Bankable Insights Issue 11

Edition 11

September 2019

Bankable Insights

Collaborative transformation: Reimagining the future of financial services

Banking on innovation in a digital world

Gender diversity: A gamechanger in an age of disruption

Faster, fit-for-purpose and fraud-proof: Digitalising financial aid distribution

Innovation Financial Crime Compliance (FCC) Diversity & inclusion (D&I)

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Contents

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Foreword: Collaborative transformation: Reimagining the future of financial services

Banking on innovation in a digital world

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De-risking in Correspondent Banking: existential challenge or catalyst for change?

Regtech and the fight against financial crime

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Gender diversity: a gamechanger in an age of disruption

Faster, fit-for-purpose and fraud-proof: Digitalising financial aid distribution

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India's local governments go international

Supporting our bank clients with blended finance

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Bankable Insights

Foreword Collaborative transformation: reimagining the future of financial services As the financial services industry prepares for two major conferences - Sibos in London and the Annual IMF meetings in Washington DC - I have been reflecting on how the financial services landscape has developed over the past few decades.

Our industry is always at the forefront of change. We have evolved in response to new client demands, adopted new technologies and developed new alliances and partnerships. We have seen the collaborative development of SWIFT’s international payments network in the 1970s, banking automation in the ‘80s, and the impact of the internet and mobile banking in the ‘90s. More recently, we have reframed our regulator relationships following the financial crisis. We are constantly re-evaluating our role in facilitating the global economy and how to best serve our clients.

Today, change happens faster, and its impact is wider than ever before. Being hyper-connected through the internet and social media platforms mean that ideas transmit virtually instantaneously, impacting partners, clients, regulators and all the communities and economies we serve.

Inclusion through innovation New ideas and technologies enable us to build innovative solutions to problems like financial exclusion and aid distribution to communities in crisis.

The expansion of digital banking in Africa has enabled a range of solutions from cross-border wallet transfers to blockchain-based supplier financing. New cash disbursement technology ensures aid reaches crisis victims within hours rather than weeks, and artificial intelligence is helping to tackle financial crime and prevent terrorist financing across the global markets.

Collaboration for industry solutions While technology clearly remains central to our industry, our approach to developing it has evolved.

More and more, technology is being co-created by banks, regulators, and technology companies, both large and small, incumbents and new challengers. As our Group Chairman, José Viñals says, “Technology is an enabler, and partnerships between different players can create opportunities that neither party could deliver alone.”

This collaboration is key to addressing industry-wide challenges. Co-creating shared standards for greater transparency in international payments, for example, will not only create more secure and robust markets, it will also address the issue of managing correspondent banking relationships across a variety of markets, powering them to participate in the global economy.

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Diversity to drive collaboration and innovation In the face of disruption, financial firms have to innovate to survive. We naturally think of technological advances when we consider innovation, but it is not just about new technologies or challenger firms.

Outdated recruitment and promotion practices that favour only a sub-set of the population results in a loss of diversity, creativity and effective leadership. As we are rethinking our solutions, partnerships and technology, we are also being challenged to think about who we employ and how we create conducive environments in which everyone can thrive.

It’s not just about corporate responsibility. Gender and other forms of diversity are key drivers of success at a time when creative thinking and collaboration are more important than ever. With the ever-increasing pace of innovation, we need the most talented and effective workforce possible in order to create value for our clients, employees and communities.

Continuing our dialogue These are just some examples of how we see financial services evolving, fuelled by innovation and collaboration, and enabled by an increasingly diverse workforce. In this edition of Bankable Insights, we share views on some of the critical changes we have seen as we take an active role in the industry across the globe.

Our upcoming industry events also offer us a platform to come together as peers and colleagues to reframe our attitudes and ways of working. We need to collectively think about our changing role in this new, hyper-connected world. I am excited about the opportunity to continue the dialogue and work together as an industry to reimagine the future of the banking ecosystem.

“I am excited about the opportunity to continue the dialogue and work together as an industry to reimagine the future of the banking ecosystem.�

Heidi Echtermann-Toribio Global Head, Financial Institutions Standard Chartered

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Bankable Insights

Banking on innovation in a digital world Q&A with José Viñals, Group Chairman, Standard Chartered

Innovation and disruption have become the watchwords of the financial services industry, but will it continue to exist in the way we understand it today?

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While innovation and disruption are dominating the conversation in many industries including banking, it is important

What has changed, however, is the environment in which we operate — evolving social demographics and consumer expectations, the technologies available and the pace of innovation. Many discussions about innovation in banking relate to the growing role of non-banks and technology firms. But it would be

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How have innovation and disruption changed the financial services industry, and how can banks embrace technology and innovation to meet emerging client demands?

to maintain some perspective. New market entrants and business models challenge and disrupt, but they also present opportunity for transformational partnerships. At the same time, the need for core banking services remains as strong as ever. The banking industry continues to innovate in step with social, industrial and technological developments as it has done through the ages, and those that do not adapt will disappear.

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How can banks reinvent themselves to embrace innovation and digitisation while continuing to protect the values and trust they have built up over many years? José Viñals, Group Chairman of Standard Chartered shares his insights on the role of banks, and the value of partnerships that bring together the strengths of diverse industry players.

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a mistake to look in isolation at who is providing the services. The more important questions are: who is the client that these services are designed for? What are the client needs? How are they changing?

Who is best positioned to deliver?

Technology is an enabler, and partnerships between players along the value chain like technology firms and banks can create opportunities that neither party could deliver alone. For example, we have partnered with Ant Financial to offer the world’s first blockchain-enabled wallet remittance service between Hong Kong and the Philippines and are now extending this to other corridors.1

What technologies do you think will have the greatest impact in transforming and disrupting the industry?

