By Simon Black, CEO, PPRO Group
If we suddenly learnt that the world would end tomorrow, someone would make money from the discovery. At very least, to quote Tom Lehrer[1], Lloyds of London would be loaded when they go.
No matter what happens, someone somewhere finds a way to turn a profit. The trick is, being that someone. With Brexit, so much focus has been on the negatives that we think that there’s a danger that opportunities will be missed.
Here’s our guide to having a good Brexit.
E-commerce and cross-border lead generation
The exchange-rate for sterling has fallen so low, that the pound is almost at parity with the euro. For cross-border e-shoppers from the rest of the EU, that turns Britain into a massive bargain store.
With even a minimal effort at promotion, UK merchants can attract price-conscious EU consumers. In fact, UK SMEs saw their international sales rise by an incredible 34% in the last six months of 2016, three times the increase in the first half of the year[2], due to the exchange rate. If ever there was a time to feature the Union Jack accompanied by the words (suitably localised) ‘Brexit bargains’, in your promotions, it’s now.
That’s great, as far as it goes. Everyone wants extra trade even if we’re effectively selling at a discount. But it’s not sustainable and its continuation cannot, in any case, be taken for granted. At some point the pound will rebound or bargain hunters will revert to their previous shopping habits.
So, what to do?
Turn today’s cross-border bargain hunters into loyal repeat shoppers. Invest now in data collection, strategic planning and customer-experience improvements. Use the data you gather on your new customers to engage them and migrate them to localised version of your site. For now, keep them coming back with price-led promotions but over the next year, try to deepen customer relationship, learn their other purchase motivators and give them reasons other than price to keep coming back.
There is no sign of the Eurozone recovery slowing down; in fact, it’s quite the opposite, with the Eurozone economy growing twice as fast as the UK in recent months[3]. And there are already signs, particularly from the automotive sector, that this is releasing pent-up demand. In theory, there’s no reason why UK retailers can’t benefit by servicing this pent-up demand. Successfully doing so — particularly in the face of, for instance, uncertainty over customs arrangements after Brexit — is going to take nerve, commitment, and impeccable customer focus. But it is possible.
FinTech, the City, and a country that loves to borrow, spend, and invest
Brexit threatens a sizable chunk of the UK financial-services industry. Much of the business conducted by UK financial services, most obviously the Euro-clearing markets, relies on access to EU markets. That’s a fact. We can’t wish it away.
But neither Brexit nor the EU are everything. To take a couple of examples, London trades nearly twice as much foreign currency as New York[4], its nearest rival. This trade does not depend on EU markets. Around 60% of the world’s Eurobonds are traded in London[5]. Despite the name, these have nothing to do with the EU and the trade is not fundamentally threatened by Brexit. Similarly, the £60 billion-a-year London market for commercial insurance draws a third of its clients from North America, a third from the UK and Ireland, and a third from the rest of the world put together, including the EU[6].
The UK FinTech scene has the world’s biggest financial centre at its disposal. And if Brexit threatens to erect barriers that will hinder UK firms trading on the continent, the same is true in reverse. UK FinTech s will enjoy privileged access, in geographical and regulatory terms, to the enormous b2b market that the City of London gives them access to.
They will also have privileged access to the UK’s highly competitive retail finance market, worth £58 - £67 billion a year[7]. And there are signs that leaving the EU could help invigorate at least some segments of that market. A recent article in the FT[8] — not by any means a Brexit cheerleader — reported that small-to-medium UK providers of retail banking services are actively looking forward to Brexit in the hope that it will free them from onerous EU regulations designed for huge ‘too large to fail’ banks but now applied to all financial institutions, even smaller ones.
Taken together — along with the ready availability of investment for FinTech start-ups in London, and the UK’s sympathetic regulatory environment — these facts clearly signpost a potential future for the UK as a global B2B and B2C FinTech incubator.
But this won’t happen by itself. Right now, we’re still faced with the threat of a FinTech exodus. To make sure the UK’s FinTech motor doesn’t stall, the British government must work out a transition deal with the EU27 that gives London-based FinTech firms an incentive to keep at least some of their businesses here for long enough to see what opportunities Brexit and a post-Brexit UK could bring.
And as an industry, we need to lobby as hard for that transition as we have for a PSD2 that’s fit for purpose. Recognising that there are profound risks associated with Brexit does not stop us also looking for opportunity in it. Why should it? For as long as the world hasn’t ended, there is still business to be done.
