of people mentioned that they’ve used the internet for health information over the past 12 months. Furthermore, 52% of smartphone users have used their device to look up the medical information they require. Statistics estimate that marketing spend for online marketing accounts for 35% of the overall budget. However, social media marketing should not be overlooked. Whilst the healthcare industry is restricted to how they market their services and products, that doesn’t mean social media should be neglected. In fact, an effective social media campaign could be a crucial investment for organisations, with 41% of people choosing a healthcare provider based

on their social media reputation. The reason behind the success of social campaigns is usually attributed to the fact audiences can engage with the content on familiar platforms. Investing Online marketing is crucial for the likes of fashion and automotive sectors. With a clear increase in online demand in both sectors that is changing the purchase process, some game players could find themselves out of the game before it has even begun if they neglect digital. There are alternatives for sectors like utilities too, who can benefit from website listings. Without the correct marketing, advertising or listing on comparison sites, you could fall behind. According to webstrategies. com, the average firm in 2018 is expected to allocate at least 41% of their marketing budget to online strategies – with this figure expected to grow to 45% by 2020. Social media advertising investments is expected to represent 25% of total online spending and search engine banner ads are also expected to grow significantly too – all presumably as a result of more mobile and online usage. If mobile and online usage continues to grow year on year at the rate it has done in the past few years, we forecast the investment to be not only worthwhile but essential. IFM editor@ifinancemag.com

Sources https://pmyb.co.uk/global-fashioncompany-influencer-marketingbudget/ https://www.prnewswire.com/ news-releases/the-uk-clothingmarket-2017-2022-300483862.html http://uk.fashionnetwork.com/news/ Online-is-key-focus-for-UK-fashionretail-investment-in-2017,783787. html#.WrOjxOjFKUk http://www.mobyaffiliates.com/blog/ retail-accounts-for-14-2-of-digitaladvertising-spending-in-the-ukin-2017/ http://www.thisismoney.co.uk/ money/bills/article-2933401/Energyprice-comparison-sites-spend-110mannoying-adverts.html http://www.thedrum.com/ news/2017/03/28/british-gas-shiftsacquisition-retention-marketingknow-the-value-keeping-the-right https://www.independent.co.uk/ news/business/news/uk-companiesonline-advertising-spend-10-billionmore-last-year-2016-pwc-a7678536. html https://www.webstrategiesinc.com/ blog/how-much-budget-for-onlinemarketing-in-2014 https://www.kunocreative.com/blog/ healthcare-email-marketing http://www.evariant.com/blog/10campaign-best-practices-forhealthcare-marketers https://getreferralmd. com/2015/02/7-medical-marketingand-dental-media-strategies-thatreally-work/

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW

The impact of Chinese imports on the Indian tyre market 2018 has proven to be an interesting year already for Apollo Tyres, one of the biggest tyre manufacturers, following the rise of India’s GDP, the entry of low-cost Chinese imports and anti-dumping imports. Apollo Tyres’ vice-chairman and MD Neeraj Kanwar gives us insights to the company’s performance in existing market conditions

International Finance Jul - Aug 2018

Neeraj Kanwar, Vice Chairman & Managing Director of Apollo Tyres Ltd

Jul - Aug 2018 International Finance

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How was the Indian tyre market been performing recently? As one can safely assume, the growth or decline of the tyre industry is closely connected to the growth and decline of the automotive industry which as the GDP of India grows, also grows, so too do two other factors; namely the push on infrastructure development within the country and the radicalisation in commercial segment. As the GDP increases across India, and investment into roads, developments and settlements increases, so too the transportation industry grows. The more roads there are to drive on, the greater the need there is for vehicles and therefore the greater need for tyres.

How big a hit did the market take from low-cost Chinese imports? What sort of steps did local suppliers take in response? As lower-cost imports came in from China, we Indian manufacturers

International Finance Jul - Aug 2018

lose on 30% of the market share of truck-bus radials to China. This had a knock-on effect to the whole truckbus industry across India including the truck-bus segment of Apollo. At its peak, China exported more than 150,000 tyres every month into India. Whereas some home-grown tyre manufacturers tried to compete with cheaper tyres, many failed. As you can imagine, this proved to be a concern, not just for Apollo but for the industry in India as a whole. The Automotive Tyre Manufacturersâ&#x20AC;&#x2122; Association (ATMA) raised this is an issue with the relevant governmental bodies.

tyres per month, rather than150,000 tyres per month from China. More recently, has the industry seen any benefit from the Goods and Services Tax (GST) Implementation? GST was effective in lowering impositions on borders which allowed vehicles to cover longer distances at a greater speed per day, facilitating faster movements of goods across the country. The increase in movement across the country inspired a greater demand for vehicles to transport goods and in turn, a greater demand for tyres, which has boosted the tyre industry significantly.

What effect have you seen from the anti-dumping duties imposed in 2017? The Anti-Dumping duties imposed in 2017 together with the demonetisation and Goods & Services Tax (GST) was effective in lowering Chinese imports by a third. This meant that India became reliant on somewhere between 50,000-60,000

What is the situation with the prices of raw materials at the moment? At Apollo, we are heavily reliant on the access and cost of raw materials, namely, crude-based materials, rubber and carbon black. Since January 2018, rubber prices have stabilised, whereas due to the higher cost of crude, any materials made from crude have

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become more expensive. There has recently been a shortage of carbon black, which has affected the methods and costs of manufacturing at Apollo significantly. What is your forecast for the industry this year? It is always difficult to predict an accurate forecast, but taking in light of the higher price for crude at the moment, although it’s likely that Apollo will see a growth, the profit margins are likely to suffer until we are able to operate a system and method taking into consideration the current price of crude.

Apollo is the 14th largest tyre manufacturer in the world, with annual consolidated revenues of US$2.09-billion and with 16,000 employees. From its major manufacturing operations in its base of India, as well as the Netherlands and

Hungary, Apollo exports to more than 100 countries. IFM editor@ifinancemag.com

Neeraj Kanwar is the Vice Chairman & Managing Director of Apollo Tyres Ltd. He has been instrumental in Apollo’s growth, taking the company from US$450 million to US$2 billion within five years. Under his leadership, Apollo acquired Dunlop Tyres International in South Africa in 2006, and Vredestein Banden B V in the Netherlands in 2009. He began his career with Apollo Tyres as a Manager in Product & Strategic Planning, where he played a crucial role in creating a bridge between the two key functions of

manufacturing and marketing. In 1998, he joined the Board of Directors and was promoted to Chief of Manufacturing and Strategic Planning. His people management skills helped him bring overarching changes in industrial relations, the development of technology and benchmarking on product and efficiency parameters. In 2002, Neeraj took over as the Chief Operating Officer. He was appointed Joint Managing Director in 2006 and elevated to Vice Chairman in 2008, and soon after to Managing Director in 2009, for his initiatives in establishing the company in the global arena. As a business leader, Neeraj is associated with leading industry associations and was recently the Chairman of the Automotive Tyre Manufacturer’s Association, India.

Jul - Aug 2018 International Finance

How firms can recover the Holy Grail from GDPR

In this article, Scott Bancroft, Capco’s Chief Information Security Officer discusses the five key steps businesses must take to gain from General Data Protection Regulation (GDPR)

n the run up to the GDPR deadline on 25 May, many companies were largely struck by panic. This new EU data privacy law, designed to overhaul how businesses process and handle data, certainly presented some operational challenges for companies. However, as they joined the mad rush to comply or die, many financial services firms seemed to miss that getting GDPR ‘right’ could bring them opportunities that most have been seeking to fulfil forever - a single view of the customer’s data and effective information management in the digital age. Getting a single view of all data held on a customer has largely become the ‘holy grail’ these days - allowing businesses to track their customers and communications across all marketing channels, and as a result, turn that data into viable business intelligence. While the big online retailers have been making a success of this for years, few businesses have in financial services. Why? Many haven’t had the financial impetus before, and their technology

International Finance Jul - Aug 2018

infrastructure hasn’t been up to it. So how can GDPR facilitate? Most recent financial regulations (such as MiFID II, Open Banking and GDPR) all have elements of data privacy requirements that must be fulfilled. If companies manage GDPR compliance properly, they will spend significantly less time, effort and money on managing other regulations - and achieve a much-improved level of information management – irrespective of the type of information – in the process. This requires a unified and consistent approach to information throughout its lifecycle, not forgetting record management across the business, which with GDPR returns with a vengeance. Under GDPR, unused or ‘stale’ data must now be disposed of, thus giving companies the ability to properly respond to data subject access requests and perform defensible disposition. Here are my tips on how you can discover the Holy Grail: 1)Assess your existing ‘maturity’ in terms of GDPR compliance… and identify any gaps.

business

This requires looking at the maturity of your whole organisation – and additionally from the perspective of company functions handling customer data, such as human resources, sales & marketing and finance. Remember: the regulator won’t absolve you if all but one of your teams is GDPR compliant! Therefore, company processes and systems should cover all types of business information, not just those pertinent to GDPR. This includes all information repositories in a company, down to end-user computing equipment. 2) Set up an information management programme. Once a gap assessment has been completed, create an internal team responsible for information management strategy. This needs to have support at board level, to give it the prominence it deserves. The programme should not just concern GDPR, which will undoubtedly be updated or surpassed by new laws and regulations in due course, but all data matters. To be truly effective, the team must additionally contemplate how it can consolidate existing regulatory and compliance change programmes throughout the business. For instance, many businesses have multiple

Scott Bancroft, Capco’s Chief Information Security Officer

enterprise resource planning (ERP) systems. That in turn, means going through the GDPR consent process multiple times, but also adding to the risk of a breach!

have to be retained for any other legal or regulatory reason. This is a true step-change in the ability of companies to manage information – could your company do this today?

3) Fill in the gaps you find from your assessment. The difficulty comes with discovering where data comes from, how it is used, and where it resides. Therefore, data management needs to become a continual process of reviewing and tracking these elements. It should be noted that this is not a purely technology-related activity - and will include non-techie representatives to fully understand the business processes that the information supports.

5) Know your risks. You need to ascertain whether the other third-parties (i.e .vendors) you are working with are also GDPR compliant. Your GDPR contracts will therefore require model clauses and risk assessments to ensure these third-parties up to speed. This will in turn give you the opportunity to review both data privacy contractual terms, controls and drive improvement within your third-party risk management process; resulting in a far clearer picture on the level of risk and allows more accurate evaluation of whether this is within your risk appetite.

4) Be certain of your evidentiary capabilities - now and for the future. Go through GDPR and read it - yes, all 88 pages! When it comes to data protection, it’s no longer ‘innocent until proven guilty’, the regulator now needs proof of compliance. Enlisting the help of internal audit should help with this. To put this into motion, consider what evidence you need, why you need it and how long you’ll retain it. Therefore, knowing the legal citation for retention of information of all types across the whole business becomes an imperative. Also, GDPR gives data subjects additional rights and specifies the times in which companies must comply. This has the potential for litigation to become more commonplace in financial services and some people will want to take advantage of GDPR. For example, GDPR requires you to delete data subject information within 30 days of the request (up to 90 if sufficient complexity can be demonstrated). Yet, you need to know where the data is, that it uniquely identifies the requester, that they are actually the requester (as opposed to a fraudster or third-party), and that the data does not

Finally… GDPR is what we all should have been doing for years, however, it should be seen as an ongoing process that does not finish at the end of a specific project. It may be painful, but it’s absolutely the right thing to do. As technology and the world moves on, GDPR will evolve. Do not only think about how you meet the minimum requirements of GDPR, but how you’ll use the lessons learnt to anticipate and be ready for the next generation of data privacy requirements. Wouldn’t it be a differentiator if all customer data was available quickly and simply – benefiting both the business and the consumer? That has to be the Holy Grail. How great would it be to go to your boss with a cheaper and more streamlined approach to information management? IFM editor@ifinancemag.com

Jul - Aug 2018 International Finance

OPINION

Urs Breitsprecher

Preparing new commercial contracts differently after Brexit That the UK will leave the European Union is undeniable. There is only a very small chance left that the UK will stay. What therefore does this mean for commercial contracts, and how can businesses approach the challenges that may come as a result?

rexit will have a significant impact on UK and European businesses, arising from the imposition of tariffs, restriction on the free movement of people, and other financial issues such as the further change of exchange rates. On the legal side, at the time of writing, the UK Government is preparing the “Great Repeal Bill”, which will repeal the European Communities Act 1972, but also convert some existing EU law into domestic law “wherever practical”. There are other areas of law which will be much more effected by Brexit, but the devil is in the details, as always in contract law. What contracts will be affected by Brexit? Contracts affected by Brexit must fulfil two criteria: (1) the contractual term will run beyond the date of the UK´s departure, expected end of March 2019, and (2) the nature

International Finance Jul - Aug 2018

of the contract means that it crosses the UK-EU border in some way. The latter arrangement can take many forms, for example if a supplier is situated in Germany and the buyer in the UK, or an English company could offer its products to English customers only, but do so in reliance on EU regimes and laws. A particular example which is common in licence and agency agreements is reference to the ‘EU territory’. Will this continue to refer to the UK after Brexit? Interpretation In contracts, everything which isn´t clear, will be a question of interpretation. The English courts have started to take a much stricter approach to interpretation than in continental Europe. In Arnold v Britton, the Supreme Court underlined the importance of the language of the

OPINION

contract, and warned that the fact that the contractual arrangement, if interpreted according to its language, has worked out badly, does not justify departing from the natural language of the contract. In Marks & Spencer Plc v BNP Paribas Securities Service Trust Company the court held that a court should only intervene where a term has been considered so obvious that it went without saying. Therefore any doubt caused by Brexit could lead to disadvantages, which quite often both parties didn´t want. Businesses shouldn´t rely on a Material Adverse Change Clause, i.e. that the Brexit is such a material change/ force majeure that leads to an automatic termination of a contract. Contractual issues caused by Brexit There are four major issues for commercial contracts caused by Brexit: EU references, financial hardship, impossibility and enforcement of agreements. One difficulty can arise from the reference to EU territory or EU law, like the scope of right or restriction, such as in a trade mark licence or restriction on transferring personal data. After Brexit, the UK will not be part of the EU anymore. Therefore, to make sure the territory of the UK will be included, contractual provisions should have a full list of countries including the UK and future EU members. With data protection we will have to see whether the UK will uphold the EU data protection standard, otherwise the UK won´t be a “safe harbour” and the same problems will arise as with the USA. Then, UK organisations should guarantee their compliance with EU data protection laws. Issues can also arise for new goods entering the EU, if they need to comply with certain EU standards. This should be borne in mind already. The same applies by reference to EU legislation. We do not know yet what EU law will be converted into UK domestic law, or if the UK will take over new legislation.