The financial services industry understands the opportunity to use technology and the vast amount of available data to inform the way we design and deliver custom solutions for clients. We’re applying artificial intelligence and advanced analytics to help shape strategic and operational decisions. Open application programme interfaces (APIs) are allowing dynamic exchange of transactions and data across financial systems and counterparties.

New technologies, including distributed ledgers, are accelerating transactions and improving the way that data is disseminated through financial ecosystems. New asset classes are coming online, such as virtual or crypto assets. Each of these pose their own challenges, as well as opportunities, and have caught the attention of regulators as they become more mainstream.

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How has Standard Chartered demonstrated its digital leadership, and how have clients responded?

We see being a digital leader as a way to deliver on our wider strategic objective to help people and businesses prosper across our markets. For example, as an expression of our brand promise to be ‘Here for good’, we are committed to lead sustainability in banking and increase financial inclusion.

One element of this is digital banking. Since launching a digital-only bank in Cote d’Ivoire in 2018, we have rolled out seven more digital banks in Uganda, Ghana, Tanzania, Kenya, Botswana, Zambia and Zimbabwe within 15 months, an achievement which would be inconceivable without the powerful opportunities presented through new technologies. The impact has been extraordinary. In Cote d’Ivoire, we have already onboarded 18,000 digital-only accounts.2 In Uganda, new account openings increased by eight times, and in Tanzania, more accounts were opened in the first two months of launch than the whole of 2018.3 It takes only 15 minutes to onboard clients4 to our digital-only banks, with access to a comprehensive range of services.

It is not only in developing markets where demand for digital banking is growing.

In Hong Kong, we have established a strategic joint venture with telecoms providers PCCW and HKT and fintech Ctrip Finance to deliver a new standalone digital retail bank for young, urban digital natives.5 While this potentially disrupts our existing retail business, we recognise the need to respond to the changing needs of our digital-savvy clients and provide banking services in a way that integrates with their lifestyles.

José Viñals Group Chairman Standard Chartered

We see being a digital leader as a way to deliver on our wider strategic objective to help people and businesses prosper across our markets.

“We have been appointed by Ant Financial as core partner bank for its new blockchain cross-border remittance service,” Standard Chartered, 25 June 2018 “We’ve accelerated the momentum of our digital strategy across Africa,” Standard Chartered, 28 June 2019; “We’ve accelerated the momentum of our digital strategy across Africa,” Standard Chartered, 28 June 2019; “We’ve launched the second wave of digital-only retail banks across four African markets,” Standard Chartered,” 31 January 2019; “We’ve partnered with PCCW, HKT and Ctrip Finance to build a new virtual bank in Hong Kong,” Standard Chartered, 27 March 2019;

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Bankable Insights

You mentioned the importance of partnerships to the Bank.

What role do new market entrants and financial technology firms play?

Banks have a long history of governance and controls, risk management, supervision and regulatory compliance, and market conduct, and all these have contributed to a high degree of client trust.

Successful partnerships are key to digital leadership, and a partnership model helps cement our role connecting clients, markets and products to facilitate trade and investment.

We formed SC Ventures in 2018 to harness innovation across the bank, invest in fintech startups, and establish new partnerships.6 Through our eXellerator labs in Singapore, Hong Kong, Shanghai, London, Nairobi and San Francisco, we review and provide support to fintechs and community builders to help move from proof of concept to industrial scale.7 We have taken minority stakes in a variety of fintechs to digitise our own business and provide clients with new digital services. We also continue to build partnerships with banks and technology companies to develop new platforms and networks, for example in trade finance, to digitise and remove friction from global trade and finance flows.8

Catch ‘In Conversation with José Viñals’ at the 2019 Annual Meetings of the International Monetary Fund and World Bank Group where José explores further the role of innovation in the finance sector with Megan Smith, former Chief Technology Officer of the United States.

Innovation is about culture as well as technology. How is the culture of the Bank evolving to reflect its digital leadership position?

To address the question of culture, let’s consider the future of banks and banking.

While I do not envisage financial services being dominated by the big technology and fintech companies, banks have a

That said, we should not try to emulate or become them. Banks have a long history of governance and controls, risk management, supervision and regulatory compliance, and market conduct, and all these have contributed to a high degree of client trust. This trust is eroded when banks do not display the behaviour that is expected of them, emphasising the importance of my ‘1 C and 3 Hs’ in our culture: competence, honesty, humanity, humility. These principles must remain at the centre of how we think, how we behave, and how we engage with clients and partners to develop and retain trust, which is essential to the success of the sector.

Banks need to complement their core strengths and values with the digital qualities valued by a new generation to remain relevant, trusted and a force for good in the future.

For more information, contact HeidiToribio.BankableInsights@sc.com

“We establish a new business unit to lead digital innovation and to invest in fintechs,” Standard Chartered, 17 January 2018; 7 “We’ve launched our eXellerator innovation lab in China,” Standard Chartered, 6 September 2019; 8 “We’ve joined forces with six other banks to transform trade finance,” Standard Chartered, 18 October 2018; 6

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lot to learn from their culture, such as adopting innovation as a mindset across the enterprise. This mindset will shape the way we think and the way we make decisions. We would also do well to keep the client experience at the heart of our value offering. Ant Financial manages a client base that is much bigger than any bank. Its success in maintaining customer satisfaction has largely been based on its ability to anticipate and meet consumers’ digital demands and expectations. What I’ve mentioned are just some of the important things that banks can learn from technology and fintech companies.

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September 2019

De-risking in Correspondent Banking: existential challenge or catalyst for change?

Shirish Wadivkar, Global Head, Correspondent Banking Products

Growing regulatory expectations, costs of due diligence, and concerns around profitability have led international banks to de-risk their portfolios, scaling back or terminating their activities in higher-risk jurisdictions. Are we seeing the end of correspondent banking, or could the decline be reversed?