Website: https://www.ppro.com/
[1] https://www.youtube.com/watch?v=frAEmhqdLFs
[2] https://www.paypal.com/stories/uk/open-for-business-paypal-reveals-online-exports-boom?categoryId=company-news
[3] http://ec.europa.eu/eurostat/documents/2995521/8122505/2-01082017-AP-EN.pdf/940abad8-436d-4758-b9d2-2156173a2c77
[5] https://www.lseg.com/sites/default/files/content/documents/20170105%20Dim%20Sum%20Bond%20Presentation_0.pdf
[7] http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/587384/IPOL_BRI(2016)587384_EN.pdf - Page 4 of 12
[8] https://www.ft.com/content/4e2967a4-8991-11e7-bf50-e1c239b45787
The warning from Nigel Green, founder and CEO of deVere Group, follows the president of the Catalan government, Carles Puigdemont's, highly anticipated speech in which he said Catalans had “won their right to become an independent country” from Spain following the disputed referendum on 1st October. The Premier added that he will first seek to open a dialogue with Madrid.
Mr Green affirms: “The aftermath of geopolitical events of this magnitude have the potential to influence capital markets which, of course, drive investor returns.
“Up until now the chaos in Catalonia had been largely dismissed by global investors as a regional issue. However, now that Mr Puigdemont is effectively saying that Catalonia will become independent come what may, a considerably heightened game of cat and mouse between Barcelona and Madrid has been started – and this could have far-reaching economic consequences in the short and longer term.
“In the short term there will be ongoing and increasing uncertainty which is likely to create turbulence in the domestic and regional financial markets. In the longer term, if Catalonia splits, Spain’s economy – Europe’s fourth largest – could lose 20 per cent of its revenue. Plus the process could adversely affect investment into both Spain and Catalonia.”
He continues: “The Catalonia independence crisis could push Spain’s recent economic progress back. This would inevitably weaken the wider eurozone’s economic stability by pushing the bloc into another era of grinding uncertainty.
“This is perhaps especially concerning as we have recently had the German election, with Merkel returning but with a lower majority, and now we have the Austrian election, and the Italian one next year. And this is all against a backdrop of British PM, Theresa May, being urged to walk away from Brexit negotiations in Brussels if they fail to make progress this month.”
The deVere CEO says: “The chaos in Catalonia is a wake-up call for global investors to ensure that they are properly diversified across asset classes, sectors and regions, in order to mitigate the risks of the fall out of this and other key geopolitical events and also – crucially - to take advantage of significant opportunities that they simultaneously present.”
(Source: deVere Group)
Immediate market reaction to the illegal separatist referendum in Catalonia is likely to be muted – but what happens on the aftermath will be crucial, affirms the boss of one of the world’s largest independent financial services organisations.
Nigel Green, the founder and CEO of deVere Group, comments as Spanish police in riot gear moved in to prevent the ballot called by Catalonia’s regional government, but which Spain’s Constitutional Court banned from taking place.
Mr Green observes: “What is striking is how this chaos in Catalonia has been largely ignored to date by global investors, who last week appeared more preoccupied with Trump's proposed tax cuts and Angela Merkel's reduced political strength in the Reichstag.
“When global markets open Monday immediate reaction is likely to be muted too. The Spanish stock market is relatively small. The country represents just 5 per cent of the MSCI Europe index, compared to 28 per cent for the UK, 15 per cent for France and 14 per cent for Germany.
“Whilst it is a huge existential crisis for Spain and is a big geopolitical event, regional tensions such as these, rarely have the necessary might to considerably affect global trading. International commerce is stronger than all the sabre-rattling.
“It is unlikely that there will be immediate major portfolio rebalancing as a direct response to the events in Catalonia.”
He continues: “However, what happens next will be crucial for global investors. Neither Barcelona nor Madrid will back down on this issue. And now the genie of illegality is out of the bottle, there is little incentive for those supporting independence to put it back. Particularly if they can claim a majority of voters back their cause.
“Should the Catalans take further illegal action after the vote, and perhaps encourage civil disobedience, the uncertainty would create significant volatility and the outlook for the EU region's economy would darken and for Spain also. “The Catalan separatists’ ongoing campaign would also likely trigger a major destabilising effect as it would encourage other areas to vote for independence from the EU. Of course, against this backdrop, we could then expect the Euro would come under considerable pressure.”
Mr Green concludes: “Despite global financial markets largely shrugging off the events in Catalonia so far, it is important that investors keep their eyes on all major political events, including this one as how it plays out in the aftermath will be what matters.
“Investors must remain fully diversified across asset classes, sectors and regions, in order to safeguard and maximise their portfolios and to ensure they remain on track to achieve their long-term financial objectives.”
(Source: deVere Group)
Joseph Camilleri, Executive Head Business Development & Corporate Services at BOV Fund Services, talks to Finance Monthly about Malta’s fund industry, Brexit and the hurdles that the fund services sector is faced with in a scenario of on-going regulatory developments.
Within the context of a highly regulated fund industry, how is Malta coping in ensuring that it keeps pace with bigger fund domiciles?
I trust we’d all agree that the fund industry is increasingly becoming overcrowded with regulation, well intended as that may be. We’d also agree that such poses challenges to all stakeholders, be they investors, investment managers, service providers and fund domiciles too of course. Malta is in no way an exception to this.