Financial hardship can be triggered by the movement of exchange rates like we saw in June 2016, tariffs and VAT issues. There could be additional costs and delays for customs checks imposed after the UK leaves the customs union, and restrictions on the free movement of people could lead to labour shortages or increasing labour costs. These should be considered in new contracts, although old contracts cannot be changed. This will be different if Brexit makes performance of the contract impossible, in which case frustration will apply. This will be very rare, possible examples could be seen in the financial sector with the EU passporting. This could fall under force majeure. However, the courts are very reluctant to accept force majeure, as demonstrated in Czanikow Ltd v Centrala Handlu Zaranicznego Roimpex. Therefore, organisations should consider a special termination clause in the event of Brexit and certain hardships. Within the EU, under the Brussels Regulation, in general all judgments are enforceable in any member state. However, when the UK leaves the EU, it is doubtful that the Brussels Regulation will be enforceable in the UK. Therefore, there is a risk that UK judgments won´t be easily enforceable in the EU and vice versa after Brexit. However, the UK is member of the New York Convention 1958 on Arbitration, so arbitration will be enforceable. Consequently, organisations should use arbitration clauses and agree on the applicable law and jurisdiction, because the Rome I and II treaties which regulate these questions within the EU, will most likely not be (directly) applicable after Brexit.

contracts, where businesses are in a position to deal with these new challenges now. For existing contracts, organisations should consider how Brexit could affect their business, identify key contracts governing those arrangements, and look for loopholes or consider whether to try to negotiate or amend those contracts. However, be careful. Brexit is an unknown quantity for everyone, therefore try to find common ground. With future contracts, you should expressly state the commercial impact of Brexit, i.e. change to tariffs, exchange rates, customs procedures, whether reference to the EU shall include the UK and the position of EU law. You should use arbitration clauses for enforcement in the EU/ UK, and consider whether to include an express right of termination for certain issues prompted by Brexit. Whilst we do not yet know what kind of Brexit – soft or hard – will happen, we do at least know that change is coming, so it’s time to take this into account, change contracts where necessary and begin dialogues with your business partners. Nothing is as damaging for business as uncertainty. IFM

Old contracts – new contracts One further differentiation is the question of (1) existing contracts, where business have to live with the contractual text or re-negotiate a new agreement and (2) future proofing

Urs Breitsprecher is an expert in Company Law, M&A and Tax . Urs is a member of IR Global, the world’s fastest growing global professional service firm network.

editor@ifinancemag.com

Jul - Aug 2018 International Finance

banking

Australiaâ&#x20AC;&#x2122;s banking inquiry: A crucible for change? A series of embarrassing failures that have reflected poorly on Australiaâ&#x20AC;&#x2122;s financial industry compels one to consider the need for an independent, professional body with strict standards and codes of conduct, writes banking professional Peter Pontikis

International Finance Jul - Aug 2018

banking

fter much political pressure following a litany of embarrassing failures in recent years that reflected badly on the Australian financial industry as a whole, the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry got underway in mid-March led by Kenneth Hayne. With 2810 submissions received to date, 70% related to banking, 9% on Superannuation and 5% on advice, general insurance and brokers. The first round of public hearings wrapped up in Melbourne in early May, with policies and processes put in the spotlight particularly on the largest banks and wealth management businesses with evidence (among other things) that the “approach to recruitment, training and accreditation of bankers had not been fully effective in ensuring that all bankers understood consumer lending process compliance requirements” according

to Commissioner Hayne. These latest revelations, have given plenty more ammunition to opponents of the industry, summing up just why it is vitally important for the sector to come together under an independent, professional body with strict standards and codes of conduct. The focus on financial planning and wealth management firms (particularly the AMP wealth group) followed next with damning evidence around provision of financial advice that has raised serious issues about behavior that has further eroded the trust of Australian consumers. Some instances included dead people being charged for years post mortem as well of consumers being levied fees (in many cases decades) from accounts for advice never delivered. Instances of inappropriate or egregious portfolio shifting to maximize broker revenues also being common. This has seen some high profile corporate casualties with for instance chair the 169 year old listed AMP,

Peter Pontikis is a Fintech, Treasury and Investment Management professional based in Brisbane

Catherine Brenner resigning as the most senior casualty of the Royal Commission into banking and financial services but unlikely to be the last with many reputations being burned along the way. This has prompted calls for the industry to act now to implement likely recommendations on standards of competence and conduct. FINSIA’s, (Australia’s premier financial services professional body) CEO Chris Whitehead pointing out that; “The industry should not wait for the findings of the Royal Commission. A code of professional conduct will deliver better outcomes to the community, improve the reputation of the industry and restore pride to the majority of employees who want to do the right thing. While the Royal Commission has another 6-12 months to run, with likely more damaging revelations to follow, what is most palpable is the level of concern of the community and the vast majority of people within financial services with the unacceptable behaviors and practices revealed through the Royal Commission. Clear risk management and legal failures (such CBA Bank’s recent AML scandal involving business ATMs) highlighted weaknesses in corporate codes of conduct and whistleblowing mechanisms. That the industry needs to build consensus and determine standards of competence and conduct in the broad sector, including ongoing monitoring of standards becomes compelling. But underpinning professionalization of the banking and financial services industry, and to restore consumer confidence in Australian financial services there also needed addressing the problematic reference point of remuneration and bonus incentives to otherwise has been seen to undermine good behavior in persons and in organizations as has also been highlighted by the commission’s work to date. It is the words of one big bank CEO, ANZ’s Shane Elliot,” the commission

Jul - Aug 2018 International Finance

banking

marks a watershed moment”. While Westpac’s Brian Hartzer for his part calls it “…the tail end of decade long set of Legacy issues”. And to an extent much of what is being heard in public hearings is old news that had already been addressed in part, but certainly not in whole – nor with the level of public contriteness now expected of the country’s premier banking officers. The main corporate regulator, ASIC (Australian Securities and investments Commission) unsurprisingly has also come in for its own share of heat with ASIC’s chairman James Shipton at a keynote speech earlier May saying “We need greater levels of professionalism in finance, including in the banking and wealth sector”. Legal and regulatory Reponses have not been slow in coming and some cases running ahead of the commissioner’s deliberations. Indeed the so-called Bank Executive Accountability Regime (or BEAR) which the country’s federal treasurer Scott Morrison has sought to impose ahead of the Royal Commission obligations on Bank boards to act with “honesty and integrity and with due skill, care and diligence”, and deal with the bank regulator (APRA) in an “open, constructive and co-operative way” and take “reasonable steps” to prevent matters from arising that

would adversely affect the prudential standing or reputation of the bank. Some of the extraordinary points of the legislation include a new definition of accountable person that will capture many more employees than the senior executive team, as well as the need to notify the regulator. It is also has a notification requirement around the appointment of these accountable persons. And most personally for bankers; requirements for the bank to defer a proportion of the remuneration of accountable persons for a period of up to four years, with the proportion depending on the size of the bank and the position involved. The law is due to come into operation in July of this year. As for the industry, they too have been responding to these and other industrial challenges. For instance in the case of another big 4 bank, the NAB officially confirming it is exiting the wealth management industry altogether, other of its bank rivals rumored to follow or at least giving serious consideration as well as a degree of stock market speculation support the proposition. With the commission’s crucible has still to run its full course of airing the dirty linen of the Australian finance industry these stringent measures are just part of a raft of measures both in

Australia and around the world being introduced to combat the reputational fatigue with the finance industry after so many years of bad press. Of which a key part of these global trends is to increase the individual accountability and responsibility for conduct, particularly for senior management. Finally and alongside these regulatory initiatives, expect to see ‘soft law’ techniques are being enlisted, such as ‘naming and shaming’, in addition to the promotion of compliance with standardized socalled ‘voluntary’ industry codes. Designed as it is to prioritize customer outcomes at the heart of improving culture and conduct. Pouring out of the fire of the commission we are seeing a secular evolution in the industry that has many years to run. IFM editor@ifinancemag.com

Peter Pontikis is a Fintech, Treasury and Investment Management professional based in Brisbane providing like services into India & SE Asia and has more than three decades of investment, corporate dealing, trading and research experience in currencies and global money markets. Peter has also consulted in the area of treasury operations and treasury derivative accounting. A Fellow of CPA Australia, Peter has authored several books on foreign exchange and trading in financial markets as well as producing a training CD on Chinese Financial Markets.

International Finance Jul - Aug 2018

banking

African banking reaches new heights with Zenith Bank The Ghanaian bank is capitalising on technology and Internet in a prominent way to emerge as a financial services leader in the region International Finance Jul - Aug 2018

banking

The Internet boom and Zenith Bank’s opportunity The Internet drives almost every major aspect of our lives, and has revolutionised many nations in the recent past. One of the biggest benefactors of the Internet is Africa. According to InternetWorldStats, Internet penetration in 2017 alone accounted for 35.2%, against the global average of 54.4%. GSMA’s Mobile Economy Sub-Saharan report states that the region accounts for a tenth of the global mobile subscriber base and is expected to grow faster than any other region over the next five years. A fast-growing mobile user base has lent itself well to the burgeoning financial services space. Africa is the global leader in mobile money, states a McKinsey report. This, among other reasons, has formed a substantial foundation for multiple banks to capitalise on. Ghana’s Zenith Bank, one of the foremost financial services

Henry Oroh, CEO, Ghana’s Zenith Bank

providers in the West African nation has been tapping into the benefits of the Internet for its large customer base. The bank, which won the International Finance Award 2017, for its corporate bank offerings, is steadily exploring opportunities in the mobile banking space. CEO Henry Oroh says, “With a heavy dependence on mobile phones, the bank has taken advantage of the opportunity that mobile phones provide and was amongst the first to roll out our mobile banking application, Zmobile. Our app is accessible via Play Store and the App Store on Android and iPhone. Our customer’s response has been overwhelming as it gives them 24-hour access to their bank accounts so they can conveniently carry out banking transactions anytime, anywhere.” Zmobile enables customers to check their account balance, top-up their investments, effect intra and interbank transfers, pay bills, set up beneficiaries, view transaction history, etc. The bank has adopted both the USSD and Mobile Application solution to serve its customers. This approach is being used to bank the banked and the unbanked that are not in the bank’s portfolio. The growing reliance on Internet services in Ghana and generally across Africa has contributed to the use of banking services in the country, with a deep impact on financial inclusion and is also driving at a fast pace the nation’s cash-lite agenda. “The Internet and the convenience of electronic banking products and services have transformed the way we do banking -

most banking transactions that would have required one’s physical presence in a banking hall, can now be done remotely via a computer or mobile device such as the mobile phone, tablet, etc,” explains Oroh. With the internet, the customer can conveniently carry out banking transactions from their homes, offices and on-the-go. With the competition in the Ghanaian banking industry, banks that have acknowledged the convenience of electronic banking solutions to the customer and have as a result leveraged on it have a competitive edge over banks that do not capitalise on its use. Profit margins of banks have also increased significantly since the use of electronic banking products and services create another avenue for adding to the bank’s bottom line. Fintech potential boosting strategic industry collaborations: The growing dependence on mobile financial services has lent into the continent’s narrative to boost the financial technology industry. To remain at the forefront of banking in Ghana, Zenith Bank continues to invest heavily in advanced banking technologies as well as on research and development with a focus to remain actively engaged with current trends in technology. The bank, through its knowledgeable and well equipped IT staff, consistently develops new products and services that would cater to the unique needs of clients. This is being accomplished significantly through diverse industry collaborations. “We have formed strategic partnerships with fintech companies such as Hubtel & expressPay and employed card solutions from MasterCard,Visa and other card payment companies, as well as mobile money services from telecommunication giants such as MTN and Airtel to ensure that we remain relevant to our customers whilst staying abreast with industry trends,” added Oroh. Moreover, strategic partnerships

Jul - Aug 2018 International Finance

banking

even with major telecom networks such as Vodafone and Airtel positively impact the bank’s profit margins. Customers of the Bank will have access to personalised services such as the Mobile Money Bank2Wallet platform allow the linkage of mobile money wallets to traditional accounts thereby allowing the ease of transfer of funds for the payment of goods and services 24/7. It also plays a crucial role in the nation’s cash-lite agenda. With Vodafone most especially, the Bank offers the high net worth customers of Vodafone exclusive services usually reserved for Platinum clients of the Bank. These services include extended banking hours; Visa Lounge Key access (that provides complimentary airport lounge visits with access to more than 900 airport lounges across the world); access to all Zenith Bank’s exclusive Platinum Banking halls; wealth & portfolio management; investment advisory services; networking activities; and concierge services, amongst others. These premium services and offerings make Zenith Bank a veritable banking partner for Ghanains. The bank won the International Finance Award 2017 for its corporate offerings – which Oroh believes are a step ahead than those offered by contemporaries thanks to advanced technology platforms. “With a highly robust technological platform, powered by the Bank’s astute IT personnel, Zenith Bank is able to

provide products and services that assure all corporate customers of an utmost ease of doing business. The Bank’s Relationship Management model is also unrivalled in the industry. The bank invests extensively in training programmes for its staff to ensure that they are fully equipped to deliver the best service to existing corporate clients and prospective ones. Dedicated members of staff, who have specialised knowledge of key sectors of the Ghanaian economy (such as energy, telecommunications, aviation, mining, construction, etc.) are assigned to the bank’s corporate clients with the sole responsibility of managing the financial needs of their businesses through the provision of advisory services and tailor-made products and services that cater to their unique banking needs. Our customer-centred innovations such as our well-resources and service-attuned 24-hour contact centre, provides a channel through which the bank can engage its corporate customers to evaluate the level of service being enjoyed by these customer to ensure total customer satisfaction at all times,” added Oroh. The bank’s competitive edge is in innovation and technology. Operations are driven by a very robust information technology platform, evident from the bank’s suite of products and service offerings in line with current global trends. Year on year, the Bank has expanded its reach to the banking

public, physically and through the adoption of innovative channels driven by technology and partnerships. With a current network of 36 business locations, strategically sited ATMs and POS terminals in cities and towns across the nation, the Bank continues to expand its reach in Ghana. Future Plans: Over the next five, years will mainly be on customer service delivery, financial performance, digital banking, retail banking structure and brand amplification. Given Zenith Bank’s excellence in digital banking, this area will continue to be of interest to the bank’s 2018 expansion plans. “We will continue to enhance the features of our digital banking platforms to enable us meet the ever changing needs of our valued customers.” As part of the bank’s strategy to remain competitive in the deployment of digital solutions, plans are far advanced for the roll-out of the Zenith QR, a mobile-based payment solution that allows customers to make payments through their smart phones by simply scanning the unique merchant QR (Quick Response) code at merchant outlets. The service is currently being piloted. This will add to the number of e-solutions the bank has planned to deploy in 2018. IFM editor@ifinancemag.com

Bank of Ghana now expects a minimum capital requirement cap on major Ghanaian banks. Zenith Bank becomes first to meet the new requirement The Central Bank, in September 2017, announced the increase in the minimum capital requirement for universal banks from GH¢ 120 million to GH¢ 400 million and banks have until December 2018 to comply. Currently, Zenith Bank, has become the first Bank to have officially met the new requirement. In fact, our first quarter unaudited financial report showed that we had moved funds from our income surplus and now proudly boasts of a new minimum capital requirement of GH¢ 400 million. The hope of the Central Bank is that the increase in capital requirement will force some of the banks to come together to consolidate. The Central Bank needs stronger banks to boost the financial system in Ghana by undertaking big ticket transactions International Finance Jul - Aug 2018

finance

Cyberattacks in finance, and how to tackle them Carbon Black, the leader in endpoint security solutions, released a report titled Modern Bank Heists: Cyberattacks and Lateral Movement in the Financial Sector, which offers perspectives of 40 Chief Information Security Officers (CISOs) on financial safety today. Here are the findings

yberattacks against financial institutions are most often conducted for the purpose of yielding illicit financial gain. These attacks are typically undetectable, global, and instantaneous. During the past three years, researchers have seen a tremendous amount of innovation from cybercriminals. Over the past six months specifically, the cybercriminal modus operandi has evolved. Cybercriminals are leveraging new techniques, tactics and procedures (TTPs) specific to maintaining persistence and countering incident response. To better determine how cybercriminals are hiding behind invisibility cloaks to remain undetected, Carbon Black conducted a survey, comprising input from chief