Over one quarter of banks responding to a 2017 International Finance Corporation (IFC) survey reported a reduction in their activities in Eastern Europe, Central Asia,

Latin America and the Caribbean, and over one third in sub-Saharan Africa in 20163.

Balancing risk and reward It is not that the need has disappeared.

Correspondent banking is essential to provide access to global trade and investment, but many banks now find it commercially unviable to deliver these services. The cost and risks associated with anti-money laundering (AML) have increased while the need for sanctions screening and transaction monitoring are growing, particularly in economically vulnerable markets.

CPMI publishes new data on correspondent banking networks showing 20% reduction in relationships over seven years. Bank for International Settlements (BIS). May 2019. Press Release.

2 Action Plan to Assess and Address the Decline in Correspondent Banking, 2019. Financial Stability Board (FSB). May 2019. Executive Summary, p.1 and Chapter 1, p.4.

3 IFC Insights: De-risking and other challenges in the emerging market finance sector. International Finance Corporation. World Bank Group. September 2017. Executive Summary, p.(i).

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Correspondent banking relationships have shrunk by 20 per cent in the past seven years1. The number of active correspondent banks dropped 3.4 per cent in 2018 alone2. International banks have de-risked their portfolios, scaling back or terminating their activities in higher-risk jurisdictions in response to prudential regulations, costs of due diligence, and concerns around profitability.

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Bankable Insights

The unintended consequences of financial crime controls

Financial crime control (FCC) regulations improve the quality and transparency of international finance systems, but they increase the costs of doing business in highrisk economies which could result in a slowdown in financial inclusion.

Financial crime control (FCC) regulations improve the quality and transparency of international finance systems, but they increase the costs of doing business in high-risk economies which could result in a slowdown in financial inclusion4. The IFC notes that the reduction in correspondent banking relationships “threatens to undermine economic stability and growth, financial inclusion and development goals.”5 It also highlights the potential loss of access to trade, “putting at risk the import of critical goods and ultimately economic growth”6.

Local banks have been instructed by their correspondent banks not to service money transfer operators (MTOs)7 (i.e. non-bank remittance companies), as these are cashintensive and have fewer due diligence and AML obligations. They therefore represent a higher risk to the banks. MTO services are particularly important in less financially developed countries where remittances drive economic sustainability.8 Reduced availability therefore has a major impact on small businesses, individuals and communities.

According to a 2018 World Bank report9, the financial system in Angola, for example, has been significantly weakened by the loss of access to international trade and remittance markets due to the decline in correspondent banking relationships.

Almost every sector of the economy has been affected. Small businesses have been impacted by the problem of dollar supply and inflation has risen as a result.

Rallying the financial community Banks and industry bodies recognise the risks in vulnerable markets. Led by the Financial Stability Board (FSB), the international community established a four-point action plan in November 2015 to further explore implications, clarify regulatory expectations, build domestic capacity in key markets and strengthen tools for due diligence by correspondent banks10. It also provides recommendations to MTOs to improve access to banking services. A key recommendation was to implement the Wolfsberg Group Correspondent Banking Due Diligence Questionnaire (DDQ)11 as a standardised global tool to bring consistency and transparency to the level of financial crime compliance (FCC) that a bank needs to demonstrate in order to gain access to a correspondent banking account. The Wolfsberg Group, comprising 13 leading banks including Standard Chartered, provides such a cohesive framework of principles, guidance and statements for managing FCC risks, including in key areas such as know your customer (KYC), anti-money laundering (AML) and counter-terrorist financing policies. This implementation has been completed.

Globally, 69 per cent of adults – 3.8 billion people – now have an account at a bank or mobile money provider, up from 62 per cent in 2014 and 51 per cent in 2011. From 2014 to 2017, 515 million adults obtained an account, and 1.2 billion have done so since 2011. Global Findex Database, 2017. World Bank. Press release.

5 IFC, ibid, p.(ii).

6 IFC, ibid 7 The Decline in Access to Correspondent Banking Services in Emerging Markets: Trends, Impacts, and Solutions. World Bank. 2018. Executive Summary, p.viii.

8 Remittances: the hidden engine of globalisation, Financial Times, 27 Aug 2019, 9 World Bank, ibid 10 FSB, ibid 11 Wolfsberg Group Correspondent Banking Due Diligence Questionnaire. Updated June 2019.

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Non-government organisations (NGOs) and development organisations operating in economically vulnerable countries may also find that the cost and risk of distributing aid is higher. As a result, fewer aid and development dollars end up reaching the communities that need them the most, with longer delays.

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Stemming the tide through standardisation and innovation The lack of standardisation in regulatory practices and data sets has been a hurdle to reversing the decline of correspondent banking relationships. There is, however, major progress underway. SWIFT’s move to ISO 20022 formats for crossborder payments in November 202112 will dramatically improve consistency and transparency of payments.

SWIFT has mandated the use of a universal end-to-end transaction reference (UETR) since November 201813, which could go a long way to improving AML risk management. All banks will need to confirm payments to beneficiary accounts via the gpi tracker by end 202014. In addition, we are seeing parallel networks developing for real-time, traceable payments, using emergent technologies such as distributed ledger technology (DLT), including trade consortium-driven networks.

A key outstanding requirement is a universally accessible know-your customer (KYC) registry. Today, every bank needs to complete KYC and customer due diligence individually, compounding costs and risks.

A globally reputable, centralised service would lighten that load considerably by improving the efficiency of each bank’s KYC processes. A significant step towards achieving this is the SWIFT KYC register, which includes Wolfsberg DDQ and other materials and which is accessible by other banks with the requisite consents.

Scalable data processing capacity, sophisticated data analytics and consistent reporting are key to reversing the decline in correspondent banking relationships, as it would enable banks to size and manage their risks. As such,

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SWIFT. SWIFT. SWIFT. Business Insider Intelligence.

solutions leveraging artificial intelligence (AI) and sophisticated data analytics will become increasingly important.