The challenges may seem somewhat bigger and more difficult to address if the domicile is a relatively new and upcoming one; particularly if the domicile has built its fund and fund management industry on the small and medium sized funds and fund managers, as is the case for Malta, which by the very nature of their size, are impacted to a larger extent by the over-regulation in the industry.
Notwithstanding the above statements hold true, Malta has in my view, weathered the storm in a convincing manner. The key word here is “adopting” rather than adapting to new regulation, and ensuring that its pre-emptive stance pays dividends. The island’s positioning as a fund domicile has seen it consolidating its strengths in particular niche areas which it has continued to develop over the past few years. All of this further underpinned by the pro-active mindset of stakeholders (service providers in particular) in ensuring compliance to new regulations through the timely provision of additional services to the industry, in a cost competitive backdrop.
Malta’s fund industry has established itself as a domicile of choice to many start-up hedge fund managers. Its highly competitive package, the pro-business approach and accessibility of Malta’s single regulator, the robust yet flexible regulatory framework for deminimis (out-of-scope) funds in terms of the AIFMD, the efficient process for licensing, as well as the presence of several service providers on the island, within the context of a cosmopolitan lifestyle have and are attracting several investment managers to our shores.
Within the AIFMD realm, Malta too has identified its own niche segments: the past couple of years have been characterised by full scope AIFMs, whether based in Malta or other EU member states, structuring fully compliant AIFs having diverse strategies. Most notable, we have seen a growing number of AIFs being set up investing in real estate and other real assets, we have seen Private Equity funds being set-up, as well as the emergence of loan funds. Thus funds that require depo-lite services, as opposed to fully fledged depositary services, have been very conspicuous in Malta’s development of its fund industry.
The recently introduced Notified Alternative Investment Fund (NAIF) has thereagain been an innovative and positive contributor to the growth of the industry in the AIFMD space. Full scope AIFMs across the EU now can have their fund structures, SICAVs, Contractual Funds, Limited Partnerships, or Unit Trust Funds up and running within 10 working days of notifying the regulator. A far cry from passing…
How do you see the Brexit realities impacting Malta’s fund and fund management industry?
Difficult to tell given that the Brexit realities are still an unknown. The shape of things to come post conclusion of negotiations between the parties is still to be seen. Having said that, we’re already seeing major cities within the EU taking rather aggressive approaches in an attempt to position themselves in time (particularly should all go the hard Brexit way) to attract London-based businesses their way.
To a degree, I tend to think that attempts at unseating London as Europe’s main financial services centre is rather delusional. There’s likely to be a repositioning of course, yet London is London and will remain a major player, not necessarily very different to what it is today.
The way Malta is looking at Brexit is quite different; rather than adopting a vulture approach, as seems to be the case for the other EU contenders for the top spot in financial services, Malta’s approach is a softer one - one that augurs for a strengthening of the legacy relationship between the UK and its former colony Malta.
Malta is in fact in an ideal position to act as a bridgehead for UK-based businesses (and not limitedly to financial services businesses at that) to access the wider EU market.
There are various reasons why Malta sees it differently; apart from the legacy relationship mentioned earlier, there are other realities that are worth mentioning that render the relationship one based on mutual respect and understanding:
- English being an official language of Malta.
-The island’s membership and active participation in the Commonwealth.
-The British business ethics deeply rooted in Malta’s own conduct of business.
-The similarities in the socio-political make-up of the two countries.
It is thus of no surprise that we are seeing London-based operators teaming up with ManCo and Super ManCo platforms in Malta to explore alternative solutions for different Brexit scenarios that would allow them access to the EU market. Others are setting up their own “lean” fund management operations in Malta, as UCITS managers or AIFMs, to carry out the risk management function for their fund vehicles, whereas the day-to-day portfolio management activities are outsourced back to base, in London.
Malta’s way of looking at the opportunities coming out of Brexit are of the win-win sort; and it is precisely this that is elevating Malta’s stature in the eyes of UK-based operators.
What are the major challenges for a company like BOV Fund Services in a scenario of on-going regulatory developments?
There are various facets to regulation: some see regulation as a safeguard to investors, others to the system itself, some see it as an overkill and an unnecessary money drain.
Whichever line one might take, it is indisputable that regulation presents both challenges and opportunities for service providers, particularly fund administration companies. BOV Fund Services is in this space, and it too is not immune to such.
Regulation has predominantly meant additional and extensive reporting. In view that most fund data is held by fund administrators, it follows that the latter are in such scenarios are best placed to provide additional services to funds and their fund managers, thereby enabling these to comply with the newly introduced obligations.
This has been true for AIFM Annex IV reporting, FATCA, CRS and others. So has regulation impacted all fund administrators in the same manner? The short answer to this question is no. There have been winners and losers in the game; the winners where those service providers that ensured a level of preparedness in good time. The ones losing out on the other hand have been the laggards, those that considered the aforementioned regulations as the Managers’ and the funds’ problems. In effect, such regulations place obligations, sometimes onerous ones, of the funds and their managers.