International Finance Jul - Aug 2018

information security officers (CISOs) at 40 major financial institutions. The purpose of the survey is to improve telemetry for threat hunting teams and defenders. Key Findings: Cybercriminals are continuing to hide in plain sight and move laterally leveraging nonmalware attack methods. PowerShell (89%), Windows Management Instrumentation – WMI (59%) and Secure File Transfer Protocol – SSH (28%) were the top three “good tools” attackers leveraged nefariously to target financial institutions, according to our survey. These “non-malware” (or fileless) attacks now account for

finance

Russia (59%), China (23%) and North Korea (16%) are the most concerning nation-state actors associated with cyberattacks, according to financial institution CISOs in our survey

more than 50% of successful breaches. With non-malware attacks, attackers use existing software, allowed applications and authorized protocols to carry out malicious activities. Non-malware attacks are capable of gaining control of computers without downloading any malicious files, hence the name. Non-malware attacks are also referred to as fileless, memorybased or “living-off-the-land” attacks. There is a common theme why cybercriminals are increasingly leveraging non-malware attacks: they are following the path of least resistance. Financial institutions are not immune. The silver lining here is that awareness of malicious usage for tools such as PowerShell has never been higher. The fact that 90% of

CISOs reported seeing an attempted attack leveraging PowerShell is a good thing. Not seeing such attempted attacks means the attacker has remained hidden. 90% of financial institutions reported being targeted by a ransomware attack during the past year CryptoLocker. GoldenEye. Locky. WannaCry. 2017 was, perhaps, the most notorious year on record for ransomware. Even a casual news consumer can identify the menacing ransomware attacks that have cost worldwide businesses as much as $1 billion in 2017, according to FBI data. Financial institutions are clearly not immune. The overwhelming majority of CISOs in our survey reported seeing

some kind of attempted ransomware attack during the past year. This is not surprising. Last year, Carbon Black researchers monitored 21 of the largest dark web marketplaces for new, virtual offerings related to ransomware. Our research found a 2,502% increase in the sale of ransomware on the dark web. This increase is largely due to a simple economic principle – supply and demand. Cybercriminals are increasingly seeing opportunities to enter the market and looking to make a quick buck via one of the many ransomware offerings available via illicit economies. In addition, a basic appeal of ransomware is simple: it’s turnkey. Unlike many other forms of cyberattacks, ransomware can be quickly and brainlessly deployed

Jul - Aug 2018 International Finance

finance

with a high probability of profit. In our previous report, we found more than 6,300 estimated dark web marketplaces selling ransomware, with more than 45,000 current listings. Only 37% of financial organizations have established threat hunting teams Active threat hunting is an important step for organizations with mature security programs. It puts defenders “on the offensive” rather than simply reacting to the deluge of daily alerts. Threat hunting aims to find abnormal activity on servers and endpoints that may be signs of compromise, intrusion or exfiltration of data. Though the concept of threat hunting isn’t new, for many organizations the very idea of threat hunting is. The common mindset regarding intrusions is to simply wait until you know they’re there. Typically,

International Finance Jul - Aug 2018

though, this approach means that an organization will be waiting an average of 220 days between the intrusion and the first time they hear about it. And even then, it’s typically an external party such as law enforcement or a credit card company that’s telling you. With threat hunting, defenders are deployed to go out and “find the bad” versus waiting for technology to alert you. Successful threat hunting teams proactively chase down signs that intruders are present or were present in the recent past. They look for anomalies – things that don’t usually happen 1 in 4 financial institution CISOs reported experiencing counter incident response This figure is concerning. It means cybercriminals are increasingly reacting and adapting to defenders’ response efforts. Cybercriminals

realize there are humans on the other end actively countering their techniques. They realize that teams are, in some cases, instrumented to detect and respond to their activities. They also realize that teams have specific IR playbooks for these types of scenarios. Attackers are able to go off their scripts while defenders are sticking to manual and automated playbooks. These playbooks are generally based off simple indicators of compromise (IoCs). As a result, security teams are often left thinking they have disrupted the attacker, but with counter incident response, attackers maintain the upper hand. This problem is compounded with secondary command and control (C2) present in several victims (1 in 10, according to our survey). We forecast this will become a more prevalent tactical shift in the coming

finance

months. As SOC and IR teams begin to react, attackers are doing a number of things to counter the defenders such as changing code to evade new technology, targeting security analysts and engineers in separate but coordinated attacks, deleting logs from endpoints to hide nefarious behavior and executing DDoS attacks on applications and systems critical for defenders and/or the business. Cyber defense is evolving into a high-stakes game of digital chess where opponents are responding to every move made on the board. Teams should be prepared to throw out the IR playbook when necessary. Nearly half (44%) of financial institution CISOs said they are concerned with the security posture of their Technology Service Providers (TSPs) These TSPs are regularly targeted by cybercriminals. As evidenced by the FDIC’s own inspector general: “The FDIC’s oversight process used for identifying, monitoring, and prioritizing TSPs for examination coverage needs improvement.” Island hopping via information supply chains

is growing. Our recommendation is for threat hunt teams and defenders to closely assess TSP security posture. Given that 63% of financial institutions have yet to establish threat hunting teams, there should be concern regarding limited visibility into exposure created by TSPs. Cyberspace is fluid and exposure may become systemic. Russia (59%), China (23%) and North Korea (16%) are the most concerning nation-state actors associated with cyberattacks, according to financial institution CISOs in our survey Geopolitical tension serves as a harbinger for cyberattacks. There’s perhaps no surprise with the results to this question with Russia leading the way, given the country’s continued efforts to attack and influence the West, including the United States’ 2016 presidential election. The “Silicon Valley of the Dark Web” lies in St. Petersburg, Russia. Russian cybercriminals have demonstrated advanced sophistication among hacking groups. Russia’s motivation for targeting financial institutions

appears to go beyond financial gain or countering economic sanctions. Since 2014, many of the best cybercriminals have acted patriotically on accession to support Russia’s strategic goals. Corporate espionage, sensitive data, trade secrets and personal information for executives, partners and customers all seem to be in play when it comes to Russia’s cyberattack efforts. IFM editor@ifinancemag.com

Recommendations Given these trends, modernizing defense in depth is imperative to preserve a highfunctioning cybersecurity posture. The technological dependency of financial institutions to internet-based platforms has dramatically increased the industry’s exposure to reputation, market and operational risks. The major gaps for many of these institutions revolve around visibility and time to detection. This is particularly troubling as it pertains to deterring an attacker’s ability to move laterally within an enterprise post breach. Financial institutions should aim to improve situational awareness and visibility into the more advanced attacker movements post breach. This must be accompanied with a tactical paradigm shift from prevention to detection. The increasing attack surface, coupled with the utilization of advanced tactics, has allowed attackers to become invisible. Decreasing dwell time is the true return on investment for any cybersecurity program.

Jul - Aug 2018 International Finance

Event Preview

Cybersecurity for Srilankaâ&#x20AC;&#x2122;s financial services Cyber Security for Financial Services, to be held on 10th and 11th July in Colombo, Srilanka, is a step ahead for the industry to tackle modern day challenges in security

implications on the financial sector; integrating social media in banking websites; educating the industry on the impact of blockchain in cybersecurity and revolutionizing financial organizations with blockchain. The organizer believes attending this critical industry event carries key benefits such as discovery of new technology and solutions that can help businesses achieve optimum cyber-preparedness; learning about guidelines & legislations laid down by regulators and understanding the latest threat vectors affecting the financial sector. IFM

editor@ifinancemag.com

xplore Exhibitions and Conference is taking a step to address the cyber security challenges of the country by bringing in the key stakeholders from the financial institutions and foster an engagement between public and private enterprises to address the potential threats and vulnerabilities. The Cyber Security for Financial Services will be held on 10th & 11th July 2018, Colombo, Sri Lanka. The summit will witness 150+ key decision makers from a wide

International Finance Jul - Aug 2018

range of businesses within the BFSI vertical and also introduce regional and international speakers to educate and help implement the strategies to safeguard critical data. The major topics to be discussed include mitigating risks of increasing cyberattacks in Sri Lankaâ&#x20AC;&#x2122;s financial services sector; minimizing the challenges of big data protection in banks and financial institutions; increasing the dependency and viability of cloud in banking services; identifying financial fraud and its

International Finance is a media partner for the Cyber Security for Financial Services. For details visit: www.exploreexhibitions.com/cybersecurity or contact samantha@exploreexhibitions.com/ +91 7022871384

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Kuwait Banking & Burgan Bank

Noor Bank

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Alexandre Coelho

Naveed Kamal Manging Director

CEO

Citi Bank N.A.

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finance

Stopping Bad Actors: The Cost of Noncompliance is Big The use of technology reduces the manual intensity of anti-money laundering (AML) compliance, which enables compliance analysts to do their jobs more efficiently International Finance Jul - Aug 2018

finance

uman trafficking is a global issue and cannot be ignored. It has emanated from former Eastern Bloc Europe, since the fall of the Berlin Wall, and the U.S. State Department annual report on human trafficking has ranked 23 countries in tier 3, the lowest possible mark when it comes to abating this crime. Drug lords and other bad actors target women, who are disproportionately trafficked as a cash source through forced labor or prostitution. The issue of human trafficking has worsened over the past four or five years because of porous European Union borders coupled with people desperate to flee war-torn areas, oppressive regimes and conflict zones. For example, the International Organization for Migration estimates a 600% spike in the number of potential humans being trafficked (mainly from parts of Africa) and entering Italy. These confluent dynamics make stopping human trafficking extremely difficult. Human trafficking is a predicate offence to money laundering and terrorist financing. It is considered a financial crime, because it is a source for bad actors to gain funds and as such, companies in all industries, and especially financial institutions, have a mandate to disclose to regulators their efforts to wipe out human trafficking. Their efforts are part of a robust financial crime compliance regime that all banks must have in place,

as designated by global regulators. Central to regulatory compliance is automated screening using highly specialized software, name matching and other forms of patterned data that are then used in company communications to regulators. In other words, technology, data and analytics plays an extremely important role in identifying human traffickers while ensuring banks comply with regulations and operate efficiently. Each year we issue the True Cost of AML (anti-money laundering) Compliance study. The goal is to understand the challenges financial institutions face when it comes to fighting financial crimes, like human trafficking, money laundering and terrorist financing. Through awareness, these issues can be resolved and the compliance function can focus more energy on stopping more financial crimes, which ultimately benefits society. We recently conducted the EMEA edition of the True Cost of AML Compliance study where we researched Germany, France, Switzerland, Italy and The Netherlands in 2017 and South Africa in 2018. The true annual cost for these countries totaled USD85.4 billion. Table 1 outlines the annual cost per country. Consistently the research showed across each country that AML compliance costs have risen in the past two years by about 20%, and an overwhelming majority (90%) of

True Cost of AML Compliance by Country

COUNTRY

COST (USD)

Germany

$46.4 billion

France

$18.6 billion

Switzerland

$1.9 billion

Italy

$14.4 billion

The Netherlands

$2 billion

South Africa

$2.05 billion

the respondents think the costs will continue to rise by double digits for the next two years, especially in the areas of compliance and sanctions screening. What variable is causing this cost upsurge? Labour. Much of the AML Compliance function continues to be manual. In fact, the manual nature of this function attributes nearly 75% of costs to compliance. A True Cost of AML Compliance survey respondent from a Swiss financial institution said, “Complex procedures and approval by various authorities is not only a timeconsuming task, but it also costs our firm a fortune to comply with the AML process.” Labour resources represent a significant component of compliance spend and activities, and this expense burdens firms, which causes a decrease in employee productivity and loss of prospective customers. A truth stands: if labour continues to be a significant component of AML compliance, then overall costs will continue to increase. Why in the most technologically advanced era is compliance still so manual? The answer lies in the due diligence process. Not surprisingly, the time required to perform customer due diligence has a significant impact on overall AML compliance costs, and firms in Europe reported long processing times across customer types. Even for domestic retail customers, who should face the simplest requirements, no respondents reported being able to complete due diligence in less than one hour. A majority of the respondents indicated they spend three to eight hours on domestic retail customers, with an average time of about seven hours. Of interest is that financial firms spend more due diligence time on those entities that represent a smaller portion of new monthly accounts – namely, corporate customers. This resembles the “80 / 20” rule whereby most cost is consumed for a minority of customers. A “catch-22” exists. Corporate accounts are profitable but

Jul - Aug 2018 International Finance

finance

Thomas C. Brown

more complex than retail customers. With more complicated ownership structures, subsidiaries and overseas relationships, manual efforts can take substantially longer, increase labour costs, heighten customer friction and actually erode profitability. A survey respondent from an Italian financial institution said, “The lack of a unique view of the customer forces our office to import data from different sources and channels and store them in multiple systems, so the process is frantic, tedious, and costly. This hampers our productivity.” Alert processing times are significant and expected to get worse, contributing to increased costs and customer friction. Most participating firms reported that alerts of any type take three or more hours to clear, with average times ranging from eight hours for KYC/due diligence alerts to 21 hours (nearly three business days) for AML transaction monitoring alerts. KYC/customer due diligence alerts represented the greatest variation across countries. Firms in Italy were more likely to clear these alerts quickly (with an average time of 5 hours), whilst firms in the Netherlands were

International Finance Jul - Aug 2018

more likely to take a longer time (average of almost 10 hours). The challenge of clearing alerts is likely to get worse. More than half of firms who participated in the study (58%) expected alert volumes to increase by an average of 12 per cent. Significantly more Swiss financial institutions (78%) were likely to indicate expected increases. The combination of increasing customer due diligence requirements, lower productivity and continued reliance on manual resources means that AML compliance has a meaningful negative impact on customer acquisition. There is a strong correlation between respondents’ ratings of AML compliance impact on customer acquisition and on overall productivity. This impact was cited as moderately negative by 72 % of firms. Similar to LoB productivity, firms in France and Germany are slightly more pessimistic about the impact on customer acquisition than firms in other countries (76 % and 78 % respectively); banks are more pessimistic than investment firms, likely due to the faster pace and volume of transactions on the banking side.

Customer friction during the onboarding process costs European financial institutions prospective customers (73 per cent of respondents reported losing up to 4 per cent of prospective customers). For those prospective customers who do not leave during on-boarding, delays cause more than just frustration from waiting. They actually can cost customers money based on not being able to move forward with transactions. This is not a good way to start a new customer relationship; in fact, it likely leads to loyalty erosion faster compared to those who start out on a positive note. Expressed as a percentage of new account applications, almost half (42 per cent) of firms indicated between 6 per cent and 10 per cent of new accounts are delayed - similarly across countries and different types and sizes of firms. That reality can translate to a sizeable number of angry new customers who very quickly become high risk of churn at some point. Something has to give. Bank compliance functions are operating in an era of heavy operational workload. No doubt. Within this framework, most survey respondents indicated that streamlining or improving the efficiency of the KYC/customer due diligence processes is a priority for their organization. Overall, this aligns with concerns across countries regarding lost productivity and customer friction that is costing financial firms in terms of actual expenses and lost customers. Even more important, rising costs and new / ever-increasing regulatory requirements will necessitate more AML compliance process efficiencies; the role of technology and data are playing a role to relieve much of the burden financial institutions face with AML compliance. Many survey respondents have already adopted shared interbank compliance databases and unstructured text data analysis, in-

finance

Adoption of new technologies in AML Compliance

memory processing [what does this mean?, and cloud-based KYC utilities. Fewer firms use machine learning and artificial intelligence but adoption is expected to be widespread within five years. Unstructured audio and video data analysis are seen as relevant but less mature and further out for many. Not surprisingly, large firms (more than USD50 billion in assets) with their large compliance budgets are more likely than small firms to have implemented or be planning to implement these technologies. Use of technology reduces the manual intensity of AML compliance, which enables compliance analysts to do their jobs more efficiently. This streamlining, especially of the due diligence and KYC processes, helps banks in their efforts to stop human trafficking.