Business Insider Intelligence calculates potential middle office savings from AI in banking of USD217 billion by 2023, which includes savings from key AI use cases in anti-fraud and risk, KYC and AML solutions15. Smart contracts are helping to identify fraudulent transactions more systematically, while hypercontextualised analytics are likely to replace manual transaction monitoring and reporting techniques.

Sharing expertise and promoting best practices Some individual institutions also have programmes underway to address the challenge. Standard Chartered is actively cooperating with banks and industry bodies, participating in various industry fora, and also taking proactive steps to de-risk through education. We run Correspondent Banking Academies (CBAs) for our banking partners across our franchise, as well as similar ones for public sector and development organisations.

Our CBAs leverage the Bank’s internal experience and expertise to run workshops for clients on developing robust FCC control frameworks and standards.

Standard Chartered’s CBA program was recognised as a mitigant to de-risking in the May 2019 FSB report. We were one of the first in the industry to create an FCC e-Learning and Assessment portal which covers the fundamental building blocks of an effective FCC programme.

To promote the safety of the financial system and raise awareness of financial crime risks, we also make this e-learning available to our clients and their staff, not just those attending the CBAs and is available to our correspondent banking clients.

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Scalable data processing capacity, sophisticated data analytics and consistent reporting are key to reversing the decline in correspondent banking relationships, as it would enable banks to size and manage their risks.

Focus, cooperation and innovation Correspondent banking relationships provide vital connections between local economies and the international financial system, giving access to trade, services and remittances. Reversing the decline is therefore essential to promote financial inclusion. Continued focus and industry cooperation, payment transparency and standardisation, technology innovation and education in FCC best practices will all help to do this.

As new participants and business models emerge, such as virtual banks, consortia and platform companies, these may drive better use of data for risk analysis and value capture. Key to success in maintaining trust and confidence in the correspondent banking system, however, will be full understanding and equitable management of the risks by all industry participants.

For more information, contact HeidiToribio.BankableInsights@sc.com

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Bankable Insights

Regtech and the fight against financial crime Every aspect of banking today is being transformed by new technologies – the fight against financial crime is no exception.

Regtech solutions are increasingly using Artificial Intelligence (AI) such as machine learning and data analytics to bear on regulatory requirements and processes, making efforts to keep illicit finance out of the financial system more effective and efficient.

The Regtech opportunity

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One of the big challenges facing banks today is extracting accurate insights from the huge volumes of data they process. Yet the answer isn’t to reduce the amount of data we process. Rather, Regtech enables banks to gain the necessary insights without necessarily increasing resources.

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This means reduced likelihood of suspicious activity being overlooked, and a reduction in the number of ‘false positives’ flagged. Financial crime analysts can therefore focus their time on the higher-value work of investigating true matches and identifying useful financial intelligence for law enforcement.

In the medium term, Regtech is likely to offer augmented intelligence – assisting human decision-making, rather than replacing humans.

The impact so far Regtech is already having an impact is on name screening – the process of checking whether individuals involved in a transaction are on lists of higher risk individuals, or subject to sanctions. It can also assist in transaction monitoring and investigations, though use in these areas is in the early stages.

Standard Chartered has been working with technology provider Silent Eight since 2018 to develop and implement such new technology. We aim to use machine learning and natural language processing to optimise name screening, which often generates large numbers of ‘false positives’ because of similar or identical names.

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As Martin Markiewicz, the CEO & Cofounder of Silent Eight says, the ambition is “to help revolutionise how screening will be done in the future.”

In a proof of concept trial – which covered name screening for adverse media, sanctions, and politically exposed persons – we removed 40 per cent of alerts the system currently generates as false positives. And analysts were able to process a further 30 per cent of the alerts generated more efficiently because the new technology had completed part of the investigation for them. This also meant that analysts made fewer mistakes: our estimate is that human error rates were reduced by 50 per cent.

Looking to the future Successful development of Regtech solutions over the coming years will have three key characteristics: Firstly, and most importantly, these solutions will need to be developed in partnership between the banks implementing them and the providers developing specific applications, engaging with regulators where appropriate. In our experience, taking a non-competitive approach to Regtech (by sharing our understanding and insights with other financial institutions) has been critical for the uptake of Regtech solutions. In July, the UK Financial Conduct Authority held a ‘TechSprint’ in London and Washington DC, bringing together financial institutions, technology providers, law firms, and others, to find better ways of increasing prevention and detection rates for financial crime. Standard Chartered worked with our partners to present two solutions: one to safely share data between banks to enhance due diligence, and another to more effectively share data using graph functionality.

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Secondly, banks and regulators will need to work closely together, especially in instances where both existing methods and new emerging technologies in implementation phase are running in parallel. This is to be expected at first as industry and regulatory confidence grow. However, going forward, effectively addressing regulatory concerns early in the implementation stage will help avoid unnecessary ‘parallel runs’ and contribute to quicker and more efficient deployment of new industry solutions.

Thirdly, the industry recognises that technology is not ‘perfect’ or ‘zeroerror’. Human analysts sometimes make mistakes, so an automated process with fewer errors – while not in itself error-free – would be an improvement. There is a need to agree within the industry on what margin of error would be acceptable, and for regulators to reach agreement on that too. Martin Markiewicz concludes “introducing AI into this space is not straightforward, with regulatory oversight and tolerance for errors extremely low.”

It’s clear that Regtech solutions will play an evergreater role in the fight against financial crime.

However, this cannot work without collaboration.

Looking to the future, it’s clear that Regtech solutions will play an ever-greater role in the fight against financial crime. However, this cannot work without collaboration: “We believe that financial institutions can both increase effectiveness and efficiency and that Regtech has a role to play,” says Markus Schulz, Standard Chartered’s Global Head of Financial Crimes Compliance Controls. But he cautions that, “the goal of achieving both greater effectiveness and efficiency cannot be outsourced to technology providers and there are no silver bullets though there are some quick wins.”