Yet, fund administrators that evaluated the regulations as their draft versions were published, that understood the implications, and that geared themselves up to provide timely solutions in a cost competitive environment, not only ensured that their clients were compliant as from d-day, but they also consolidated the loyalty from their client base as well as created new revenue streams for themselves.
BOV Fund Services is in this second category. It has invariably sought to be ahead of the curve in terms of assessing the likely requirements of its client base emanating from new regulation. It invested heavily in its IT infrastructure and entered into agreements with system providers to automate reporting.
This has ensured that the company consolidate further its market leadership in Malta as the island’s number 1 fund administration firm (in terms of Assets Under Administration as well as number of Malta-based funds administered by the company), within a context of crowded market of 27 fund administration firms operating from Malta.
What has the AIFMD meant to your clients in the alternative space?
Essentially there are three categories of clients that we service, and for whom the AIFMD and its implications came to the fore.
When the initial draft of the AIFMD was published, it was quite evident as of those early days, that the directive had two core outstanding features:
- Albeit purporting to be intended to address systemic risk, it was largely perceived as being an EU protectionist measure, and
- It was bound to negatively impact small-sized alternative fund managers and fund domiciles that catered for this segment of the market.
Malta’s financial regulator, the MFSA, thanks too to the listening ear, lends to the local operators in Malta, wisely decided to defend its territory. As mentioned earlier, Malta had by then attracted a relatively large community of international small and medium sized fund managers to structure their fund vehicles in Malta. It was thus imperative that the goose that laid the golden eggs be safeguarded from the overarching burden that the new regulation was set to bring to the table.
In effect, rather than replacing the old with the new, MFSA introduced a new fund regime, the Alternative Investment Fund rule book, as distinct from the already existing Professional Investor Fund rule book. This latter regulatory platform for alternative funds, with its inbuilt flexibility within a robust framework, had enabled hundreds of fund managers (several of whom small-sized) structure their alternative strategies, ranging from hedge funds, to private equity, real estate, fund of funds, distressed debt, high frequency trading funds to a myriad of others.
It was inconceivable that this segment should be burdened by the heavy regulatory baggage that the AIFMD promised to introduce. In view that the directive’s provisions become mandatory for alternative managers having in excess of Euro 100 million in AUM (leveraged funds), it followed that those below the threshold should be given the opportunity to retain the status quo in terms of the regulation they were subjected to.
Now that the directive has been up and running for a number of years, it is clearly evident that retaining the PIF regime was a wise decision: alternative funds subject to this rule book continue to grow year-on-year.
Back to the three categories:
- The deminimis fund managers and the below threshold self-managed funds were given an option to sign up for the regulation, be subject to all its provisions, and on the upside, benefit from the EU passport. In most cases, they opted to stay put!
- A second category was made up of those that actually “went for it”, driven by one or two factors: the growth potential arising from the passport, and/or the fact that their AUM was just short of the threshold, so it was a question of time for them to adhere to the regulation.
- The third category consisted of those that were captured by the directive due to their respective AUMs (which were already in excess of the threshold). This segment had no other option but to comply, and make the most of it through the passporting rights.
In conclusion, I’d say that Malta’s regulations for the alternative strategies is such that enables acorns to grow into oak trees, without imposing upon them at the early stages of their lives, the rigours of over regulation that the AIFMD seems to be riddled with.
Website: https://www.bovfundservices.com
The pound hit an eight-year low against the euro a few weeks back, with the official exchange rate at €1 to £1.083. At some airports, such as Southampton, travelers were being offered just €0.872 to £1. This represents a 15% reduction in value against the euro since the UK decided to leave the EU and comes as Brexit negotiations are dominating the headlines.
Adaptive Insights VP of United Kingdom and Ireland, Rob Douglas, argues that market fluctuation like this is exactly why businesses need to change their financial planning to be as agile and adaptable as possible. He comments:
“While for many it will be those going holiday that are top of mind as the pound devalues, a much greater concern is how businesses will deal with this fluctuation. Not only will businesses likely be dealing with much greater sums of money and therefore potential loss, but as margins are reduced and prices potentially increased, there will be a knock-on effect across the UK economy that everyone needs to be prepared for.
“Businesses need to be able to bend and flex to changes in exchange rates, while minimising the impact on customers and staff. For many, however, this is not a reality. Recent research shows that over half (60%) of CFOs say it takes five days or more to generate new scenario analyses, enabling them to model the impact of market movements such as this, and yet the majority would like it to be a day or less. This unmet expectation by CFOs sheds a light on the need for a different kind of financial planning that focuses on agility and active planning in nearly real-time to keep pace with the rapid changes in today’s businesses.
“For the UK, uncertainty and volatility is likely to become the new norm, which means businesses need to be prepared for the unknown. While being agile will allow businesses to be more responsive, ‘what-if’ scenarios are also fundamental for businesses to understand the potential consequences of the changing market. After all, many would not have predicted that the pound and euro would reach parity.”