For example, when a bank screens its customer list against a worldwide dataset using technology and linking, they can make sure they are not doing business with human traffickers, associates of human traffickers, money launderers or any other type of bad actor, thus curtailing human trafficking. Advanced linking technology is important because it enables the return of only relevant intelligence so that a financial institution can more accurately pinpoint if someone it is doing business with is a bad company or bad actor. Human trafficking works in the dark shadows of the world. Technology, data and analytics are the tools financial institutions are using to put pieces of intelligence together to see where they might fit unwittingly in

this crime. Additionally, technology, data and analytics gives companies intelligence to understand the scope of the problem and arms them with knowledge. As a result, companies can ask better questions, notice odd patterns and then reach out to their law enforcement agencies to shine a light into the dark shadows and stop human trafficking by stopping the flow of money associated with human trafficking. IFM editor@ifinancemag.com

Thomas C. Brown is the senior vice president of LexisNexis Risk Solutions in charge of U.S. commercial markets and global market development.

Jul - Aug 2018 International Finance

OPINION

Joe Woodbury

The Rise of Robo-Advice in Financial Services: Time to ReBoot? Following the launch of Financial Advice Market Review to investigate the opportunities and challenges of automated advice in finance, what kind of impact will this have on the industry?

International Finance Jul - Aug 2018

OPINION

he financial services industry has undergone significant change in the years post the financial crisis of 2008. A raft of new legislation has been introduced and the financial technology (FinTech) industry has boomed creating with it an environment of uncertainty and transformation in the advice sector. With the FCA announcing that half of the companies in the first wave of its Advice Unit have either launched a low-cost advice service or will be doing so imminently there will soon be plenty to choose from. In a bid to close the gap between those who need advice and those who can afford it, the FCA launched its Financial Advice Market Review (FAMR) to investigate the opportunities and the challenges that automated advice can bring. Here, we discuss what these opportunities and challenges look like and the potential impact this technology will have on the financial services industry as a whole. Automated advice, commonly referred to as ‘robo-advice’, is the provision of financial advice with as little human interaction as possible. A strand of artificial intelligence, robo-advice offers advice on the basis of mathematical rules and algorithms rather than human intelligence – whilst algorithmic trading may have been around for many years, the concept of a ‘robo-adviser’ has only recently become a reality. In order to stay current and ahead of this new wave of technology, the FCA introduced Project Innovate in October 2014 in a bid to provide practical support to businesses wanting to introduce innovative financial products. Firms were invited to join the Sandbox where they could test new products without all the usual regulatory requirements. The Advice Unit was subsequently launched in June 2016 in order to provide regulated feedback to those developing robo-advice models, and now also accepts businesses not seeking authorisation but wanting to provide guidance on regulation.

Robo-advice offerings to date have mainly focussed on the less complex end of the financial advice spectrum. However, the FCA’s purported enthusiasm for these advisers has stemmed largely from concerns about an ‘advice gap’, situations where consumers are unable to get/afford advice and guidance. The FCA, much like the FinTech industry, sees a raft of positivity to combat these issues in the rise of robo-advisers, but also some pitfalls. This advice is still very much in its infancy and is generally not yet at the stage where it can provide sophisticated advice in relation to complex circumstances and some external factors seem to be slowing down its fruition. Ironically, many of the opportunities brought to the table by automated advice also cause the challenges. Opportunities include: a low-cost alternative to traditional services, an increased accessibility for the consumer (on the basis that the advice/ guidance is based on algorithms it can be accessed 24/7), increased access to affordable advice/ guidance, and many argue that it removes human biases and can provide consistent advice/ guidance. The aforementioned opportunities relate to the following challenges: using AI will inevitably lead to job losses and eliminate human interaction, how can one draw the line between advice which is regulated and guidance which is not, this advice brings with it an increased risk if the wrong information is inserted by accident – something a human adviser would be able to spot and correct. Considering these challenges as part of its Financial Advice Market Review (FAMR), the FCA finalised guidance on ‘streamlined advice and related consolidated guidance’, published in September 2017. Since then, there have indeed been significant strides forwards in relation to further regulation of the financial services industry: the boundary between advice and guidance has been tightened, the Financial Services Compensation

Scheme funding review has been launched, employers have been encouraged to facilitate advice for their employees, a dedicated unit for automated services has been set up, and alongside the Treasury and industry experts, the FCA has been working through the latest long list of reforms facing the financial services sector. Despite these strides and improvements to technology, in particular artificial intelligence, roboadvice appears to only be automating a small part of a much wider industry and at a relatively restricted pace. Like so much in the financial and regulatory technology sectors, it is the collaboration between the technology and the human interaction that makes any AI product a real success. As stated above, the opportunities that automated advice go hand in hand with the challenges and in many cases these will only be ironed out effectively with the human brain working in conjunction with the robot. IFM editor@ifinancemag.com

Joe Woodbury is the director of Investor Management Solutions. He is responsible for new business and ongoing client relations primarily with regulatory lawyers, fund administrators and prime brokers /custodians. He has nine years institutional experience with Bloomberg, is technology-driven, with a deep understanding of financial technologies and focused on the application of fintech in regulation and compliance. He holds a Degree in Economics and has also completed his Investment Management Certificate (IMC) and MSTA (Society of Technical Analysts).

Jul - Aug 2018 International Finance

OPINION

William Miners

Emerging by name, emerged by nature Emerging market assets appears to have become more mature and resilient, as aggregate fundamentals of emerging market countries continue to improve despite political uncertainty, finds William Miners International Finance Jul - Aug 2018

OPINION

merging market assets have long been a source of potential profit and peril for investors. 2017 saw an incredible streak of capital flows into emerging market equities, bonds and currencies. Whilst returns are still characteristically volatile, this maverick asset class has become more mature and resilient than ever before, as highlighted during Februaryâ&#x20AC;&#x2122;s market sell-off The promise of fully capitalising on potential upside growth during bull markets is ultimately the key appeal of allocating capital to emerging markets. From 2002 to 2007, the MSCI Emerging Markets (Equity) Index had an annualised return of around 30% in comparison to the MSCI World Index which returned around 17% over the same period. The powerful growth has continued through the nine-year bull market since the global financial crisis,

with the index returning over 100%. Emerging market assets have long been a source of both potential profit and peril for investors Back when emerging market (EM) equity indices were first formed, the outlook for EM equities was heavily reliant on rates and currencies. Today, this is no longer the case. When the MSCI Emerging Markets Index was launched in 1988, it accounted for just 1% of the global market capitalisation. This figure is now over 13% thanks to the enormous growth of the countries it captures in recent times. The underlying drivers of growth have also changed and several countries have â&#x20AC;&#x2DC;grown-upâ&#x20AC;&#x2122; to now show fundamental characteristics similar to some countries of the developed world and this is highlighted in the beta coefficient of emerging market indices.

The MSCI Emerging Markets Index currently has a three-year rolling beta of just below 1.2 with the MSCI World Index, a figure which has fallen from a high of almost 2 in 2007. The recent sell-off was fascinating to observe. In the past when investors have aggressively sold equities, the performance of EM equities has been incredibly poor due to its historically high beta. This has made investors generally fearful of EM assets due to the high downside risk when the going gets tough. However, this time around we saw EM equities outperform DM equities both during the sell-off and the bounce back. This encouraging performance suggests that factors other than the cyclicality of equity markets are now more pressing when considering holding EM. These include the fundamentals of the countries in the asset class rather than the performance of equities as a broader

Jul - Aug 2018 International Finance

OPINION

asset class. From a macro perspective, EM assets look very sound in our view. The aggregate fundamentals of emerging market countries continue to improve despite political uncertainty (much like the developed world in recent years), volatile currency rates and sanctions affecting several countries individually. We are seeing robust growth combined with low inflation in major EM countries which have historically experienced high inflation. In addition, global trade is increasing (vitally important for this group of majority export-led economies) and fixed investment into EM is forecast to pick up through the next couple of years driven by developing demographics predominantly in the form of a rapidly growing middle class in the key Asian EM countries. Whilst we see growth potential in EM equities as an asset class

International Finance Jul - Aug 2018

we are wary of the significant Chinese exposure EM economies and businesses have incredibly varied growth paths at their disposal, as well as exclusive access to vast and growing consumer markets. As long as this is the case, emerging markets will remain a distinctly different asset class to other equity regions and a viable investment opportunity alongside developed assets in a diversified portfolio. Whilst we see growth potential in EM equities as an asset class we are wary of the significant Chinese exposure the index provides and appreciate that a ‘hard landing’ of the Chinese economy is a tail risk worth hedging against. Recent headlines indicating a potential trade war between the US and China have emphasised the need to hedge against the risks associated with China. In the portfolios we are currently underweight the broad EM equity

index, balanced by selective exposure to Mexico and India. IFM editor@ifinancemag.com

William Miners is an asset allocation intern at Legal and General Investment Management. He supports the team’s industry leading portfolio managers, strategists and economists, specifically on portfolio management side. He creates ad hoc analytical projects for team members as well as use, develop, create and update the team’s bespoke investment tools.

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OPINION

Hetal Mehta

Trading places: How to boost post-Brexit Britain Has Brexit offered UK the opportunity to move towards trade and away from consumer spending? Hetal Mehta weighs in

ollowing the EU referendum, financial markets initially expected the worst, with the weakness of the pound being a clear indication of deteriorating sentiment. Yet, many saw the depreciation as an opportunity for the economy to rebalance away from consumer spending and towards trade. With this in mind, how successful has the UK been? There has been some improvement in the UK’s trade balance since the referendum although the degree of this improvement has been relatively disappointing. Sterling remains around 10% lower against a basket of currencies than its pre-referendum level, which should be a boost to competitiveness. The period has seen a global environment of strong growth, particularly within the UK’s biggest

International Finance Jul - Aug 2018

trading partner, the euro area. And in the past few months, a renewed widening in the trade balance has taken hold. Why is the UK struggling to make the most of these opportunities? There are a number of reasons why the UK trade data have not improved as much as the standard textbook approach may suggest. One is that the import content of UK exports is slightly higher than average, and much higher than say the US or Japan. This is the portion of a country’s exports which originated from abroad; as such, it dulls the boost to competitiveness as UK exporters’ costs of imported inputs have risen. Another factor is that the consumer has shown to be a bit

OPINION

more resilient than expected in light of the squeeze on real incomes from higher inflation, which in turn has helped to support imports. Our current export partners are mainly skewed to richer – but slower growing – developed markets Furthermore, it is important to remember that the UK is a servicebased economy, and a major services exporter, particularly in terms of professional services and the financial

sector. Five of the top ten law firms in the world are headquartered in the UK and the UK is the leading global net exporter of financial services. However, the biggest recipients of our exports are richer – but slower growing – developed markets. What can the UK do? As emerging economies become richer and demand more services, the UK may be able to capture that changing pattern of their demand This requires the government to be proactive in seizing these

opportunities. For example, the government may look to put policies in place to support the following areas: •

Labour: Producing world-class services will mean targeted investment in skills, attracting sufficiently skilled people as part of a new immigration regime • Entrepreneurship: The government can help encourage innovation and R&D through targeted tax breaks and other financial support • Legal protection: Ensuring that the UK legal system remains fit for purpose and offers a significant advantage for international deals will also help our exports of professional and business services In short, playing to the economy’s strengths will be key to helping the UK thrive in a post-Brexit world. IFM editor@ifinancemag.com

Hetal Mehta is a European economist at Legal and General Investment Management. Previously, she worked at Daiwa Capital Markets Europe Ltd. as an economist, and earlier, was employed with Oxford Economics/Ernst & Young as a economist/senior economic advisor. She routinely shares her views on the economy in the form of articles, interviews and presentations.

Jul - Aug 2018 International Finance

OPINION

Sundeep Tengur

AI for fraud detection: beyond the hype AI has made a lot of noise in financial circles, but how far will it go in revolutionising the industry and assist with fraud detection? Security specialist Sundeep Tengur gives us his insights

he financial services industry has witnessed considerable hype around artificial intelligence (AI) in recent months. We’re all seeing a slew of articles in the media, at conference keynote presentations and think-tanks tasked with leading the revolution. AI indeed appears to be the new gold rush for large organisations and FinTech companies alike. However, with little common understanding of what AI really entails, there is growing fear of missing the boat on a technology hailed as the ‘holy grail of the data age.’ Devising an AI strategy has therefore become a boardroom conundrum for many business leaders. How did it come to this – especially since less than two decades back, most popular references of artificial intelligence were in sci-fi movies? Will AI revolutionise the world of financial services? And more specifically, what does it bring to the party with regards to fraud detection? Let’s separate fact from fiction and explore what lies beyond the inflated expectations.