For more information, contact HeidiToribio.BankableInsights@sc.com

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Bankable Insights

Gender diversity: a gamechanger in an age of disruption Heidi Toribio, Managing Director, Global Head, Financial Institutions

As innovation disrupts and transforms the financial industry, firms are putting a premium on employing the best creative thinkers. With this comes a need and opportunity to think of talent differently in order to recruit the best and brightest people.

In seeking new ways to leverage technology, develop products, access markets and serve customers, the financial industry is also rethinking its approach to recruiting, retaining and promoting women.

As existing hiring practices are often firmly established and considered status quo, it can be hard to introduce changes and make progress. “For centuries we have been in this situation where people have been recruiting in their own likenesses,” explains Ann Cairns, Executive Vice

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Bill Winters, Standard Chartered’s Group Chief Executive Officer, has said of gender diversity: “We’re in a war for customers, a war for service, a war for talent all the time. How could we possibly win if we’re limiting our pool of talent to half the population?”1

Expanding that pool of talent to include women means tackling all bias, whether conscious or unconscious. It means making changes to how talent is hired and developed, and even re-engineering a firm’s culture to give women more opportunities.

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Bloomberg Gender Equality Index Information Booklet; Accessed 19 August 2019

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Chairman, Mastercard and Co-Chair of the 30% Club. “That doesn’t just lead to the gender gap, but the diversity issues we have around the world.”

The state of play Gender diversity brings significant benefits to the companies who embrace it, according to a McKinsey study2 of 39 financial services firms that together employed 1.2 million people. The companies that ranked in the top quartile for gender diversity in executive teams are 21 per cent more likely to be more profitable and 27 per cent more likely to create value. The study found that 90 per cent of these companies were committed to achieving gender diversity.3 This should come as no surprise, as women make the best leaders, according to independent leadership consultancy Zenger Folkman.4 Their research shows women outscoring men on 17 of the 19 capabilities that differentiate excellent leaders. These include critical leadership qualities such as taking the initiative, resilience, practicing self-development, even driving for results (see figure 1).

Despite possessing these qualities, women are often reluctant to put themselves forward for leadership opportunities at the same rate as men.

Mary Ellen Iskenderian, President and CEO, Women’s World Banking observes that women are often over-qualified when they apply for vacant positions. “If anything, we do know that a woman will apply for a job that requires a promotion when she has a 110 per cent grasp of the required competencies to a much greater extent than a man will,” she reports.

According to a 2019 study by the Washington-based research group Corporate Women Directors International (CWDI)5, financial services firms have made strides in gender diversity, with women now holding almost 25 per cent of board positions at the 104 largest banks or financial institutions in the Fortune Global 500. This is more than double the female representation at board level since the CWDI’s previous study in 2005 which showed that only 10.3 per cent of board positions were held by women. Europe is leading the way, with women holding over a third of board positions. In the US, however, that proportion is only 28.9 per cent and Asia trails at just 12 per cent.

Despite the progress made, there’s still a long way to go. “At the current pace, women will not have parity with men in these large financial institutions until 2036,” noted Irene Natividad, chair of CWDI.

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Research shows women outscoring men on 17 of the 19 capabilities that differentiate excellent leaders. These include critical leadership qualities such as taking the initiative, resilience, practicing self-development, even driving for results

Growing transparency into gender diversity signals that momentum for change is building. Notably, the Bloomberg Gender Equality Index (GEI)6 selected 230 companies from 10 sectors for inclusion in 2019, more than double the number in 2018.7 The GEI judged these companies as committed to transparency in gender reporting and advancing women’s equality in the workplace, including Standard Chartered among them.

Ann Cairns is positive about this open approach: “I think this shows that there’s an awareness and a willingness to share data and to say this is what we look like now.”

Closing the Gap, Leadership Perspectives on Promoting Women in Financial Services, McKinsey, September 2018; Page 3; 3 Closing the Gap, Leadership Perspectives on Promoting Women in Financial Services, McKinsey, September 2018; Page 3; 4 Research: Women score higher than men in most leadership skills. Harvard Business Review. June 25, 2019.

5 European financial services leads charge on women directors. Financial Times; July 4, 2019.

6 The Bloomberg Gender Equality Index tracks the performance of publicly-held companies that have committed to transparency in gender reporting and to advancing women globally. It provides comparable information for individual data points related to gender equality at these companies.

7 Bloomberg Gender Equality Index Fact Sheet; Accessed 19 August 2019 2

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Bankable Insights

Figure 1: Women Are Rated Better Than Men on Key Leadership Capabilities According to an analysis of thousands of 360-degree reviews, women outscored men on 17 of the 19 capabilities that differentiate excellent leaders from average or poor ones.

Ann Cairns Executive Vice Chairman, Mastercard and Co-Chair of the 30% Club

It takes a long-term and dynamic approach to close the gender gap and tackle entrenched work practices and cultural issues.

Capability

Women’s percentile

Men’s percentile

Takes initiative

55.6

48.2

Resilience

54.7

49.3

Practices self-development

54.8

49.6

Drives for results

53.9

48.8

Displays high integrity and honesty

54.0

49.1

Develops others

54.1

49.8

Inspires and motivates others

53.9

49.7

Bold leadership

53.2

49.8

Builds relationships

53.2

49.9

Champions change

53.1

49.8

Establishes stretch goals

52.6

49.7

Collaboration and teamwork

52.6

50.2

Connects to the outside world

51.6

50.3

Communicates powerfully and prolifically

51.8

50.7

Solves problems and analyzes issues

51.5

50.4

Leadership speed

51.5

50.5

Innovates

51.4

51.0

Technical or professional expertise

50.1

51.1

Develops strategic perspective

50.1

51.4

Note: The T-values of all data are statistically significant Source: Zenger Folkman 2019 / Harvard Business Review

Redefining the rules It takes a long-term and dynamic approach to close the gender gap and tackle entrenched work practices and cultural issues. Firms first need to recognise that there’s a problem. Only then can they identify what needs to change, and what new norms to establish and approaches to adopt in managing talent.