Craig James, CEO of Neopay, tells Finance Monthly PSD2 will prove to be the most beneficial piece of legislation for fintech companies in years, and could completely change the face of the UK banking sector.
While technology has grown increasingly important in the financial sector, the “traditional” industry has been slow to adapt as consumers grow more frustrated by the lack of progress.
Innovative start-ups, looking to fill the gap left by the traditional establishment’s hesitation to change, have been growing in prominence as some banks, regulators and the government try to encourage new ways for businesses to engage with customers in a market suffering a long-standing loss of reputation.
Coming into force in January next year, the EU Payment Service Directive (PSD2) is the latest change facing one of the country’s oldest institutions, and could prove the catalyst for a technology revolution in the sector driven by innovation in personal banking.
Putting consumers at the heart of the fintech revolution
The most substantial change in PSD2 is enabling customers to allow third party businesses – like technology companies – to have access to all their bank data.
For fintech companies focussed on bringing new products to the market, this presents a new opportunity to create these offerings, without the infrastructure costs facing traditional banks.
Personalisation has been a buzzword in banking for some time, and there is no shortage of products from savings accounts to credit cards that are promoted as tailored to a customer’s needs.
However, while banks can provide a card with an interest rate suitable to the customer, the current offerings are incapable of working across multiple accounts, and cannot adapt to real time changes to a consumer’s individual circumstances.
PSD2 opens the possibility for fintech businesses to create “one stop shop” apps for bank services, allowing a customer to access and manage every aspect of their financial footprint from a single point.
These technology based products will put the consumer back at the heart of banking as businesses will be forced to adapt their products, or face getting left behind by smaller technology businesses which can suddenly offer better services.
It will also open entirely new ways for consumers to manage all aspects of their financial needs.
Better budgeting
There is already a plethora of products which can help customers with their finances, but they are severely limited in essentially being a replacement for paper based tracking. The onus is still on the customer to stay on top of the information.
However, by getting access to a person’s account information and financial history, a fintech company could create a genuinely personalised budgeting tool which could remove the management aspect from the customer.
By being able to monitor balances and outgoings in real time, these apps could be programmed to learn when particular bills are due and, if one account is lacking funds to pay, the app could notify a customer and then automatically transfer money from another account – or combination of accounts.
Considering that most people have more than one active bank account, this type of capability could prove invaluable for customers, helping them avoid unnecessarily falling into debt because they failed to move money around in time.
Real time debt solutions
For those customers who have already fallen into debt, new technology based bank apps could be created to offer real time solutions to help consumers pay down the money they owe, and get out of difficulties.
One of the major frustrations with current banking services, according to our research, is that balance updates are not always immediate and in some situations a user is not being shown an accurate account of their financial situation – which makes it hard to make decisions.
New banking apps could greatly benefit these customers by assessing their income and spending habits – while updating account balances in real time – and instantly suggest ways that customer could reduce their out-goings.
There is also the potential for banks to adopt these kinds of apps, which could be used to find or suggest savings plans.
The biggest benefit of this wave of products over existing services, is that they could monitor activity across multiple accounts in real time. The real-time aspect of these tools could help customers by instantly alerting them to unusual activity or if an account is in danger of becoming overdrawn.
While the “traditional” banking sector is at risk of being left behind by the speed of technological change there remains great potential for banks and fintech companies to introduce a wave of new products and tools for consumers that can help them manage their personal finances better.
PSD2 could kickstart the biggest chance the banking sector has experienced and, in the long run, will prove extremely beneficial for those institutions most able to implement technology at the heart of the customer offering.
Like most industries at the moment, the financial sector is experiencing vast change, and fresh legislation is coming into play to adjust to the shifting economic landscape and its demands. For financial services and payment services providers (PSPs) operating in the online banking arena, this will raise some concerns.
The Second Payment Services Directive (PSD2) came into force in January 2016, and will become EU law on 18th January 2018. PSD2 looks to encourage competition, protect consumers, and unify Europe’s markets. The implementation has been prompted by the growth of e-commerce and mobile business, and despite Brexit, this is something that is relevant to all European operating PSPs and banks.
The industry is accelerating towards the age of open banking, where PSD2 will enable previously-isolated payment accounts to draw upon one another, giving third parties the ability to access a bank’s application programme interface (API). This will allow them to bypass traditional compliance and infrastructure demands placed on the host. By doing so, the legislation removes the banks’ monopoly on their customers’ account information and payment services.
Many first-mover FinTech organisations and open banks have already recognised the opportunity here and thanks to their agility, have already earned customers’ trust. But the change isn’t quite so readily adaptable for the likes of the established banks.
Indeed, it’s understandable that most established banks see PSD2 as a threat, or at least view it with uncertainty. But the approaching era for open banking is inevitable, and these banks will need to instead consider how this legislation presents fresh opportunities and will incite new, best business practices.
Not all banks are viewing this legislation negatively. In fact, PwC recently found that nearly half of them (44%) are preparing to offer open banking in the next five years. However, with PSD2 coming into place in January, these plans may need to be brought forward.
