Client Reporting – time to evolve?

From both a business and a vendors’ perspective, the term ‘client reporting’ is increasingly inappropriate and lacks the necessary ambition to be effective in today’s investment management world. This situation is partially as a result of the terminology that the function uses and the perceived lack of added value within the client reporting process.

Essentially, many of the reporting solutions on the market today are largely designed to solve existing problems, such as the automation, control and governance of the current client reporting and sales information. For almost every firm within investment management though, be they institutional asset managers, retail asset managers, wealth managers and even private banks, the focus should no longer be about client reporting; the emphasis has shifted to improving the client experience: ‘going digital’, using technology to improve the business model and enhance the client interactions with the investment manager.

For operators, it should be ‘software-first’ to take the ATM into its next decade

As the ATM is turning 50 this year, it is at the centre of a massive overhaul of the retail banking landscape. Banks have to completely rethink the way in which they interact with their customers while the digital revolution is taking hold of the sector. The speed at which this change is happening is breath-taking: Data company CACI predicts that the total number of mobile app log-ins by banking customers are going to increase from 427 million in 2015 to 2.3 billion in 2020, while the number of bank branch visits is expected to almost half to 268 million per year over the same period.

With the banking revolution right under way, most ATMs today are still based on a ‘cash and dash’ model with limited additional functionality. However, with the right software strategy, they have the potential to become a cornerstone for the omni-channel banking world as the last remaining touchpoints for banks in the majority of local communities.

Cryptocurrencies could fix our broken monetary system

In turbulent and fast-changing times, it helps to know that some of life’s uncertainties are anchored to something solid and dependable.

So it will come as no solace whatsoever to remind you that the global currency system is anything but solid or dependable. That is one reason the world’s finances are in such a mess - but new digital cryptocurrencies like Bitcoin could bring us back down to earth.

Let me explain. Once upon a time, the currencies we used to buy and sell things had real tangible value; coins were literally made from silver and gold. When governments introduced paper money and coins made from non-precious metals, they needed a proxy for their former value. So the so-called “gold standard” effectively made coins and notes into an IOU against gold, and everything remained stable.

But when President Nixon ripped up the gold standard in 1971, currency floated free - the dollar became a so-called “fiat” currency, untethered to anything except its central bank’s ability to print more money.

Blockchain is hot, but where’s the beef?

In spite of the hype—news of blockchain developments and its associated Bitcoin currency has become nearly ubiquitous—large-scale enterprises have been slow to adopt the emerging technology that promises to disrupt and improve a wide range of industries from finance & banking, insurance and real estate to cybersecurity and even music.

Companies have played with it; they understand what blockchain does and how it works. Their innovation labs have participated in proof of concepts (POCs) and may belong to one or more industry consortiums created to vet the technology, but they haven’t taken the next step and implemented the technology for any mission critical apps.

The Transformation of the Insurance Sector due to the rise of Artificial Intelligence

The need for a business to offer their customers’ personalised, efficient and reliable service has never been greater. Today, society demands instantaneous communication with one another. Technologies such as Apple’s FaceTime, Facebook’s Live Messenger and Microsoft’s Skype allow communication around the world to occur immediately. This ability has meant there has been a proliferation in the amount of data being shared and consequently, it has become expected that businesses provide the same level of communication across devices. Businesses must ensure they connect with customers on a more 1-1 basis and that the customer is at the centre of its business, regardless of time or location.

The need for insurers to focus on customer service is even greater than it is within other industries such as retail, given insurance historically lags behind other industries.

In years gone by Insurers operated in a highly regulated, controlled and predictable environment. They knew that individuals chose their insurer based on their parents previous decisions. Once chosen, individuals would stick to that insurance for years, even for life, accepting new charges and changes in operation as it used to be too difficult and complicated to change insurer, as well as challenging to gather the relevant information on what insurance policy was best for each individual. This is no longer the case.

Banking on loyalty – a bet worth making

Data protection has quickly grown from being a buzz-word to a concern keeping board-level executives up at night.