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For such an undertaking, the Women’s World Banking’s Organisational Gender Assessment tool uses a firm’s own data to objectively identify the issues they face and develop effective solutions.

“We designed it (the tool) to make sure that companies are looking at their

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data, and then using that data to make decisions,” says Women’s World Banking’s Iskenderian. “For example, they may be recruiting men and women at the same level, but then women may be falling off that path. This tool allows a company to identify their specific barriers to gender diversity and tailor a solution. There are different solutions for the different issues you face.”

Culture is part of the problem in financial services. For example, a firm can introduce flexible working and shared parental leave but how will this make any difference it it’s rejected by male employees? As Cairns discusses: “It’s one thing to put processes out there but another thing to make everybody comfortable that it’s perfectly okay to take your entitlement.”

The resulting solutions may involve rethinking policies and processes identified as barriers to diversity and often, these barriers may not be the immediately obvious.

Playing the long game

Standard Chartered’s senior management – recognising the importance of women having a seat at the table to drive change – took steps to raise the visibility of women within the organisation, ensuring that they were represented at senior leadership team meetings, participated in strategy discussions and had executive management experiences.

For a business to truly reap the benefits of diversity of thought and approach, diversity should be incorporated into all business areas. Mastercard’s Cairns believes that women should be put in P&L positions with responsibility for revenue and expenses, not just support functions, to give them a broader range of business perspectives vital to becoming senior leaders and CEOs. “It’s important to put women into those core business roles rather than just saying ‘I made my numbers because we increased the number in the support functions’.”

She recalls countering unconscious bias towards men in the hiring of country heads by asking the hiring managers to explain every selection against objective criteria. “I said come and tell me what your selection criteria was and why you rejected the other candidates. And the first year that I introduced that, the number of women increased by 10 per cent.”

Financial services firms need to be nimble and swift to adapt to new, more effective ways of working in order to compete in today’s economy. This is not limited to the technology space. Human capital is as important, and with it, new approaches to identifying, recruiting and promoting talent in the firm to harness the power of diverse workforce.

Barriers to diversity need to be addressed first, preferably using a data-driven approach like the Women’s World Banking’s Organisational Gender Assessment tool to help surface any hidden biases and barriers and to enable the development of the right solutions. The desire to establish gender diversity is not enough; it requires committed action to implement the solutions and establish new norms that challenge long-held mindsets.

The significant benefits of greater diversity are there for the taking. Achieving these advantages, and winning the war for talent, requires fundamental measures to remove often invisible barriers to having more women throughout all levels of an organisation.

September 2019

Mary Ellen Iskenderian President and CEO Women’s World Banking

The desire to establish gender diversity is not enough; it requires committed action to implement the solutions and establish new norms that challenge long-held mindsets.

For more information, contact HeidiToribio.BankableInsights@sc.com

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Bankable Insights

Faster, fit-for-purpose and fraud-proof: Digitalising financial aid distribution Karby Leggett, Global Head of Public Sector and Development Organisations, and Katharine Steger Regional Head, Europe, Public Sector and Development Organisations

Financial services and public sector development organisations are turning to innovative technology to secure access to financial aid.

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Physical to Financial Aid That reality is reflected in the data. In 2018, total international humanitarian funding reached USD28.9 billion, up an estimated 30 per cent (USD6.7 billion) since 2014.3 The enduring challenge, however, has been distributing those funds safely, on time and to the right people. In regions suffering humanitarian crises, physical transportation infrastructure is often limited or even nonexistent. When it does exist, usage costs including security arrangements in some cases can make the cost prohibitively high.

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The benefits are enormous when aid is delivered and disbursed in an efficient and timely manner. Financial stability and independence start to take hold, and consumer spending patterns emerge.

As local economies experience growth, new job opportunities arise. Over time, a helpful development cycle can emerge.

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Meheba Refugee Settlement Profile, The United Nations High Commissioner for Refugees (UNHCR), 30 November 2018. a g Global Humanitarian Assistance, Key trends in global humanitarian ffi lo b assistance 2019, extreme poverty defined asEthose Re living on less than USD1.90 per day, page 1, para 1. G 3 Global Humanitarian Assistance, Key trends in global humanitarian assistance 2019, page 1, para 3.

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This change in Meheba Camp reflects a larger transformation in how aid is delivered globally. Nearly one-third of the world’s poorest people2 live in countries that experience regular humanitarian crises such as natural disaster, disease and displacement by armed conflicts.

Often, the first aid to arrive is physical; food, blankets, medicine and other emergency supplies. While this is vital to save lives at the beginning of a humanitarian crisis, the need soon shifts to financial aid in order to sustain them.

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Through digitisation and partnerships, Standard Chartered is helping to meet urgent humanitarian needs whilst strictly adhering to international sanctions and regulatory requirements as well as donor needs for transparency and accountability.

The Meheba Refugee Camp in northwestern Zambia is home to 12,000 refugees1, each of whom rely on money from international aid organisations to survive. Not long ago, these funds took up to 10 days to reach the refugees’ pockets.

Today, it can arrive within an hour.

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To overcome the challenges of aid delivery, many development organisations have begun relying on mobile money, prepaid cards, e-vouchers and digital wallet solutions. Standard Chartered plays a key role in this, working with aid organisations, public sector bodies and development agencies to provide financial infrastructure such as cash management, payments and foreign exchange services.

Standard Chartered has also beefed up its ability to accelerate the speed and ease of aid distribution in crisis situations by enabling expedited account opening and securing priority access to funding.