PSD2 makes the need for collaboration and innovation explicit; only by developing new systems will PSPs meet the consumer’s increasingly-high expectations for fast, simple and secure digital banking. But this won’t be straightforward for banks with legacy technologies, however, they do have other benefits such as access to vast amounts of data, robust customer relations and scope of reach.
As a result, despite banks inevitably being slower than PSPs on the uptake, their scale and heritage will enable them to face the challenges brought about by PSD2 and subsequently they’ll advance their services with new levels of customer-centricity in doing so.
Another benefit for banks will be the ability to integrate third-party approaches to building and testing new business models, enabling them to more flexibly meet changing consumer demands. And by taking a collaborative approach, they will be able to extend their reach into new markets, and draw upon deeper insight from consumer data to create new products and services.
PSD2 may seem like it is opening the door to competition, but doors swing both ways. By overhauling their technological capabilities to meet digital demand, it will not be long before banks are working more closely with the forward-facing third parties that are proving so popular with the consumer – and even beating them at their own game.
Website: https://www.blackpepper.co.uk/
The German stock market crash is a timely reminder of the need to broadly invest, affirms one of the world’s largest independent financial services organisations.
The comment from Tom Elliott, deVere Group’s International Investment Strategist, comes as the DAX, Germany’s top stock index, was nearing the red after shares in the country’s largest car makers dropped over a fresh probe into the diesel emission scandal.
Mr Elliott observes: “Eurozone stock markets have felt the pain of a strong currency in recent weeks, as investors think that improving economic data will force the ECB to curtail its bond-buying program prematurely and - if inflation picks up - lead to interest rate hikes.
“But the DAX 30, the key German stock market index, now has an additional problem that has contributed to recent falls. Its motor sector – led by BMW, Daimler and Volkswagen- is under a cloud as more jurisdictions line up to fine the companies over diesel emissions. Last week, the Mayor of London announced plans to seek compensation from Volkswagen after the true scale of the company’s diesel-fuelled cars’ contribution to the city’s air pollution became known. The sector is at risk of punitive fines across the world.”
He continues: “A further risk is that the ‘Made in Germany’ brand suffers more generally.
“However, while this is embarrassing for the German auto sector, and for German exporters more generally, it is likely to be a passing phase. The fines will be absorbed by shareholders, and meanwhile the German auto sector will return to the real long-term battle: is there a durable market for high quality, driver-driven, private cars?
Mr Elliott goes on to say: “German - and European autos’ biggest threat comes from technology from the US – in the form of driverless cars and battery cells, amongst other factors – as well as changing social habits, which include car pooling and young adults driving less in developed economies.
“The German stock market crash is a timely reminder of the need to broadly invest so that portfolios will have exposure to the young companies likely to benefit from driverless cars for example.”
He concludes: “Diversification of portfolios across sectors, asset classes and regions will ensure investors are best-placed to take full advantage of the present and future opportunities and to mitigate the risks.”
(Source: deVere Group)
(Source: Investec)
The government announced a few weeks back that a new immigration system will be in place by March 2019 when the free movement of people between the EU and the UK ends.
Immigration Minister Brandon Lewis was speaking as the government commissioned a "detailed assessment" of the costs and benefits of EU migrants, and publicised the closing time for free movement post-Brexit.
As this would have a serious impact on social, economic and political agendas, Finance Monthly has below heard form a number of sources with their thoughts on the prospect of closed immigration.
Ian Robinson, Partner, Fragomen:
It just won't be possible to get everything ready and Ministers need to think seriously about letting free movement continue for a limited period after we exit the EU. A full labour market review is absolutely essential and it is only fair that employers get a say over immigration policy. Labour and skills shortages won't go away after Brexit; if anything they could be exacerbated. Immigration has an important role in plugging the gaps. But a year long review doesn't leave very long for implementation. You have to ask whether six months to write the law, create the technology, recruit and train Home Office staff and then get business ready will be enough time.
Paul Taplin, head of change, Voyager Solutions:
It is widely accepted that Brexit will have a major impact on our UK workforce - regardless of any labour agreements that are made. The good news is that companies protect against this risk – by capitalising on the fast accelerating world of Robotic Process Automation (RPA). Skills gaps should be examined in areas where it will take longer to develop and replace people, and areas where a human workforce can be supplemented (or replaced) by a robotic workforce.
For example, in shared service centre operations, now is the perfect opportunity for UK organisations to review their workforce from a number of perspectives. For those that have off-shored / outsourced to an EU country, there may be a change in the economics, levies or exchange rates which impact the business case. For organisations that have significant non UK EU nationals performing key roles in a UK shared service centre, now might be the best time to look at the economics of outsourcing.