International Finance Jul - Aug 2018

OPINION

Why now? Many practical ideas involving AI have been developed since the late 90s and early 00s but we’re only now seeing a surge in implementation of AI-driven use-cases. There are two main drivers behind this: new data assets and increased computational power. As the industry embraced big data, the breadth and depth of data within financial institutions has grown exponentially, powered by low-cost and distributed systems such as Hadoop. Computing power is also heavily commoditised, evidenced by modern smartphones now as powerful as many legacy business servers. The time for AI has started, but it will certainly require a journey for organisations to reach operational maturity rather than being a binary switch. Don’t run before you can walk The Gartner Hype Cycle for Emerging Technologies infers that there is a disconnect between the reality today and the vision for AI, an observation shared by many industry analysts. The research suggests that machine learning and deep learning could take between two-to-five years to meet market expectations, while artificial general intelligence (commonly referred to as strong AI, i.e. automation that could successfully perform any intellectual task in the same capacity as a human) could

take up to 10 years for mainstream adoption. Other publications predict that the pace could be much faster. The IDC FutureScape report suggests that “cognitive computing, artificial intelligence and machine learning will become the fastest growing segments of software development by the end of 2018; by 2021, 90% of organizations will be incorporating cognitive/ AI and machine learning into new enterprise apps.” AI adoption may still be in its infancy, but new implementations have gained significant momentum and early results show huge promise. For most financial organisations faced with rising fraud losses and the prohibitive costs linked to investigations, AI is increasingly positioned as a key technology to help automate instant fraud decisions, maximise the detection performance as well as streamlining alert volumes in the near future. Data is the rocket fuel Whilst AI certainly has the potential to add significant value in the detection of fraud, deploying a successful model is no simple feat. For every successful AI model, there are many more failed attempts than many would care to admit, and the root cause is often data. Data is the fuel for an operational risk engine: Poor input will lead to sub-optimal results,

no matter how good the detection algorithms are. This means more noise in the fraud alerts with false positives as well as undetected cases. On top of generic data concerns, there are additional, often overlooked factors which directly impact the effectiveness of data used for fraud management: • Geographical variances in data. • Varying risk appetites across products and channels. • Accuracy of fraud classification (i.e. which proportion of the alerts marked as fraud are effectively confirmed ones). • Relatively rare occurance of fraud compared to the huge bulk of transactions; having a suitable sample to train a model isn’t always guaranteed. Ensuring that data meets minimum benchmarks is therefore critical, especially with ongoing digitalisation programmes which will subject banks to an avalanche of new data assets. These can certainly help augment fraud detection capabilities but need to be balanced with increased data protection and privacy regulations. A hybrid ecosystem for fraud detection Techniques available under the banner of artificial intelligence such as machine learning, deep learning, etc. are powerful assets but all seasoned counter-fraud professionals know the adage: Don’t put all your eggs in one basket. Relying solely on predictive analytics to guard against fraud would be a naïve decision. In the context of the PSD2 (payment services directive) regulation in EU member states, a new payment channel is being introduced along with new payments actors and services, which will in turn drive new customer behaviour. Without historical data, predictive techniques such as AI will be starved of a valid training sample and therefore be rendered ineffective in the short term. Instead, the new risk factors can be mitigated through business scenarios

Jul - Aug 2018 International Finance

OPINION

and anomaly detection using peer group analysis, as part of a hybrid detection approach. Yet another challenge is the ability to digest the output of some AI models into meaningful outcomes. Techniques such as neural networks or deep learning offer great accuracy and statistical fit but can also be opaque, delivering limited insight for interpretability and tuning. A “computer says no” response with no alternative workflows or complementary investigation tools creates friction in the transactional journey in cases of false positives, and may lead to customer attrition and reputational damage - a costly outcome in a digital era where customers can easily switch banks from the comfort of their homes. Holistic view For effective detection and deterrence, fraud strategists must gain a holistic view over their threat

International Finance Jul - Aug 2018

landscape. To achieve this, financial organisations should adopt multilayered defences - but to ensure success, they need to aim for balance in their strategy. Balance between robust counter-fraud measures and positive customer experience. Balance between rigid internal controls and customer-centricity. And balance between curbing fraud losses and meeting revenue targets. Analytics is the fulcrum that can provide this necessary balance. AI is a huge cog in the fraud operations machinery but one must not lose sight of the bigger picture. Real value lies in translating ‘artificial intelligence’ into ‘actionable intelligence’. In doing so, remember that your organisation does not need an AI strategy; instead let AI help drive your business strategy. IFM editor@ifinancemag.com

Sundeep Tengur is a banking fraud and financial crime specialist within the Global Fraud and Security Intelligence Practice at SAS. He provides guidance on industry best practice, educating prospective clients on various fraud modus operandi and designing end to end solutions to mitigate fraud risks. He is a Certified Financial Crime Specialist (CFCS), with many years of experience in mitigating fraud in retail banking and financial services.

OPINION

Charlie Tuxworth

Are we giving consent to use our data too freely? International Finance Jul - Aug 2018

OPINION

With GDPR being implemented across the EU, the crucial question is how we consent to personal data usage. Charlie Tuxworth, director of software and innovation at digital solutions provider Equiniti explains the necessity for data integrity and protection in business based on user consent and withdrawal of consent

f ever there was a pivotal moment in the future of digitalisation that time is now. The Cambridge Analytica Facebook scandal, which has sparked controversy over foreign state interference and election rigging, has far wider implications. It brings under scrutiny how we harvest data, what it is used for, and how we control its dissemination - with user consent at the heart of the matter. How many of the 87 million users, of which over a million were in the UK, really understood that their Facebook data was not under their control when they signed the terms and conditions (T’s&C’s)? How many even read them? It is estimated that you’d need 76 days to read all the privacy policies an average internet user encounters each year, with the average policy containing over 2,500 words of legalese. Small wonder that we simply tend to accept the blanket permissions we’re asked for. Agreeing to Facebook’s T’s&C’s grants access to your personal contacts, phone and text messages, geolocation data and web browsing history. The same permissions are also then applied to Instagram and Messenger. Register your card for peer-to-peer payments over Messenger and you’re allowing Facebook to buy data about your offline purchases. So why would we grant these permissions at all? Well, data sharing is necessary if we want the

cross-platform functionality and personalisation that is associated with modern services, so as long as we want a personal online experience then data mining and analytics are here to stay. The trouble is that there’s a fine line between manipulating users and targeting them in their interest. Recognising the need to make user consent and data usage more transparent, regulators are tightening legislation and next month will see the introduction of the General Data Protection Regulation (GDPR) which sets a higher standard for consent. Although, if a company can justify a lawful need for processing, they won’t always need to request consent. GDPR aims to give users more control over their data, and users will have greater rights such as the ability to be kept informed about collection and use; access to data stored about them, the ability to rectify or erase it, to object or restrict processing and to be able to port their data to other service providers with greater ease. Are users likely to exercise these new rights? Those of us that opt-in will continue to trade our data for services but those that opt-out could find themselves precluded from a personalised online experience. As companies prepare for GDPR I’ve noticed in my inbox many more requests for me to opt-in, and it is tempting to do so without understanding the implications. At Equiniti we recognise that we

have significant responsibilities in the gathering, handling and protecting of consumer data. If users withdraw consent, technological advances that allow us to personalise services and marketing messages need to be reviewed. It’s therefore in our interests as data processors and data controllers to ensure we protect the good relationship we have with our end users. In light of the CA scandal, perhaps one of the biggest benefits of GDPR is that it places far more onus on the IT community to communicate with the user. This could pave the way for initiatives such as user friendly abridged versions of T’s & C’s. One thing is for certain, as consumers we’re all increasingly aware of the value of our personal data. This will help to ensure that companies do stand over their obligation to prevent its abuse and to rebuild our trust and safeguard digital innovation. IFM editor@ifinancemag.com

Charlie Tuxworth is Director of Software & Innovation at Equiniti. As a digital solutions provider, Equiniti helps public and private sector organisations future-proof their solutions. For further information and advice, visit equiniti-technology.com or email charlie.tuxworth@ equiniti-ics.com.

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW

The prominence of social media influencers in the Middle East There has been opposing views on social media and its effect on human connectivity. In this feature, Roland Abi spells out what its influencers stand for in the region post data breach Sangeetha Deepak

International Finance Jul - Aug 2018

INTERVIEW

Roland Abi Najem, Managing Partner at EverywherePro

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW

What has been the high-level business impact of social media in the Middle East? Social media has had the biggest influence and impact on the Middle East by all means. However, at first, the Middle East region, especially the Gulf and Arab countries were not ready for the concept of two way communication and had a more passive approach in this aspect: communication only led by governments and big companies. Now, things have changed and the degree of social media impact on companies is as below: Startups: It gave them the opportunity to reach more people in less cost More Job Opportunities: in a region where we use to have a high level of unemployment, social media penetration has created more opportunities for lots of people is different sector including graphic design, community management, content generation and much more. Impact on big businesses: Previously, big companies had their freedom to do what they want and customers had almost zero impact on them. Now we all know that big companies use social media monitoring and listening, and they do sentiment analysis to check the customers feedback. In fact, instances such as the Pizza Hut Kingdom of

International Finance Jul - Aug 2018

Saudi Arabia (KSA) tweet during International Stuttering Awareness Day (ISAD) lead most of its customers to shun the brand in KSA.

•

How can social media act out to provide contingency against a firm’s downturn? Can you state an example? Social media has a lot of advantages—one of them is that it can provide companies a contingency plan against any downturn. Social Media key benefit is that it can offer a direct ROI (Return on Investment) and big exposure to target audience in less time and effort. For example: during the case study of Old Spice, the company had a huge downturn and in an effort to boost the brand, they created the following campaign: • Advertising Campaign: “The Man Your Man Could Smell Like” • Timing: Super bowl weekend – February 2010 • Strategy: Target women. And so, 60% of all body wash purchases for men are advertised by women. Persuade women to buy old spice for their partners • Brand Ambassador: Isaiah Mustafa (former football player) • And therefore, as a result of this campaign:

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The outcome led to phenomenal customer attention Became the fastest growing and most popular campaign in history 5.9 million+ You Tube views in 1 day 40 million+ You Tube views in 1 week Twitter fan base up by 2700% Facebook fan interaction up by 800% Website traffic up by 300% #1 You Tube channel of all time ▪1.4 billion impressions in 6 months Sales up by 107% against last year

How has social media influenced expansion of customer database and customer retention for companies in the Middle East? One of the main objectives from using social media is the expansion of customer database and data base retention and this is done a lot in the Middle East. From our daily use of social media in the Middle East, we notice that lots of pages and companies request their followers to provide them with personal information. (Name and contact details is essential). And this could be done in a direct way or in an indirect way. The issue revolving Cambridge Analytica was primarily due the amount of data being collected, and the big question is—how did they do this? We perceive several applications as a source of entertainment, where they ask users to play IQ test games or sometimes, even personal questions. And all those apps request access to users’ private information and the data is used to expand the customers’ database in an effort to target them better. As for customer retention, this is mainly done using two-way communication that social media facilitates: where it allows companies to solve customer issues and to provide responses.

INTERVIEW

However, this is mainly done using social media monitoring and listening—where big companies listen to what people are talking about their brands and facilities and try to analyse if the conversation is position, negative or neutral. This is called sentiment analysis, which is focused on increasing the percentage of positive feedback in order to have better reviews from their audience. Can you explain the significant role of influencers in a firm’s social media strategy? This is one of the biggest topics to discuss, but first, it is important to understand influencers and how to identify them. Not all social media users, who have outstanding number of followers are influencers. Therefore, it is essential to identify influencers who are real and who they are. For argument’s sake, let’s say I live in Kuwait and a certain influencer have 1mn followers, so what if 90 % of those followers are from Egypt? And the final question to be asked here is what is the percentage of engagement with followers. We need to identify on which platform the influencer can influence people. If this influencer in powerful on instagram, but the target audience are on twitter— the end goal is futile. Secondly, we need to identify the topics they are influencing. An influencer can be influencing areas in politics, sports or religion. After identifying the right influencer for a business, other factors also come into play: such as the role of influencer in endorsing the brand. Overall, companies use influencers because people trust and they follow them, and they are affected by their opinion How do influencers take lead in driving a firm’s marketing strategy? Can you state an example? An influencer’s role in driving the marketing strategy can impact the company in a positive and negative

way. For example: Ola Alfares is a Jordanian Influencer and public figure very well known in the whole Arabic world and the Middle East due to her experience in the Saudi TV MBC. She has 4.3 million followers on instagram and the rate of engagement is very high. Ola is the brand ambassador of L’Oreal and she was a great added value for the French company in the Middle East. Their sales and ROI have exponentially increased after she started working with them because of her reputation and how people are influenced by her. On the other hand, Ola faced several challenges when first she gave her opinion on Twitter about KSA that was misunderstood. As a result, she faced a lot of criticism while encouraging all L’Oreal brands to dismiss her. In this case, we can notice clearly that an influencer and a brand ambassador can boost businesses to a large extent and pay the price for any “mistake” the influencer makes. Has concerns over data privacy affected only social media users or even firms that drive marketing strategies on the platform in the region? To be very honest, concerns over data privacy should have affected social media users and companies at the same time. But what we have witnessed here in the Middle East is that social media users were shocked by the news on data leak from Cambridge Analytica and other news mediums. But the thing is that people continued to user social media in a very normal way. We didn’t witness any extraordinary number of users close or deactivate their social media account. This is justified by the fact that people are becoming addicted to social media and social networking in a way that they are willing to compromise their personal data. How will concerns over data privacy infect companies’

marketing strategies? In my opinion, concerns over data privacy for companies started to rose after Facebook and other social media platforms where they changed their terms and conditions and in a way minimise the ability to take their users data. However, social media is here to stay and two-way communication will continue forever. We might see the rise of new social media platforms and the vanish of other platforms but the concept will remain forever. Have companies in the Middle East become less reliant on influencers since data breach issues? The mindset in the Middle East is totally different. People here are affected and addicted to influencers. Most of them believe they have nothing to hide, and therefore are selfassured think they are affected by the data breach issues. IFM editor@ifinancemag.com

Roland Abi Najem was the IT and Social Media Consultant at the Ministry of Information Kuwait and the Personal Consultant for the Minister of Information from 2014 to 2016. He is the Managing Partner at EverywherePro for IT, cyber security, digital marketing, social media consultancy and training. Roland holds Master’s in Business Administration (MBA) with emphasis on M.I.S Management Information Systems. Additionally, he is also the chairman at several seminars and conferences in the region including Dubai, Abu Dhabi, Kuwait, Iraq, Oman, Lebanon, and also a keynote speaker and panelist.

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW technology

Mapping the success of geographic information systems The director of solutions at Esri, Damian Spangrud on the companyâ&#x20AC;&#x2122;s revolutionary advanced mapping methods, and the future of AI and AR in this field Madhurima Roy

Esri went on to tailor the tools to a broad range of industry and land management requirements, developing many of the GIS mapping and spatial analysis methods commonly in use today.

Tell us about the inception of Esri. How did it all begin? Esri was founded in 1969 as Environmental Systems Research Institute, and began as a land-use consulting firm. The firm applied the then fledgling science of computer mapping and spatial analysis to help land use planners and land resource managers make evidence-based decisions. The companyâ&#x20AC;&#x2122;s early work demonstrated the value of geographic information systems (GIS) for problem solving and developed its own tools that it would provide alongside its analysis. The toolset gained a following, and soon clients and a broader community clamored for commercialization, prompting the shift that made Esri a software company.

International Finance Jul - Aug 2018

What is ArcGIS? ArcGIS is Esriâ&#x20AC;&#x2122;s software platform for creating maps, collecting location data, analyzing information through the lens of geography, and sharing improved understanding. Managing geographic information as part of a comprehensive system gives a wide range of organizations a unifying view of their operations, because everything happens somewhere. ArcGIS provides an infrastructure to make the most of the power of geographic information by offering a scalable platform across desktop computers, servers, and mobile devices. This infrastructure tailors the tools around the identity and use cases of individuals while also weaving together data and actions for a greater understanding of the whole. Increasingly, the ecosystem is accessed via configurable apps that let anyone, anywhere access the same data while connecting those in the field with those in the office. This next wave of GIS, constantly updates maps with information from individuals and sensors for real-time situational awareness and expands into other markets who need a robust location intelligence platform. The platform approach, and nearly 50 years of tailoring and improving the GIS experience for a wide range of domains and operational challenges, separates ArcGIS from its competitors. Give a detailed outlook on how ArcGIS is implemented across multiple industries such as real estate, banking, insurance, retail, government

Damian Spangrud, Director of solutions, Esri

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW technology

and manufacturing among others One of the reasons ArcGIS is the market leader in GIS software is its versatility and ability to scale to any size organization. Organizations gain an immediate advantage with map-based awareness and increasing value the deeper they integrate this capability across their organization to reveal patterns that only location intelligence and mapping can convey. A wide swath of industries use and implement the technology, and many consider the intelligence systems that they’ve created to be their edge against their competitors. While all of the industries use the same underlaying technology, each industry configures the tools and models for their specific use, whether to analyze insurance risk, optimize supply chains, or profile potential customers.