The Bank also offers a blockchain-based cross-border wallet remittance service in partnership with Ant Financial.4 Using AlipayHK in Hong Kong and GCash in the Philippines, this service enables nearly 180,000 Filipino workers in Hong Kong to send money back home realtime, providing a convenient, secure and affordable way for overseas Filipino foreign workers to support families in need back home.

Financial inclusion and financial controls Standard Chartered sees an opportunity to do even more. Already, the Bank has rolled out mobile money solutions in more than 10 markets that are home to vulnerable communities. So long as the telecoms infrastructure supports this digital initiative, further expansion is planned.

In Zambia’s Meheba Refugee Camp, a vast area spread across nearly 700 square kilometres, Standard Chartered's mobile money solution enabled the rapid disbursement of cash to the refugees. This solution - jointly developed by the Bank and the United Nations High Commissioner for Refugees (UNHCR) - was awarded the 2018 Banker Magazine Bank of the Year Award for Financial Inclusion.

Prior to rolling out the mobile money solution, the UNHCR paid a monthly physical cash stipend to each household.

To receive the funds, refugees travelled into regional distribution centres. Once there, they would queue for up to ten days before receiving the money, preventing them from engaging in more productive economic activities. At the same time, the large volume of cash payments proved extremely difficult to accurately audit, raising governance challenges around the process.

To address this, Standard Chartered worked with mobile money partners to distribute SIM cards and register eligible beneficiaries for mobile money. UNHCR paid stipends directly to beneficiaries through Standard Chartered’s Straight2Bank Wallet platform. Payments could happen in a flash and could be easily and fully audited. Refugees, instead of having to queue for days on end, received their funds within an hour.

Balancing risk, regulation and need Although mobile money and other digital cash solutions are increasingly prevalent, there remain gaps, especially in highrisk countries where international banks are unable to operate directly. Through digitisation and partnerships, Standard Chartered is helping to meet urgent humanitarian needs whilst strictly adhering to international sanctions and regulatory requirements as well as donor needs for transparency and accountability.

In Somalia, Standard Chartered has a long-term partnership with Al Amal Express Exchange to disburse funds for the humanitarian sector. For this high-risk country, the Bank has created a Cash Disbursement transaction type for its development organisation clients. This is fully supported in the Bank’s systems, processes and controls, including sanctions screening.

We have been appointed by Ant Financial as core partner bank for its new blockchain cross-border remittance service, Standard Chartered, 25 June 2018.

5 Finextra.com, ChildFund to utilise Standard Chartered Straight2Bank wallet service, 03 November 2014.

6 Business Chief, Straight2Bank: the mobile banking solution driving growth in the developing world, 15 June 2018.

September 2019

Successfully screened transactions are transmitted to the Bank’s local service provider Al Amal Express Exchange through an application programming interface or API. Funds are distributed to beneficiaries, and payment status data is returned for automatic confirmation and reconciliation, giving users full visibility over the end receipt of funds.

Standard Chartered’s mobile cash payment services are being used by development organisations around the world. ChildFund, a charity that helps deprived and vulnerable children through sponsorship programmes, uses the Bank’s Straight2Bank Wallet service to deliver funds to the charity’s vendors and staff to support beneficiaries directly.5 Jhpiego, a charity affiliated with John Hopkins University and dedicated to mother and child health, is using Straight2Bank Wallet to instantly disburse cash to beneficiaries in Kenya.6 The Bank’s regulatory, operational and technological expertise – coupled with on-the-ground knowledge across developing and frontier markets – have been instrumental in helping development organisations meet their humanitarian objectives. The result? Secure, timely and transparent aid delivery solutions, helping vulnerable people gain a new measure of financial independence and supporting the welfare of vulnerable communities.

For more information, contact HeidiToribio.BankableInsights@sc.com

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Bankable Insights

India's local governments go international In March 2019, Standard Chartered made history by arranging the debut Masala Bond for the Government of Kerala in India, represented by the Kerala Infrastructure Investment Fund Board (KIIFB).

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This trend presents a unique opportunity for Standard Chartered to build longterm relationships with those subsovereign clients and deliver new investment opportunities to public sector development organisation and financial institution investor clients – while further demonstrating their ‘Here for good’ brand promise.

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This landmark deal – in which Standard Chartered was the sole bookrunner – came at a time when many of the local governments were poised to take a big leap to increase infrastructure spending which is needed to sustain growth momentum. While local regulators and the central government have been taking steps to deepen the domestic onshore capital markets, the sheer quantum of required infrastructure funding means

the international capital markets will also play a big role - be it Masala bonds or US dollar bonds.

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This was the first ever offshore bond issuance by an Indian Local Government Financing Vehicle (LGFV) and provided much needed offshore capital for the Kerala state government.

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Supporting our bank clients with blended finance Standard Chartered is innovating to help get more capital to the areas of the global economy that need it most.

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For more information, contact HeidiToribio.BankableInsights@sc.com

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This tool addresses one of the more complex challenges of growing banking assets and optimizing capital structures and returns, which can increase the quantum of finance deployed for development purposes.

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In Credit Risk Sharing or Risk Transfer, a risk sharing agreement is struck between a commercial bank and a Development Finance Institution (DFI), or the RiskSharing Counterparty, on a specified pool of assets where both the commercial bank and the DFI share the risk on the portfolio of assets. The assets do not

leave the commercial bank’s balance sheet, nor are the underlying borrowers’ names disclosed. Once the assets prepay or mature, the commercial bank has the ability to replenish the asset pool with new assets subject to pre-agreed Replenishment Criteria, which include Eligibility Criteria as well as Portfolio Profile tests. Such a transaction will enable to commercial bank to reduce its RWA and increase CET1.