As demonstrated by recent high profile cyber attacks, the cost of a data breach now comes in all shapes and sizes – from significant financial repercussions to damaged reputation and loss of existing customers. Ensuring this is avoided while improving the customer experience is the real tightrope challenge.

When you have to be right, right now

In-Memory Compute Grids (IMCGs) allow banks to process data faster and more accurately, too. Richard Bennett, Vice President of Regulatory Reporting for EMEA in Wolters Kluwer’s Finance, Risk and Reporting business, examines the latest trends banks need to consider.

You’re limping through the desert, dying of thirst, when you come upon an oasis with what appears to be a bottomless well. You can’t believe your luck. Then you drop the bucket in and discover that the rope tied to it is so knotted and twisted that it stops short of the water line. By the time you straighten it out so that you can take that desperately needed drink, it may be too late.

India’s take on large scale payments innovation: ‘Leapfrogging’ to lead the pack

A new wave of payments innovation is taking place globally and emerging, high growth markets are the ones to watch. Encouraged by increasing customer demand, favourable regulation and unburdened by legacy infrastructure, countries in high growth markets are beginning to lead the pack when it comes to large scale payments innovation.

A great example of this leapfrogging trend can be found in India. As the country’s leading payments services provider, we are seeing first-hand that India is fast becoming a hub of payments innovation and disruption at scale. India is home to several of the ingredients necessary to encourage new technology to flourish and old systems to make way for new. Key among these ingredients are the increasing customer demand for digital payments, a supportive regulatory environment and a highly skilled tech market.

Preparing data functions for the 2017 stress tests

In November 2016, the Bank of England (BoE) published the results of its 2016 banking stress tests which measured the resilience of UK’s major banks’ balance sheet in adverse scenarios. These incorporated a synchronised UK and global recession with associated shocks to financial market prices, and an independent stress of misconduct costs. The stress tests also represented the BoE’s first annual cyclical scenario (ACS), a new approach to stress testing, which examines the resilience of the system to a more severe stress than in previous years.

In 2017, the BoE is expected to extend stress testing even further by including a biennial exploratory scenario which will test the resilience of banks to risks that may not be directly linked to the financial cycle. At a UK level, the 2017 stress test scenario also includes a severe level of stress, with substantial impact on UK residential and commercial property, UK GDP and unemployment. However, the impact could be even more severe if the economic and political challenges currently facing the EU and Eurozone were to be incorporated, such as high-debt levels, security concerns and Brexit.

NSFR implementation in Hong Kong: practice makes perfect

As banks in Hong Kong gear up for the 2018 implementation of the Basel III net stable funding ratio (NSFR), the Hong Kong Monetary Authority (HKMA) has launched another study into its likely impacts that should both reassure the local financial sector and also serve as a reminder of the need for careful preparation, not least on the technology front. Here Amita Cheung, Regulatory Reporting Manager for Wolters Kluwer’s Finance, Risk & Reporting business, examines the challenges ahead.

The HKMA’s quantitative impact study (QIS) on the modified net stable funding ratio (MNSFR) is the third of its kind and part of a broader, multi-year consultation exercise on NSFR’s local implementation. While previous studies targeted so-called ‘category 1’ institutions - generally larger, internationally active banks - that will be subject to the full force of NSFR requirements, this study will gauge the ability of smaller category 2 banks to adhere to MNSFR, essentially a less stringent ‘NSFR light.’

Fighting the friction: Bridging the gap in innovation between B2C and B2B payment solutions

The elimination, or at least reduction of all forms of ‘friction’, perceived or obvious has been an enduring human obsession, and great excitement surrounds new discoveries. One can only imagine the furore that followed the first ancient Mesopotamian saying to his or her peers, “Hey guys, instead of dragging this heavy wooden box across the ground…why don’t we attach some round things that spin to the underside?”

Fast-forward 5,000 or so years, and though the types of friction we are seeking to reduce have become a little more nuanced, the excitement of a new discovery is just the same. It’s what makes FinTech such an exhilarating industry to be a part of, as such discoveries and innovations are increasingly prolific. ‘Friction’ in our industry usually refers to the time taken to make payments, and ‘frictionless payments’ are those transactions that can be completed in an instant.