Mention some of the advanced mapping technologies that Esri employs. Explain the implementation of these advanced technologies in advancing the mapping techniques. Which are the technologies significance of utmost importance for Esri and why? The art and science of mapping continues to advance quickly as new data feeds become available, from Drone information, to persistence sensing, and IoT integration, each advancement pushes how maps are used for analysis and communication. One area of advanced mapping that Esri leads the way on is artificial intelligence (AI) and machine learning. A lot of people only think of autonomous robots when they imagine AI, but in reality, the technology is far more wide-reaching and revolutionary. And at its core, this revolution will hinge on data analytics. Truly transformative and useful AI provides smart analysis of data for informed decisions based on algorithms that have an element of location. Esri uses AI to help our users do things like predict travel times and anticipate

International Finance Jul - Aug 2018

consumer demand at different business locations. Another significant innovation in the field of mapping is augmented reality (AR), which gives users the ability to see important, yet hidden assets through real-time maps of their environments. For instance, utility companies are using this technology to see the location of pipelines and other equipment hidden underground. We also continue to push beyond 2D maps, adding the vertical dimension for 3D and the time dimension for 4D and beyond. Tell us about the Esri app. How does it help the users? Esri has a number of apps, focused on empowering the field and office workforces with data entry, data exploration, and situational awareness. For instance, Survey123 is a field data collection app that allows data to be collected, analyzed, and uploaded anytime, anywhere. The app relieves fieldworkers of the burden of carrying paper maps. Fieldworkers use this app to find the object of interest, record measurement data, and report accurate data directly back to the office. Another relatively new development is the Ecological Marine Units (EMU) mobile app. The app provides a valuable resource for scientists, educators, governments, and industries seeking easily accessible information and imagery about the ocean’s long-term physical and nutrient properties. The EMU app puts data such as temperature, salinity, and dissolved oxygen from 52 million locations throughout the world’s oceans at any user’s fingertips. Many users leverage our complete field data collection workflow, which integrates apps for data collection, workforce management, and situational awareness. This complete workflow allows organizations to have real-time awareness for their field crews and reduces work and improves efficiency. Esri is present all across the globe. How does the company successfully manage to collect

such huge amounts of data for its mapping? Esri invests and collects data from many sources to provide ready-to-use content for our users in our ArcGIS Living Atlas of the World—one of the largest compilations of local, regional, and global geographic information in the world. We source much of this data from publicly available sources, such as the demographics revealed in census data and the imagery that the Landsat earth observation satellites collect. We also have partnerships with many data providers where we’ve worked out agreements that allow our users to consume the data at no additional cost as well as to connect to premium data sources that have an added cost. The Living Atlas of the World contains maps, apps, and data layers, many of which our users created with our software and chose to share with their peers. While we have a large data collection, our users build and manage the core data and maps that are used to run organizations across the globe. Our living atlas data helps provide them a base context from which they can do their own work. How does the company manage cyber secure its expansive amounts of data? Has the company adopted some technology to secure all its data? Esri leverages a robust and effective security framework for our content as well as our cloud, server, desktop and mobile software. To that end, Esri has achieved Federal Risk and Authorization Management Program (FedRAMP) compliance to offer a cloud environment that satisfies the stringent security requirements of federal agencies. We also have authorization and accreditation for our adherence to the requirements of the Federal Information Security Management Act. In addition, we have numerous safeguards and processes to secure personal data, enabling us to have TRUSTe and Privacy Shield certification, employing frameworks

INTERVIEW technology

to adhere to EU, US, and Swiss data protection requirements regarding personal data. Is Esri investing in any technology for self-driving cars? Not directly, however many companies are employing Esri technology as they research and develop automated and connected cars and the associated systems. Organizations are using Esri’s technologies to model the impact of self-driving cars, planning walkfriendly and autonomous vehiclefriendly cities, and integrating our geospatial processing with telematics to perform. Esri also works with Mobileye, an Intel Company and leading provider of advanced driverassistance systems software, to integrate Esri mapping, analysis, and visualization with Mobileye’s Shield+ ™ product. This provides cities with the ability to visualize and analyze real-time location data from Shield+, improving safety for all road users in urban environments. Esri is also part of the Automated Vehicle Coalition (AVC) that is focused on the common good of the public and the transportation industry to ensure that the safety of travelers is a primary driver of technological innovation. Esri joins the coalition with other organizations including Cisco, Gannett Fleming, and Royal Truck and Equipment. Can you map the geographical and technological expansions of Esri since its inception to date?

Esri’s early work demonstrated the value of GIS for problem solving, and gained recognition from the academic community as a new way of analyzing information in the context of geography. As computing started becoming more powerful, the company started developing products that could be more widely used for solving real-world problems. Esri developed ARC/INFO, the first commercial GIS product, which was released in 1981. In the 1990s, faster and cheaper computers, the growth of the Internet, and new data capture techniques such as GPS, spurred the further growth of GIS technology. Esri’s first desktop solution, ArcView GIS, opened the possibilities of GIS to a new class of users. In the late 1990s, Esri reengineered ARC/INFO and began creating a scalable GIS platform that would work not only on the desktop but also across an organization’s enterprise. The result was ArcGIS. ArcGIS has since evolved into a complete platform that spans desktop, server, and mobile devices and, with the launch of ArcGIS Online, the cloud. ArcGIS Online, with its vast collection of basemaps and shared layers, made Esri Story Maps possible. A collection of templates, Esri Story Maps have let thousands of non-GIS specialists, like educators, students, lawmakers, and journalists use maps to tell their stories and share them. In addition, a suite of software developer tools was created to enable developers to incorporate geospatial capabilities into all kinds of products and processes. Geographically, Esri was founded

Quick Facts Established in: 1969 Headquarters: Redlands, California Founder(s): Jack and Laura Dangermond CEO: Jack Dangermond (President)

and remains headquartered in Redlands, California. Over the years we have added a number of regional offices across the US, and from the beginning we also focused on international markets, with over 80 distributors and numerous research and development offices around the world. What are Esri’s plans for the future in terms of geographical and technological expansion? We will continue to serve our users around the globe through our network of regional offices, partners, and distributors. We are committed to helping our customers advance their understanding to advance along the information value chain from reactive to proactive decision making. We expect growth in every domain of use around the globe. The question about advanced technologies hints at some areas that we are pursuing. Artificial intelligence and augmented reality are two of the newer technologies that we see GIS becoming a bigger and more integral part of as they gain wider adoption. In addition, we continue to advance location intelligence through powerful but easy mapping, and the use of scientific analytical tools to identify patterns, make predictions, and answer questions. Esri is also committed to helping countries with limited resources leverage GIS to improve their land management. Esri’s Land Administration and Statistics Modernization Programs donate software to countries and island nations in need of technology that allows them to make policy decisions based on census data and land value. By understanding population and geography better, communities are better-equipped to self-govern more efficiently, and Esri is committed to a future where so-called developing nations have sustainable growth and prosperity. IFM editor@ifinancemag.com

Jul - Aug 2018 International Finance

Event Preview

South Korea gears up for blockchain summit South Korea will conduct the Korea Blockchain Summit, highlighting the potential and business prospects for blockchain technologies in the region across multiple industries and key business verticals

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lockchain has become the central focus of multiple businesses, right from banking to aviation. The ASEAN region is witnessing a major overhaul in tackling modern business challenges, with blockchain at the core of it all. South Korea will host the Korea Blockchain Summit (KBS), part of the World Blockchain Summit 2018, on 12th and 13th July 2018. KBS is expected to host government delegations from the East Asian region, especially since the implementation of blockchain in a governmentâ&#x20AC;&#x2122;s ecosystem will be one of the central points of discussion. Moreover, the event will also address the regulatory challenges towards tokenomic innovations and allied developments. The event will also enable investors to meet and greet startups as well as exchange ideas with each other about their strategies and market

scenarios. Upcoming startups will be even be invited to deliver an eight-minute Launchpad pitch for the Best Blockchain Technology Award. Investors will weigh in on these business ideas to help the entrepreneurs of the future to build and expand business globally. There will be an extensive exchange of information and knowledge across the event, through multiple keynote sessions and speeches, highlighting core ideas such as adoption of blockchain at the government level, future of tokenomics and its challenges, and scope for academic innovation. In addition, experts will also discuss regulation, policy, digital asset exchange and cybersecurity challenges. One of the more interesting programmes of the two-day event is the Blockchain Project Launch. By showcasing the utility of artificial intelligence, IoT, virtual reality and

mixed reality among others, these blockchain projects can be used across multiple sectors such as govtech, BFSI, logistics, supply chain, healthcare and public distribution. International Finance is a media partner for the Korea Blockchain Summit. Tickets are priced at US$250 (Standard) and US$500 (VIP). IFM editor@ifinancemag.com

To register for the event, contact https://www.gbf.world/korea-attendee-form For more details, log on to www.koreablockchainsummit.com

International Finance Jul - Aug 2018

Jul - Aug 2018 International Finance

finance INTERVIEW INTERVIEW

Lebanon makes a splash by issuing region’s first green bond Green bond financing has been gaining popularity among many countries, keeping sustainable energy development at the core of business. Lebanon’s Fransabank is the first in the country and the Levant region to issue a green bond for US$60mn, showing the bank’s keenness to develop the green market Madhurima Roy

International Finance Jul - Aug 2018

M Nadim Kassar, general manager, Fransabank

Jul - Aug 2018 International Finance

finance INTERVIEW INTERVIEW

roject financing appears to be taking an environmentally-friendly route, with green bonds gaining popularity. In 2017, green bond issuance touched a record US$155.5bn and is expected to touch US$1 trillion by 2020. Former UN climate chief Christiana Figueres says, “When green investments move from business plans into budgets and balance sheets a wealth of opportunity will be unlocked across the value chain.” Last year, China emerged ahead of the list of top ten nations issuing national green bonds, trailed by France, USA, Germany, Netherlands, Sweden, Mexico, Spain, India and Canada. Until now, Poland, France and Fiji have who issued sovereign green bonds, and Nigeria is the latest to be part of this list. In December 2017, the Nigerian government provided a five-year green bond worth US$29mn to financially support regional solar and forestry projects. Investors will receive a 13.48% yearly coupon. Given the solid market uptake, green security development is becoming a priority in Africa. Nigeria’s green bond was the

In the Lebanese green bond market, Fransabank has the firstmovers advantage. What was the reason behind this? Fransabank has been working since 2013 to include Sustainable Energy Finance in its core business and have built capacity to become the pioneer in this field. Supported by IFC teams, Fransabank has financed more than 175 projects for a total worth of US$110mn. It was only logical to go a step further by issuing the green bonds. The programme is for US$150mn. The first tranche for US$60mn was issued last April with IFC as anchor investor with US$45mn share and EBRD as the second investor for US$15mn. This investment from prime International Financial Institutions represents a vote of confidence for Lebanon and Fransabank in particular. It sends a strong signal with regards the development of the green market in Lebanon and Fransabank’s role in this field. With an initial investment of US$60mn in April 2018, the aim was to support the green projects in Lebanon. We are ready to promote and boost this field as developing Climate

International Finance Jul - Aug 2018

first of four sovereign green bonds granted the CBI’s best practice refinement, loaning certainty to banks, institutional and retail financial specialists who took up the bond. Now, governments in Morocco, Sweden and Belgium are showing interest in green bonds. Since the principal wave of green bonds issued by the European Investment Bank and World Bank in 2007, companies like Apple, Toyota and the New York’s Metropolitan Transport Authority have raised more than US$80bn for green bonds. As Nigeria’s government guarantees pending tranches of issuance to help meet the global $1tn target, state governments and private parties are now hoping to come onboard. Lebanon’s Fransabank took a keen interest in green bonds a few years back and issued its first green bond in April, incidentally becoming the first in Lebanon. Fransabank general manager M Nadim Kassar talks to International Finance exclusively on the bank becoming the first in Lebanon to enter the green bond market

Finance is part of Fransabank’s Strategy. What kinds of green projects has Fransabank strategised to invest in and why? We would like to finance all projects that reduce greenhouse gas emissions, save energy or water but also any environmental or climate project. This includes among others, energy efficiency projects, renewable energy (solar farms, wind farms, solar photovoltaic for businesses or individuals, biomass, hydropower if any), green buildings, waste water, water management, etc. We are also focusing on the industrial sector to assist the industrialists in reducing their energy bill. In a press release, Fransabank mentioned that its latest green bond project will help Lebanon to handle the 28% rise (since 1994) in greenhouse gas emissions and has geared up to reduce harmful emissions by at least 6,000 tons per year by 2022. How has Fransabank planned to attain this goal? How is the plan shaping up so far?

The green projects that we financed through the last three years have allowed a decrease of 2,500 tons of CO2 emissions and saved more than 4.2 million of kilowatt hour energy/ year (kWhe/year). We did not put an objective for 2022 but it will surely support the national plan to reduce greenhouse gas emissions. Fransabank and IFC have a long standing relation in different forms of financing. Are the two organizations considering in working together for Green Bonds? Fransabank and IFC’s relation dates back to the 1990’s. IFC supported Fransabank in many areas through several credit lines for productive sectors of the economy and advisory services. In 2013, with the support of IFC we launched the Sustainable Energy Finance initiative and benefitted from a US$40mn credit line specific for green projects. It is then with no surprise that IFC is the anchor investor in Fransabank’s first issuance of Green Bonds for US$45mn. IFC has also pledged to support an additional green bonds issuance by Fransabank.

finance INTERVIEW

and support schemes, we also know that the international development banks and UN based bodies are very supportive of the green market. With the CEDRE conference and the pledges from international communities towards supporting the Lebanese infrastructure and with the finalization of the PPP law, we have entered a new era towards sustainability and climate-related projects. In order to grow the green bond market, we have to continue creating awareness, to replicate success stories in sectors and hope for a snowball effect.

The European Bank for Reconstruction and Development’s (EBRD) subscription of US$15mn marks the institution’s first debt project in Lebanon and follows the US$ 50mn trade finance line signed with Fransabank on 15 March 2018 in Beirut. Explain. As you have highlighted clearly, EBRD first debt project and first Trade Finance Commitment line was done with Fransabank. This is a result of several years of discussion that we were unable to materialize before September 2017 when Lebanon became a Country of Operations for EBRD. These investments effected by EBRD represent very important milestones supporting the Lebanese economy and highlighting Fransabank’s pioneering role in trade business and green financing.

with regulators whether Central Bank or the Capital Market Authority. The issuance of green bonds took place in April 2018 and went very smoothly.

Until now, how has the entry into the green bond market turned out? The issuance of green bonds is a first in Lebanon but also a first in the Levant region. Therefore, in order to launch this new financial instrument, it took a lot of commitment from our management. In addition, we had to make sure all necessary bodies were involved and we held several meetings

What can be done to boost the growing green bond market? Several actions can support this field. In the last years, we have witnessed a very attractive and competitive financing mechanism developed by the Central Bank and the Lebanese Center for Energy Conservation at the Ministry of Energy and Water. We know the proper ministries are working on regulations

What are the biggest hiccups in the regional and global market? The advantages of Lebanon is the presence of natural resources whether the sun, the wind, the water, the biomass, etc. This is a key element that could change the energy mix in Lebanon. The hiccups remain the regional political instability and the awareness of clients: clients tend to think more about the profits they make than the environmental aspects of their projects. Fransabank is organizing workshops and conferences in each sector to create awareness, showcase costs reductions thus convincing clients that Climate Finance make business sense.