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Together with the development finance community, the Bank is mobilising capital in its markets via structured guarantee products. Credit Risk Sharing or Risk Transfer is one method by which external investors are able to share the risk of a banking sector asset portfolio. As commercial banks continually look to optimise Risk Weighted Assets (RWA) metrics, there has been increased interest in this innovative tool in the Bank’s footprint markets.

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News in brief A selection of financial news items from around the world

Discussing the future of banking at Sibos Standard Chartered's experts feature prominently at Sibos 2019 in London. Bill Winters, our CEO, shares views from the top and connector strategies for growth across geographies and sectors.

In our Future of Business lunch series, external guest speakers bring their expertise to bear on a range of topics including cybersecurity, effective leadership in a time of change, modernising the fight against financial crime, and lessons from the business of sport. Find out more about our participation at Sibos 2019 here.

IMF – World Bank Annual Meeting, Washington D.C. This eminent event in October brings together central bankers, finance ministers, senior executives, civil society organisations and academics to discuss global economic and development issues.

José Viñals, our Group Chairman, will explore technology innovation and disruption with Megan Smith, 3rd Chief Technology Officer of the US. Simon Cooper, CEO of CCIB, will also host a session with Tom Wright, co-author of The Billion Dollar Whale.

Promoting the business case for diversity Bloomberg brings its flagship Equality Summit to Asia for the first time on 15 October. The conversations will move beyond the universally accepted business case for diversity to create an actionable plan for inclusion. Simon Cooper, CEO of CCIB shares a panel with IKEA and Uber to discuss the business case for inclusion and how global companies are driving equality.

Making finance work for women Sponsored by Standard Chartered, more than 300 global leaders in financial services, investment, philanthropy, policy and technology will come to Singapore on 22-23 October for Women’s World Banking’s 2019 Summit. The sessions will examine the barriers and opportunities to make finance work for women, with Heidi Toribio, our global head of financial institutions helping to shape the debate.

Harnessing innovation in China’s vibrant tech space Standard Chartered has launched an eXellerator innovation lab in Shanghai, building out its global incubator network. Part of the Bank’s SC Ventures unit, the new lab will drive innovation and invest in promising fintechs in China’s vibrant technology ecosystem. Alex Manson, Global Head of SC Ventures: “Our eXellerators combine innovation from both in and outside the Bank to rewire the DNA in banking.”

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Standard Chartered and Linklogis complete first transaction on blockchain platform Standard Chartered and Linklogis have completed their first joint deep-tier supply chain financing transaction via Linklogis’ WeQChain platform with joint venture Digital Guangdong, an alliance that has developed 700 digital government services and applications for the residents of the Guangdong province, south China. This digital platform, based on Tencent’s blockchain technology, will provide cheaper, convenient credit across supplier ecosystems, including SMEs.

Expanding digital banking in Africa Following the success of Standard Chartered’s digital-only banks in Uganda, Tanzania, Ghana and Kenya and Côte d’Ivoire, we have launched digital banks to increase access to financial services in Botswana, Zambia and Zimbabwe. In Kenya, Uganda, Ghana and Tanzania, the Bank’s new social banking solution, SC Keyboard, provides access to financial services from any social or messaging platform without the need for a banking app.

Boosting client choice and opportunity through APIs Standard Chartered has announced three major API initiatives to help developers, corporations and fintechs create new API-based client products and services. aXess platform (open access to the Bank’s source code, applications and libraries), aXess Labs (experimentation lab in Bengaluru, India) and aXess Academy (training for the Bank’s developers) give clients greater choice and opportunity to integrate banking services into other platforms.

Digitising and financing supply chains through SAP Ariba Payments, supply chain financing and foreign exchange is set to become easier for the 4.2 million companies in 190 countries that are part of the SAP Ariba network. By end 2019, buyers will be able to access Standard Chartered services directly through the SAP Ariba digital platform. This is a major step in digitising purchase-to-pay and supporting sustainable economic growth across the world’s most dynamic trade corridors.

Helping the youth reach their goals Powered by Street League, the UK’s leading youth charity tackling unemployment through sport, Goal, within Standard Chartered’s flagship global education programme Futuremakers, is being launched in the UK. Through sport and play-based learning, we are helping to tackle inequality and promote economic inclusion, with 180 girls aged 14 to 16 across six schools in London and Liverpool taking part.

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Bankable Insights

Notes

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This material has been prepared by Standard Chartered Bank (SCB), a firm authorised by the United Kingdom’s Prudential Regulation Authority and regulated by the United Kingdom’s Financial Conduct Authority and Prudential Regulation Authority. It is not independent research material. This material has been produced for information and discussion purposes only and does not constitute advice or an invitation or recommendation to enter into any transaction.

Some of the information appearing herein may have been obtained from public sources and while SCB believes such information to be reliable, it has not been independently verified by SCB. Information contained herein is subject to change without notice. Any opinions or views of third parties expressed in this material are those of the third parties identified, and not of SCB or its affiliates.

SCB does not provide accounting, legal, regulatory or tax advice. This material does not provide any investment advice. While all reasonable care has been taken in preparing this material, SCB and its affiliates make no representation or warranty as to its accuracy or completeness, and no responsibility or liability is accepted for any errors of fact, omission or for any opinion expressed herein. You are advised to exercise your own independent judgment (with the advice of your professional advisers as necessary) with respect to the risks and consequences of any matter contained herein. SCB and its affiliates expressly disclaim any liability and responsibility for any damage or losses you may suffer from your use of or reliance on this material.

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You may wish to refer to the incorporation details of Standard Chartered PLC, Standard Chartered Bank and their subsidiaries at http://www.sc.com/en/incorporation-details.html Š Copyright 2019 Standard Chartered Bank. All rights reserved. All copyrights subsisting and arising out of these materials belong to Standard Chartered Bank and may not be reproduced, distributed, amended, modified, adapted, transmitted in any form, or translated in any way without the prior written consent of Standard Chartered Bank.