Boost revenues and cut wasted marketing spends with enhanced insight into digital sales

Digital marketing and promotion is now commonplace in retail banks. And with the rise and popularity of online banking, how customers consume financial products has also been transformed. Sales, the crucial link between the two, is also making digital progress too. The top ten banks across the UK, US and Australia now offer digital applications for 6 in 10 personal banking products. The ever-growing power of the internet makes the need for this integration of digital – and the opportunity it presents – obvious.

While substantial progress has been made it also shows there is still room for improvement. And this is especially true when it comes to digital sales. For example, retail banks are behind when it comes to the sharp rise in smartphone use, and the potential for mobile as a sales channel. Despite the availability of online digital applications, only 9% of personal banking products in the UK can be applied for using a mobile device. With two-thirds of UK adults now owning a smartphone, there is every reason to forge ahead in this area.

What will the loan industry look like in 2017?

2016 was a busy year for the UK lending industry. The Financial Conduct Authority (FCA) continued to tighten regulation, while consumer credit grew at its fastest rate since before the financial crash. Sarah Jackson, Director, Equiniti Pancredit, looks ahead at the trends and technologies that will shape the sector in 2017

Outsourcing will get smarter

Deloitte’s Global Outsourcing Survey revealed that not only is the use of outsourcing increasing, but attitudes among banks about how they engage with outsourcers is also on the move. Once seen as merely a cost-cutting approach – and make no mistake, this remains a significant motivator – service providers have widened their offerings to provide end-to-end solutions that offer a far greater depth of service support than before. More than ever before, outsourcers are becoming key business enablers that actively promote innovation. This is a key trend that will continue to shape the industry in 2017.

Another year (nearly) over

It was all change at IBS Journal and IBS Intelligence this year. I joined as Senior Editor in February (having previously been Group Editor of rival banking technology title, FStech). Just in case you missed my debut Editor’s Letter, which can be found in the March issue of IBS Journal, I have almost 20 years of experience in journalism, during which time I have held senior editorial positions at and contributed to a number of business and technology-related publications. At FStech, I covered various financial sector technology topics, and my main areas of expertise include FinTech, core banking systems, Bitcoin and the blockchain, the European, US and Australian retail banking sectors, mobile payments and challenger banks.

As I’m sure you’re aware by now, IBS Intelligence has become a division of Cedar Management Consulting International, a leading global management and technology consulting practice. So, new owners, new Senior Editor, new Senior Reporter (congrats to Alex Hamilton who was recently promoted from the position of Reporter) and also this year IBS Journal underwent a major redesign. Out went the front cover stories, replaced by a more modern take on the magazine’s contents. And in came a number of new sections, with an increased focus on FinTech, including Startup of the Month (which has proved to be particularly popular), The Big Interview, Who’s Been Saying What? and The Month in Numbers. Some of our rivals have ditched their printed editions, but here at IBS Intelligence the magazine continues to be a major part of who we are.

Tesco cyber-attack provides regulatory food for thought

Every little helps when it comes to controlling the financial system, but Giles Kenwright of Delta Capita explains why the Tesco cyber-attack will hopefully trigger banks and regulators to look at the bigger compliance picture 

A cyber-attack that wiped £2.5 million from a major supermarket’s client accounts in just a few hours, should ring alarm bells across the boardrooms of Britain’s biggest banks. While the damage to Tesco’s brand reputation may be substantial, more significant still is that this attack could be a sign of things to come for the wider banking sector.

It is not as if the major players have been burying their heads in the sand. Eight of the largest firms, including JP Morgan, Bank of America and Goldman Sachs, teamed up earlier this year to tackle the growing cyberthreat. While still in its infancy, the group is already sharing information with eachother about where future threats could materialise. The trouble is that, at the same time, these conglomerates are entangled in the weeds of other regulatory issues, which is eating into time that could be spent developing a longer-term plan to tackle cybercrime.

Back to the future for IBOR

The complexity of the investment management industry is growing and the data that needs to be analysed is richer than ever before. This is a consequence of the thinning geographical boundaries within portfolios and the search for alpha that drives managers to incorporate different and more esoteric asset classes within a single portfolio.