How does Fransabank see the future green bond market? We believe that it is a very serious financial instrument. We know that in order to issue green bonds, the financial institution must abide by the green bond principles. This is a very sound and important commitment from the financial institutions towards sustainability. Therefore we sincerely believe in its future and we do hope for a quick development. What are the bank’s own green financing milestones strategised for the future? We are continuing on the same path, with a clear strategic objective to be the pioneer and innovative green bank in Lebanon. IFM editor@ifinancemag.com

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW energy

How will politics impact your energy bills in 2018? 90

In times of political turbulence, there is a high risk of power supply being disrupted as felt by residents of the UK now. Phil Foster, managing director of Love Energy Savings weighs in on how international politics will directly impact energy prices this year

International Finance Jul - Aug 2018

Phil Foster, managing director of Love Energy Savings

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW energy

he influence of political change extends far beyond the walls of the House of Commons. Even small acts of legislation can send shockwaves through many different industries, not least the energy sector. Energy is innately tied in with political change because the supply of energy is such a large-scale procedure. The supply of energies like gas, electricity and coal requires a huge amount of logistical aid, which means it requires backing from a multitude of government bodies. In times of political turbulence -- the past two years being a quintessential example -- there is a higher risk that supply could be disrupted. UK residents are now feeling the ripples of a global shift, a chain reaction caused by a number of political factors that have come into play in recent months, both domestically and elsewhere. And with energy bills getting more and more expensive as a result, the question on many lips

International Finance Jul - Aug 2018

is how the ongoing rocking of the governmental boat is going to trickle down into energy prices in the year ahead, Business energy experts, Love Energy Savings answer the important questions about the future of energy prices in 2018. How UK policies will impact energy prices in 2018 Britain’s prominence in the North Sea was once the source of most of the UK’s oil, but those reserves are being rapidly depleted. That leaves the UK in a position where it is increasingly reliant on Europe for its energy; where we used to be a net exporter, we now rely primarily on imports. This reliance puts the UK at a disadvantage in negotiations to leave the European Union. In January, a House of Lords committee warned that Brexit risks driving up electricity and gas bills by making energy trading less efficient. Leaving the EU will diminish Britain’s influence on energy rules, despite having to adhere to them in the future.

Even before Brexit became central to the debate, the escalation of energy prices has been a key political issue: energy bills in Britain have doubled over the past decade. In response, the government announced that it would implement a price cap, a policy that re-emerged into the public dialogue following the 2017 Conservative Party conference. According to Ofgem, the price gap could come into effect by Christmas 2018, though it’s not yet clear what this cap might be. Leaving the EU also has implications about the UK’s commitment to renewable energies, too. The lack of government support for renewables following the withdrawal of the Feed-in Tariff (FIT) and Renewable Obligation for new projects has damaged the role that solar and wind could potentially play. Now, the UK could decide to leave the EU’s emissions trading systems, which means that it would not be obligated to adhere to EU-mandated targets to reduce carbon emissions.

INTERVIEW energy

This is starting to look more likely since the government’s Clean Growth Strategy was published in November, which devotes very little space to the EU’s emissions trading systems scheme.

tensions with the Russian government – like the current accusations following the nerve-agent attack on an ex-Russian spy Sergei Skripal and his daughter Yulia -- could have drastic effects on UK energy prices.

The impact of international politics on energy prices Though Brexit is certainly a huge political card at the moment, there are other international factors at play that are likely to have an impact, too. The UK belongs to a global complex, so energy prices can be affected by a political event that might not even be directly tied to us. The three big international players to watch are Russia, China, and the United States. The political climate in the US is turbulent at best since the election of Donald Trump. Trump’s volatile relationship with allies to the US has had unprecedented consequences, including the removal of the US from the Paris Agreement in June 2017. Other presidential decisions that could impact energy around the world include Trump’s recognition of Jerusalem as the capital city of Israel, and the subsequent transfer of the US Embassy from Tel Aviv to the city. Damaging relations between the US and the Middle East in this way has broad implications about oil, not just for North America but for anyone that sources oil from the Middle East in future, including some parts of Europe. A reduction in oil supplied from territories in the Middle East has a trickle-down effect that will hurt the UK more if it doesn’t have priority access to EU reserves. Another unstable energy supplier is Russia. The state-backed gas giant Gazprom has steadily increased Western Europe’s reliance on Russian gas in the past few years, with major customers being Germany and the Netherlands. Russia currently supplies 35% of Europe’s gas; in turn, 44% of the UK’s gas is from European pipelines. With Russia as a bottleneck for the UK’s gas supply, diplomatic

What can businesses do about their energy prices? Businesses are the main users of energy on a day-to-day basis, so they’re likely to be hit more by changes in energy prices than domestic users. Though political change can’t be averted, business owners do have options that will help protect them from the fallout in the energy sector. Review energy efficiency Oftentimes, businesses can be stuck using outdated, inefficient equipment, which over time can cost them thousands every year. Conducting a comprehensive annual review of all the equipment that staff use is a smart way to find appliances that waste energy so you can identify ways to save money. Training staff to be more aware of their energy usage -- and how to reduce it -- can also help shave a significant portion off energy bills. Also consider which processes in the company are highly demanding energy-wise. Running these processes at off-peak times (look into the Triad charging system) is an easy way you can save on energy costs without having to reduce the amount of energy you use.

take until you see tangible returns on your initial investment. Get advice Because the energy sector is so influenced by politics, both domestic and global, traversing your energy options can be very tricky. Getting help from a reliable energy expert like Love Energy Savings is a smart way to ensure you don’t fall into any pitfalls and end up paying more as a result. They can help you make decisions based on changes in legislation and geo-political events as they unfold so you can anticipate what’s going to affect your business ahead of time and plan accordingly. IFM editor@ifinancemag.com

Switch to renewable energies Though not met with the same government incentives that were previously available, switching to a renewable energy supplier comes with a whole host of benefits. Renewable energies are becoming cheaper and cheaper every year as more people adopt them, and you can compound the amount you end up saving versus a standard energy source by investing sooner rather than later. Be sure to research and assess the up-front cost against the monthly saving to understand how long it will

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW

Breathing new life into oil and gas reserves There is rising interest in decommissioning offshore oil and gas platforms in the North Sea – bringing attention to various aspects of this newfound activity including the process, cost, regulation and challenges. If done right, this activity can be hugely beneficial to the O&G industry and the environment. Christopher Harrison, partner, Pillsbury Winthrop Shaw Pittman LLP delves into this pathbreaking initiative

It has been estimated that 214 fields on the UK continental shelf are likely to be the focus of £17 billion of decommissioning activity in the period to 2025 alone, prompting one commentator to term it a potential ‘buzzards’ picnic’. What is behind this sudden uptick in interest? The UK Continental Shelf (UKCS) has, for many years, generated the bulk of the UK’s oil and gas production. However, dwindling reserves, economic viability of extraction, together with the age of many oil and gas installations has focused increased attention on the significant costs involved in decommissioning offshore oil and gas platforms in the North Sea. There are over 11,000 wells, nearly 600 platforms and 24,000 km of pipeline network in the North Sea. UK legislation, in common with most jurisdictions, requires (with very limited exception) that the installations are fully removed, and the sea and seabed returned

International Finance Jul - Aug 2018

to its pre-license condition in an environmentally sound and safe manner. This is both expensive and difficult. The projected cost of decommissioning (forecast by Oil & Gas UK) in the UKCS is expected to be at least £17 billion up to 2025. Other forecasts put the likely total cost (for the UKCS) significantly higher with figures up to £80 billion suggested. So who is paying for all this? Well, in part, we (the UK taxpayer) are. The primary obligation for decommissioning rests with the “operator” (this can be multiple parties including the licensee(s),

the installation operator(s) and other associated parties). However, roughly half of the decommissioning expenditure can be recouped through tax credits. Given the projected total cost of decommissioning in the UKCS, this will be a significant cost to the operators, Treasury and the taxpayer. This cost has renewed debate on the introduction of a Rigs-to Reef policy in the UK. What is the scope of this activity in oil-rich nations like in the Middle East and Africa? To date, there has not been a specific

INTERVIEW

Christopher Harrison, partner, Pillsbury Winthrop Shaw Pittman LLP

Jul - Aug 2018 International Finance

INTERVIEW INTERVIEW energy

policy for Rigs-to Reefs in the Middle East and Africa. The use, however, of artificial reefs is long standing in various Middle Eastern countries and has also been undertaken in various African states. For off-shore oil and gas producing economies in these regions, the benefits of ecologically sound Rigs-to-Reef policies should be considered given the positive benefits observed in the Gulf of Mexico and other jurisdictions where the policy is in effect.

What is the process by which unwanted oil rigs are turned into reefs? The default position for the decommissioning of offshore oil & gas platforms is to plug the well(s) and to remove the topside and move the entire substructure to shore. Most rigs were not designed to be removed, resulting in an expensive, energy intensive exercise with a correspondingly large carbon footprint. Rigs-to-Reefs provides an alternative proposition: simply leave most of the substructure where it is. In this way the platform can continue to support marine life as an artificial reef. Rig-to-Reef typically involves three methods: (i) towed and placed, (ii) toppled in place, or (iii) partial removal. Towed and place involves removing the structure from the seabed either through mechanical cutting or explosives then towing the structure to the desired reef location for placement. Toppled in place also removes the structure from the seabed and is then toppled on to its side. Partial removal is the simplest option. The top part of the structure is cut at the required minimum navigation depth and placed on the seabed next to the base of the remaining structure. It should be noted that not all platforms are suitable for potential reefs. An ecological and engineering survey is required in order to assess suitability.

International Finance Jul - Aug 2018

How does this process enhance profits and benefit companies, economies and the planet? Decommissioning is an expensive, risky, technically challenging and energy intensive business, particularly in the North Sea. A properly managed Rigs-to-Reefs policy in the UKCS could significantly reduce the costs of decommissioning, provide environmental benefits through the creation of artificial reefs and reduce the overall decommissioning carbon footprint. Artificial reefs have been used for many years all over the globe. The best example is probably the Rigs-to-Reef programme in the Gulf of Mexico. In 1984 the US Congress enacted the National Fishing Enactment Act. The Act recognised the ecological, social and economic values in creating artificial reefs and led to the National Artificial Reef Plan administered by the Bureau of Safety and Environmental Enforcement (BSEE). Under the BSEE Rigs-to-Reef Policy, as of April 2018, 532 oil & gas platforms previously installed on the US Outer Continental Shelf have been turned into reefs in the Gulf of Mexico. According to BSEE, a typical four-leg platform structure provides two to three acres of habitat for hundreds of marine species and a home to many thousands of fish. But the North Sea is not the Gulf of Mexico. Surely the different ecosystem means reefing is of less value? Not so according to published scientific evidence. In particular, hard substrate is scarce and species that depend upon it are under pressure. For example, endangered cold water coral benefits from the oil & gas platforms in the North Sea and the coral colonies attract other species and increase biodiversity. Even OSPAR (the international treaty organisation with jurisdiction over North Sea waters) which has effectively banned Rigs-toReef in the North Sea, acknowledges that “the potential benefit of reefs aiming at enhancing production of living marine resources and restoring

or protecting natural habitats, outweigh their negative impacts” (OSPAR 2009). Based on the Gulf of Mexico experience, cost savings of Rigs-toReef verses total removal are in the order of 30-50% for plugging and abandonment. Part of this saving is donated to the relevant state artificial reef program thereby ensuring that the cost benefits are shared, ensuring a win-win for all stakeholders. Done well, decommissioning allows companies to dispose of assets in a safe, environmentallyfriendly and cost-efficient manner. Done badly, and the financial and reputational effects can be severe. What do businesses need to consider to ensure that they effectively convert oil rigs into reefs and avoid the potential negatives? Decommissioning of offshore oil & gas installations and pipelines in the UKCS is controlled through the Petroleum Act 1998. The petroleum regulator OPRED (assisted by OGA – the Oil and Gas Authority) requires a comprehensive decommissioning programme to be provided by the owner/operator identifying all equipment and setting out the decommissioning solution for each. Any proposed Rig-to-Reef solution would require a thorough plan, backed up with an ecological/environmental report setting out the proposed benefits of the selected reef site. Provided that the platform removal and reef laying process was done safely and efficiently (as would be the case for total removal) the cost savings and ecological benefits can, and should be, clearly articulated. The problem with starting a Rig-toReef policy in the North Sea is both political and, to a lesser extent, legal. In 1995, Shell proposed to tow and sink (with UK Government approval) the Brent Spar storage tanker in deep water. Greenpeace occupied the platform in protest at the “dumping” and Shell became embroiled in a very

INTERVIEW energy

negative public dispute. The platform ended up being removed to shore. The Brent Spar incident is believed by some commentators to have influenced the OSPAR treaty negotiations resulting in the current OSPAR ban (with limited exception for very large structures) on artificial reefs using oil & gas platforms. How do oil rigs contribute positively to marine life? What can seem like an obvious choice for ecological stewardship – removing man-made structures from the oceans once their primary functions cease – is often confounded by nature’s own tendency to turn these giant vertical structures into reeflike biomes of feeding and thriving biomass. Scientific evidence from the Gulf of Mexico and elsewhere suggests that artificial reefs act as both a fish aggregation source and create a new ecosystem providing food and shelter adding substrate to the benefit of various species. Rather than introducing new structures to create an artificial reef, it seems axiomatic that utilising existing undersea structures that were designed to survive in the water, and have already attracted sea-life as reefs, makes ecological and economic sense. What are the onsite challenges of decommissioning oil rigs? The decommissioning of oil & gas installations is complex engineering process involving well plugging and abandonment, platform and substructure removal, pipeline and power cable decommissioning and removal. The often harsh environment of the North Sea adds significant challenges to what is already a complex engineering and recovery task. How are legal and regulatory challenges of decommissioning oil rigs addressed? As mentioned earlier, decommissioning of UKCS oil &

gas installations is governed by the Petroleum Act 1998 (as amended). Operators are required to submit a comprehensive decommissioning plan to the Department for Business, Energy and Industrial Strategy (BEIS). The Oil and Gas Authority (OGA) works with the operator and BEIS to assess decommissioning programmes on the basis of cost, future use and collaboration. Part of OGA’s ambit is to ensure maximum recovery and efficiency of cost. Rigs-to-Reef is a clear cost saving process given historical precedent of its use. The principal impediment to implementation of a Rigs-to-Reef policy is the current ban on the use of oil & gas platforms as artificial reefs by OSPAR. The Oslo-Paris Commission (OSPAR) is the international treaty organisation with jurisdiction over North Sea waters and is, amongst other things, responsible for artificial reef policy. The current decommissioning policy is set out in OSPAR Decision 98/3 on the Disposal of Disused Offshore Installations (OSPAR Decision 98/3). The “dumping, and the leaving wholly or partly in place, of disused offshore installations within the maritime area” is explicitly prohibited pursuant to Section 2 of OSPAR Decision 98/3. During negotiation of the treaty, Norway and the UK showed the greatest opposition to the OSPAR banning of offshore disposals, but the UK signed up to OSPAR 98/3 in 1998, on the basis that it provided limited exceptions in exceptional circumstances. Whilst no Rig-to-Reef initiatives have, as yet, taken place in the North Sea, it could be permissible to do so under the UK’s existing decommissioning structure. The definition of “disused offshore installation” in OSPAR Decision 98/3 specifically excludes any installation “serving another legitimate purpose in the maritime area authorised or regulated by the competent authority of the relevant Contracting Party”. On

this basis it appears that Rigs-to-Reef activities could be conducted on the basis that the structure would serve “another legitimate purpose” (being that of an artificial reef). The impediment to getting a Rigs-toReef policy adopted in the UKCS is not just legal. Unlike in the Gulf of Mexico where there is clear stakeholder buy-in to the policy, the Brent Spar incident coupled with an often negative view of oil companies and their “polluting” offshore platforms needs to be addressed to change perception on the economic and environmental benefits of a Rigsto-Reef policy in the UK. How are they generating funds for such expensive projects? Would you say that this process of decommissioning oil rigs can be a revolutionary step ahead in restoring ecological balance in marine life? The operator/owner of the relevant platform (strictly the s29 Petroleum Act Notice Holder) is required to make provision for anticipated decommissioning costs. This provision is based, in part, on the anticipated economic life of the asset (field reserves verses cost of extraction and the price of oil/gas) longer production life the less provision and vice versa. For the major oil and gas companies this is not so much of an issue, but there is a concern that a number of smaller operators may have not made sufficient provision. Rigs-to-Reefs has been shown in other jurisdictions to bring significant cost savings with tangible ecological benefits through the reefing process. It is a potential win-win scenario, which can benefit multiple stakeholders (and not just big oil) if the political will is there. IFM editor@ifinancemag.com