In both scenarios, organisations should accelerate any plans to review the business case for RPA – it will be significantly cheaper than full time equivalent human workers, so could solve the problem of covering key shared services roles. Activity areas to be considered for automation could include; data entry, payroll / T&A, expenses administration, personnel administration and recruitment admin in HR. Other business process candidates for automation include; P2P, order to cash, record to report, procurement operations, collections, cash management in finance and many others.
Ultimately, it’s important for organisations to remember that any workforce planning efforts will not be wasted if Brexit doesn’t have the expected impact – this should be done anyway - and will provide greater resource efficiencies across operations.
Bertrand Lavayssière, Partner & Managing Director UK, zeb:
Over the years, we have worked regularly with our European clients to find locations for their centralising European operations such as back-offices (for example for FX, credit lines, Trade Finance), institutional sales, risk and/or compliance functions. A key part of this is to compare the various locations. The usual criteria we will look at are costs, notably real estate, taxes, cultural proximity, accessibility, political environment, availability of professional support resources such as lawyers, consultants, etc. and, of course, availability of resources. The comparison is between major European cities (e.g. London, Paris, Frankfurt, Amsterdam, Dublin, Brussels, Krakow) or nearshore/offshore cities/locations (e.g. Mumbai, Porto, Casablanca, Mauritius).
As a location, London is second to none as it offers a unique mix of skills depth (different levels of expertise/management levels) and scope in terms of the number of financial activities covered and the multitude of languages spoken by employees. For example, we were working for a major European Corporate lender, which had more than 40 subsidiaries/branches across Europe. For efficiency and effectiveness reasons, we decided to centralise the accounting/general ledger, credit, cash management, trade finance, and foreign exchange back office activities of each of their European sites into one place, leaving notably the management, regulatory and sales activities locally. London was identified as the most suitable place for this central hub, owing to the fact that the majority of the staffing was to be sourced locally. As already mentioned no other city can provide the breadth and depth needed in terms of languages spoken.
London is and will continue to be attractive for banks and other FIs because of the critical mass created and the variety of resources available. This critical mass generates numerous ripple effects such as the availability of numerous FS specific professional services such lawyers, tax experts, consultants, etc. As this is widely known in the European banking community, many bankers/insurers come in London to find a job without a contract yet manage to find a position relatively quickly. The new immigration laws may unbalance this de facto and well-oiled eco-system, however the appeal of London should still see it withstand such changes.
Beenu Rudki, Immigration Director, Lewis Silkin:
The ‘fair and serious offer’ on the future rights of EU citizens, laid out on 22 June 2017 by Theresa May, offered EU nationals arriving before Brexit the chance to acquire the same rights to work, healthcare, and benefits as UK citizens. The proposition entailed giving ‘settled status’ to three million EU citizens and agreeing a cut-off point for freedom of movement between the UK and the EU between 29 March 2017 and 28 March 2019, the date at which Article 50 Brexit negotiations are expected to end.
This announcement has major implications for EU nationals and their family members, a significant number of whom work in the UK’s financial services industry. In 2016, the London Assembly Economic Committee produced a report outlining the impact of Brexit on London’s financial and professional services sector. The report highlighted how crucial the industry is to London’s economy and reiterated the UK’s importance as a hub for both domestic and overseas talent following exit from the EU.
Over a year after the Brexit referendum result, the government has now commissioned the Migration Advisory Committee (MAC) to provide a detailed assessment of the role EU citizens play in the UK economy. The commissioning letter asks the MAC to advise on an immigration system aligned with modern industrial policy. The MAC will need to consider different sectors, regions, and skill levels to provide insight into the sort of immigration policy that will be needed in the years to come.
Before the final MAC report is delivered in September 2018, UK financial sector firms should review what options are open to them in order to avoid potential disruption to their business in the future. Organisations should also be prepared to provide data and case studies to the MAC to avoid being left behind in the new immigration system.
Russ Shaw, Founder, Tech London Advocates:
Continued uncertainty around immigration policy in the UK is damaging the country’s reputation as a destination for fast-growth tech companies. The cabinet is intensifying this issue by failing to present a united front, and using consultations as a means to delay its decision rather than inform it. The Home Secretary’s welcome news that there would not be a “cliff edge” in 2019 was refuted days later by the latest statement from the Prime Minister, saying Freedom of Movement would end abruptly. This confused messaging does little to reassure the UK’s tech companies and entrepreneurs, who have remained on edge since the Brexit vote and waiting for clarity on their ability to access world-class talent.
Access to global talent is a top priority for tech companies, and the government needs to ensure that immigration policy meets this pressing need. The Cabinet needs to resolve its differences and ensure that the UK tech sector can prosper, ultimately bringing economic growth to the whole economy. The sooner the government can clarify its position on immigration the better, as that will eliminate uncertainty and allow for investment and talent to continue flowing into London.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Craig James, CEO of Neopay, believes the financial sector must remain priority for Brexit negotiations. Below he explains to Finance Monthly why.
It is now 13 months since the UK voted to leave the EU.
With Brexit negotiations underway and Britain’s political position now more uncertain following June’s general election result, the impact for European business and finance remains similarly uncertain.