The impact of this changing environment has been a resurgence in the industry's use of the Investment Book of Record (IBOR), a central and comprehensive source that tells the complete story of a firm's portfolio activity. An IBOR provides a timely view of a firm's exposures, portfolio positions and cash. The fullness and clarity of the picture it paints means that it provides the intelligence and insights on which many portfolio decisions are made.

The new Basel IRRBB: regulatory and internal consequences

Last April, the Basel Committee issued its new standard on the interest rate risk in the banking book presenting a new standardised framework. This new standard is to be implemented by 2018. Here Xavier Dubois, Senior Risk & Finance Specialist for Wolters Kluwer’s Finance, Risk and Reporting business looks at some aspects of the standardised framework, how it could be implemented in Europe and its interest for the bank governing bodies.

In April, the Basel Committee on Banking Supervision issued standards for Interest Rate Risk in the Banking Book (IRRBB). The standards revise the Committee's 2004 Principles for the management and supervision of interest rate risk, which set out supervisory expectations for banks' identification, measurement, monitoring and control of IRRBB as well as its supervision.

In a nutshell the new standard realises a significant improvement in the management of interest rate risk in the banking book. Not only does it provide a standardised measurement closer to economic reality, and thus more useful for the bank management, particularly in this time of low interest rates, but it also provides standardisation that increases transparency, not only from banks, but also from supervisors. Banks will have to adopt this new framework and should take this opportunity to move towards a technologically sound and solid risk framework with automation and integration, for supervision and, last but not least, for the governing body.

Why banks need consumers to detect imposters

In the first half of 2016 alone, there were more than one million incidents of financial fraud, an increase of 53 per cent on the same period last year; with identity fraud against individuals costing an estimated five billion pounds last year.

Identity fraud occurs when an imposter pretends to be someone else. To prevent this, banks ask customers for passwords, but judging from the fraud figures, this isn’t working and things are getting worse. The reason is simple: data cannot differentiate. A password provided by the true customer is exactly the same when that same password is provided by an impostor.

Key to the highway: The changing face of high and low touch execution

In the beginning, there was high touch where brokers provided a high-value, solution-based approach to finding the liquidity their buy-side clients were looking for. This worked in an era of high fees and low scrutiny of what end investor trading commissions were actually funding. But as markets electronified, and buy-side operations tooled up, a new paradigm was born, low touch. This reflected the buy-side's growing desire for cheaper execution, especially for trades that weren’t that hard to execute, and it also offered a path that minimised information leakage.

The result? Two routes to market with very different price tags. The problem was that brokers had to duplicate their trading infrastructure despite receiving fewer net commission dollars. This spawned the short-lived concept of mid touch which offered the worst of both worlds: junior sales traders with neither the experience nor the expertise to manage either. And so the industry muddled along ignoring the operational overhead of running two technology stacks.

Lost in translation: Smart contracts for financial services

The concept of smart contracts is simple; clauses and rules are embedded in software which is distributed via networks to provide an interface which formalises a transaction. Bitcoin has a distributed ledger a distributed consensus mechanism, and a distributed set of business rules and conditions. The contract for Bitcoin is relatively simple: ‘are the parties who they purport to be’, ‘do they have permission to buy/sell’ and ‘does the buyer have funds’. This is a straightforward smart contract which is actioned and then fulfilled for every buy or sell on the Bitcoin network.

The idea of a smart contract is very powerful; putting your trust in a set of rules and a shared consensus mechanism rather than any one party seems, on the face of it, an ideal solution. In finance we already trust in rules and triggers such as ‘stop loss orders’ and ‘buy triggers’ for share trading. This kind of trigger is relatively simple but still this transaction has its fair share of intermediaries and parties. For a wealth product, where I may be buying units in a fund which will trigger purchases in multiple markets and assets there are many more intermediaries and contracts. This increasing level of complex relationships and parties means that the contracts and rules must also be more complex and brings me to my concern in developing even medium complexity smart contracts with high levels of automation.