Jul - Aug 2018 International Finance

Starbucks

comes a full

circle

The only iconic American coffee brand will soon set shop in central Milan— where the company’s famed journey began for Starbucks CEO Howard Schultz four decades ago Sangeetha Deepak

estament to the second wave coffee, Starbucks that originally brewed from Washington in 1971 has built a caffeinated dynasty under the master of American macchiato Howard Schultz, who aroused the taste for darkly roasted beans in the country, inspired from the works of the Milanese speciality. Italy prides itself on a grand caffeine-induced history and is still remembered for archaic cafes. In the 16th century, Venice was marked as one of the first European ports in coffee bean imports and two centuries later, Italians met in the northern part of the country Turin to distinctively create coffee shops. According to a coffee historian from the University of Hertfordshire Jonathan Morris, as reported on Quartz Media, Italy’s celebrated coffee culture is owed to Milanese inventor Luigi Bezzera. In early 1900s, Bezzera conceived the recipe for espresso: by pouring pressured water onto a handful of ground coffee to produce a dense drink in the size of shooters. The name is derived from the preparation which is quick. Morris in his essay: A History of Espresso in Italy and the World fathoms how Italians took their coffee at home made from an electric coffee maker called moka pot

International Finance Jul - Aug 2018

engineered in 1933—and is now of great significance in Italy. In 1983, espresso was willed into America by Howard Schultz during his first business trip to Milan, where the curious tale of Starbucks began. After exploring the espresso bars in the city “I started realising that this is a third place between home and work. But the beverage was the draw,” Schultz said. After all, espresso is a fancy among the high-class Americans with so-called tasteful palate. Italy’s unspoken love for coffee and taste for quality is their culture, and soon became the Starbucks formula, which hugely altered the American coffee business that stirred “the feeling of uneasiness” in Italians like novelist Italo Calvino in 1959, who spent six months in the US and discovered an absurd rising trend in New York City. Italians dislike American-style coffee. This is because the Americans’ fresh attempts to recreate variants of espresso and other beverages, is usually what they consider dull and boring. Calvino, who was a regular at Caffè Talmone in Turin after moving to New York was disappointed by the marketing techniques the Americans drew to sell espresso. “You must choose from a long menu, in which every coffee

business leader

is accompanied by its ingredients and sometimes a few historical notes,” he wrote. “‘Roman Espresso’: Italian coffee served in a glass with a lemon slice. ‘Caffè Borgia’: Italian coffee and milk foam covered in imported grated chocolate. ‘Cappuccino’: a preparation of hot milk and cinnamon is added to the espresso.” The Starbucks coffee houses as we know today enjoy stardom in most parts of the world. They have been treated as the epitome of sophistication and high-quality taste. This speaks of Schultz’s ingenuity. In fact, it’s compelling to know how Starbucks plans to sell its Italianinspired American version of lattes and espressos’ in Milan for its first foray—where the original was made. “Now we’re going to try, with great humility and respect, to share what we’ve been doing and what we’ve learned through our first retail presence in Italy,” said Schultz. So, the question is—can Starbucks really match the original beverages in taste and quality as other local coffee bars serve in Milan? Starbucks has chosen a primitive structure on one of Milan’s grandiose squares. The company has zeroed in on a high-end address—former post office in Piazza Cordusio, near the

Duomo, reported The Guardian. And it’s only a matter of time before critics jot reviews for or against the American chain. For now, the American coffee bars pale in comparison to the ones in Italy hugely romanticised with artists, writers, readers, musicians, professors and others, who enliven the place through exchange of performances and conversations. In contrast, the Americans have sped up the make of espresso beyond necessity—where people dispose mannerisms true to the drink and not so eager to spend time at the cafe—as it should be. There are plenty of reasons that might roughten chances for Starbucks in the face of its Milan peers. First: The price range is different in New York and Italy. In New York, the average cost for an espresso varies between $2 to $3 while the price of an espresso in Italy is between 78 cents to $1.23. Second: the challenge for Starbucks is to reinvent Italy’s cafe culture. Back in 1960, referring to the New York cafes, an Italian regular wrote: “It seems to me that no mental task is more complex than erasing any memory of what Italy is, like these guys do. “And then inventing an unreal Italy, which corresponds to what Americans

expect it to be.” Starbucks would have to compete with other bars on Piazza Cordusio serving coffee beverages for years on end. But the bright side of the Milan foray is—the coffee bar can serve contemporary Italians...American signature flavours that is new and enriching. On a more welcoming note, Paolo Nadalet, the president of the Italian Espresso National Institute, said: “We are really happy that a large company like Starbucks is coming to Italy, because we think that the coffee it serves is not like an Italian espresso but is still coffee that tastes good. “And Milan is the right place to start: it’s close to fashion and other Italian ways of living, and for us, coffee is a way to live. Starbucks is doing its own job with its own philosophy, but it’s still very close to our culture in ensuring that its consumers have good coffee in their cups. “Big chains are using our coffee machines worldwide, so this could be a big moment for the Italian market. Foreign companies want to open in Italy and we have to let them.” IFM editor@ifinancemag.com

Source: Useless Daily

Did you know? • Four decades and 28,218 locations later, Starbucks is still popularised for its darkly roasted coffee you might like • Starbucks has more character to its name than one’s imagining...as the company got the name of the first-mate of the whale-ship Pequod in the 19th century literary classic Moby Dick • Starbucks’ Evenings program used to sell wine and beer at some locations to attract customers. Have you been to one? • If you have been to a Starbucks chances are your name might have been misspelt while many think that this might be an error by the baristas...multiple reports state that this is a marketing gimmick to ensure faster brand recall

Jul - Aug 2018 International Finance

On the Job

ON THE JOB with Anna Hejka, CEO, Heyka Capital Markets Group

100

International Finance Jul - Aug 2018

On the Job

This multi-faceted businesswoman talks about the challenges and highs of chasing a high profile job, and how to be a strong female leader today Madhurima Roy

Can you tell us about your role in Heyka Capital Markets Group and your work as chairman of DasCoin? I effectively structure legal entities, ecosystems and transactions using financial products tailored to changing macro conditions and micro requirements. I enable organisations to drive growth, improve business processes and increase corporate flexibility. I provide comprehensive support in leveraging emerging technological and social trends with high-level capital markets and corporate contacts and cross pollinating knowledge of many sectors in multi-cultural environments. As a chairman of DasCoin Ltd. in Hong Kong, with other board members, we strive to enhance the value of the ecosystem using corporate governance to build and sustain trust and reputation promoting confidence among stakeholders and encouraging a corporate culture based on our values and industryâ&#x20AC;&#x2122;s best practice. What is a day like in the life of an investment banker? My days are long, full of responsibilities, impactful, competitive and analytical. What do you cherish most about your job? My job is my passion. Every day I meet new, great people, whom I help to fulfill their dreams and in turn, they help fulfilling mine. I love the permanent learning, and the lack of a routine. What makes a person a strong leader? Extraordinary commitment, outstanding quality of work and a creative approach to doing business; teamwork and placing stakeholdersâ&#x20AC;&#x2122; interests first are key in shaping a leader. Being a dynamic and innovative self-starter, turning challenges into opportunities, helping others achieve their goals, also make a leader strong. What are your top five tips to be a strong and prominent female leader in a male-dominated career? The tips are same as the tips to be a strong and prominent male leader. One has to be aware of:

- Timing - Team, Execution, Adaptability, Purpose, Customers, Experiences and Emotions; - Idea, its USP, differentiation and sustainability - A business model and its purpose, impact, social mission, Go-2-Market Strategy, scale, speed of growth, profitability and the ability to reinvent a business - Funding, cash flow, governance, corporate culture and brand recognition. What are the biggest challenges of establishing a company today and how to overcome them? Establishing a company is becoming easier by the day. It is the survival that is becoming difficult. Today, only 100 companies (i.e. 0.1%) represent 23% of the total world market cap. The average company lifespan fell from 67 years in the 1920s to only 15 today; half of S&P 500 companies have disappeared in the last 20 years and 40% of Fortune 500 companies will no longer exist in the next 10 years. A BCG study found that public companies traded in the US now have a 33% chance of failing in the next five years, up from five percent just 50 years ago. In addition, half of digital companies are worried that their biggest revenue-creating products and services will no longer be attractive to the market within two years. To stay competitive in the market, the following will ensure a companyâ&#x20AC;&#x2122;s long-term survival and success: Innovation epitomised by platforms that marry existing needs with existing assets to create brand new, super effective, practical and compelling products and services for rapidly growing communities; platforms being digitised, open and sharing business models creating scalable, complementary, commercially connected ecosystems of producers and consumers: virtual exchange enterprises for markets, ecosystems, networks and communities. According to ReportWatch, a third of investment decisions are based on non-financial criteria. We place greater importance on engagement and integrity-based attributes such as being employee friendly (59%), listening to customers (59%), and exhibiting ethical and transparent practices (56%), than operational based attributes,

Jul - Aug 2018 International Finance

101

On the Job

including financial performance (36%). Building trust through transparent communications (82%), being honest regardless of how unpopular it is (81%) and engaging regularly with employees (80%). The key to win big is the new paradigm of individual experience based on personalisation and engagement along with transparency and fairness focused on advantages rather than prejudice. What is the most significant change that you brought to an organisation? Apart from making start-ups thrive, I executed several large transactions such as a leveraged buyout of the largest e-commerce company in Central Europe, ABC Data in Poland and Actebis companies in Denmark, Norway, Sweden, Czech Republic and Slovakia (€1.8bn revenues and CAGR of 25%) from a German Otto Group at a time of the financial crisis of 2008. This transaction required me to deal with 7 different jurisdictions, cultures and languages; 3 IT systems; multilevel acquisitions, working capital financing and refinancing; banking systems from 2 different eras; LBO; IPO.

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What motivates you to be a leader? There are two thoughts that keep me well-motivated: - An unceasing hunger for knowledge and desire to change the world. - A sense of fulfillment from empowering people.

instinct. Discover yourself, create your life, connect the dots and change the world - Vision without fear and limitations. Focus on your passion - Perseverance to fall in love with a problem, not the solution. Have great plans and plan carefully. - Knowledge based on passion. Take advantage of opportunities and serendipities. Surround yourself with enthusiasts - Value for others. Focus on individual end-to-end customer experience. Build a brand on your values and gain loyalty by resolving conflicts with class - Diversity in terms of orthogonal thinking with shared values, cooperation and implementation - Credibility based on being true to your values and promises as it builds charisma. Remember that companies with social mission consciously building intangible assets have stronger corporate culture, more loyal clients, easier recruitment and retention plus are media darlings. - Power over yourself. So, “Here is to the crazy ones! Because the people, who are crazy enough to think they can change the world, are the ones who do.” (Steve Jobs) I could not say it any better. IFM editor@ifinancemag.com

What are the hiccups you face on a daily basis and how do you deal with them? Procrastination of some people requires effective motivation and supervision and meandering bureaucracy, which further demand patience and cooperation. What is your pre-work day routine? I do not have one. Each day is different and I like it this way. I get up very early when most people are still asleep and sometimes go straight into my professional tasks. The quietness of such moments helps me focus and achieve the utmost efficiency. I like to go to our garden and pick organic fruits and herbs for a super healthy breakfast. What is your message for business leaders in the making? Peter Drucker once said: “The best method to predict the future is to create it.” I have created mnemonics of the key values I hold high and believe will help budding business enthusiasts: - Freedom to fulfill your potential you may not even be aware of today. Overcome external and internal barriers. Look for support and don’t be afraid to use it. Never be a victim! - Faith in the final success - Innovation is a survival

International Finance Jul - Aug 2018

Anna Hejka is the founder and CEO of Heyka Capital Markets Group, as well as serial entrepreneur, board member, investment and corporate banker in the US, Europe and Asia. She is also a lecturer in EMEA. Hejka was recognised by the World Economic Forum in Davos as a ‘Global Leader for Tomorrow’ and was selected as ‘One of 25 Best Managers in Finance by Home & Market’.

smart tips

104

5 TOP

tips for hedging strategies

Rehan Ansari, head of currency hedging at Caxton FX gives us his top five forex tips

International Finance Jul - Aug 2018

smart tips

Identify your total FX exposure. Are your needs ad hoc or can they can be forecasted? How many payments do you make to your suppliers? What do those transfers cost? Remember, not all costs are visible, so once you have identified them all - you can work on those savings.

Learn how margins and cash flow expose you to currency risk, and the products which can mitigate those risks. When fixing the exchange rate for your foreign market sales you should factor in a ‘currency exchange buffer’. This should be both competitive but remain profitable for your business. Beware; it’s essential to protect your budget rate to stop your costs eating into your profit margins.

Create a strategy that fits your needs – and use all the right tools on offer. This means rate watches, limit orders, spot transactions, forward contracts and derivatives. Decide on a static, rolling, layered or dynamic programme. Remember, a bespoke formula will enhance your cashflow.

Roll out your strategy. Now you know all about the products to hedge your exposure. Recent economic uncertainty has created market volatility. Caxton says, ‘if you’re not hedging, you’re spending’.

Analyse your strategy regularly. Keep track of currency changes and minimise exposure. Watch your ‘Procure to Pay cycle’ – make sure it fits in line with your invoice payments

Rehan Ansari heads the Currency Hedging desk at Caxton FX. With over 20 years’ experience in the financial markets covering different sectors. He started as an Oil Broker working with traders on the International Petroleum Exchange (IPE). After passing regulatory exams as a Futures and Options Representative he joined the FX desk at a financial brokerage as Currency Options expert. Alongside derivatives he also acted as Market Maker and Trader in Spot FX and Precious Metals to a range of clients from hedge funds to institutional investors. Since 2012, Rehan has been creating currency hedging strategies for SME’s through to blue chip companies using derivative products from Options and Non-Deliverable Forwards (NDF) to Currency Swaps. He has a proven track record in volatile environments and is authorised by the Financial Conduct Authority.

Jul - Aug 2018 International Finance

105

Banking

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