Much has been made of the fear that a United Kingdom outside of the EU’s single market would suffer economically, and that may be true – at least in the short term.
But it is also the case that losing the world’s fifth largest economy would be detrimental to the EU, particularly as political uncertainty and the instability of the Euro continues to cause disruption to Europe’s collective economy.
Recently, it was reported that a delegation from the City of London, led by former City minister Mark Hoban, had visited Brussels – independent of the government – to lay out a plan for a future trade deal between the UK and the 27-nation bloc.
The group, it was claimed, was particularly concerned about preserving the financial sector’s relationship with the single market, especially when it comes to “passporting”, the current system which enables businesses to export and import financial services under one licence.
Costly restructure
It is in the UK’s and EU’s best interests that a mutual arrangement continues after Brexit, and is something the government needs to focus on as it is something that is very achievable – and a likely outcome of negotiations.
If the UK is outside of the single market, that automatically puts an end to current passport rules, and while this could be detrimental to Britain, it also presents a problem for the EU’s financial market.
Mark Hoban is right to say that it would cost the EU if the UK leaves without a deal as it would mean the EU’s financial institutions would have no access to services in London, which will likely remain a key business and finance hub even outside the European Union.
A report by the Association of Financial Markets in Europe (AFME) which represents the financial services sector in the EU, recently published a report suggesting the UK’s exit could create €15bn worth of restructuring costs for the industry, and potentially €40bn to meet the concerns of regulators.
The impact on EEA and UK consumers would also be prohibitive. In a no deal scenario, millions of consumers could find themselves, at least temporarily, without access to some of their financial services if passporting arrangements cease without any mutual agreement or transitional arrangements.
And then there’s ancillary effects, for instance the impact on Financial Intelligence Units and their work, if the current regime were to end without any deal in place.
While minority areas in the EU may see Brexit as an opportunity, it is widely understood that the City of London carries substantial benefits due to its established reputation, size and strength in the global market, as well as offering cheaper and more efficient access to financial institutions.
No deal Brexit is not likely
While this recent City delegation has reportedly visited Brussels in concern over the potential of a poor deal – or no deal – after Brexit, this outcome is highly unlikely as the EU is aware of the damage it will do to itself by punishing Britain for the sake of it.
Even if the UK makes a clean break from the single market and the current passporting regime ends, it is likely that some form of mutual access agreement – like that reportedly being pushed by the City delegation – will be reached, enabling financial groups from the UK and the EU to operate in each other’s markets.
At the very least, a transitional period will need to be agreed to allow enough time for adaptation and prevent UK and European financial services falling into confusion with the resulting impact on consumers, businesses and our economies.
Financial services businesses looking to set up within this region will always look to London first as a base of operation. It remains to be seen what will come of Brexit negotiations for this sector, but a suitable trade deal and appropriate transitional period remains the most likely outcome for both sides.
73% of financial crime professionals in UK financial services believe that the 4th EU Anti-Money Laundering (AML) Directive will make it easier for firms to prevent money laundering a survey of nearly 200 professionals has revealed. The Future Financial Crime Risk 2017 report, produced by LexisNexis Risk Solutions, global information solutions provider and part of RELX group, highlights that asset managers were especially positive about the advantages, with over 80% agreeing it would aid the fight against financial crime.
This marks a shift in attitude from when financial crime professionals were surveyed on the potential impact of the 4th EU AML Directive in 2015 as part of the inaugural Future Financial Crime Risks Report commissioned by LexisNexis Risk Solutions. Previously, only 17% of those surveyed believed that the regulation would significantly reduce money laundering whilst nearly a third (32%) thought it would make no difference or increase levels of money laundering.
On 26th June 2017 the Money Laundering Regulations 2017 (which is also known as Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017) come into force which transpose the 4th EU AML Directive into UK law. To support this, the Joint Money Laundering Steering Group (JMLSG) has released revised guidance within which they advise firms to adopt a risk based approach to customer due diligence.
Regulated organisations have been advised to risk assess relationships in order to determine the appropriate level of customer due diligence to be performed. In particular, additional checks are required in relation to identifying and screening beneficial owners when dealing with corporate entities. Therefore, as the demands of AML compliance continue to rise, institutions are required to know more about their customer than ever before.
Mike Harris, at LexisNexis Risk Solutions, comments: “In reality, Britain has always been at the forefront of fighting financial crime – but our research shows the compliance professionals in the financial services sector view the new regulations as further supporting the fight. That said, it’s important not to underestimate the sheer scale of the logistical challenge for organisations resulting from this regulatory change, especially for smaller to medium sized firms.
Many regulated entities may be less au fait with the risk based approach to due diligence than their financial counterparts and the changes that the 4th EU AML Directive brings. Therefore, it is critical that they review the JMLSG’s new guidance and revise their processes, controls and risk appetite for on-boarding customers to ensure they maintain compliance.”
(Source: LexisNexis)
