Despite the Deutsche Bank fine, an olive branch from the EU

European Commissioner for Financial Services, Jonathan Hill, speaks during a Thomson Reuters Newsmaker event

At last, there is a positive sign. After so many years of reputational damage, the financial services industry has been extended an olive branch by its regulatory masters – and it is one that should be grasped.

The most encouraging indication in many years that financial services has the opportunity to restore its reputation came last week from the summit of EU policymaking. In the midst of the UK’s election frenzy, which has seen the return of much negative comment about our industry, it was good to hear the European commissioner for financial stability issue a challenge for finance to take its rightful place as part of the solution to the EU’s economic troubles.

Lord Hill was speaking at a Thomson Reuters Newsmaker event, principally about Capital Markets Union.

Arguably no individual has greater influence over the future of the financial services industry. The Capital Markets Union he is tasked with establishing could perhaps rival the Single Market in revolutionising the fortunes of the EU’s member states, enabling Europe’s growth businesses to access funding across borders as never before. (more…)

The peak of regulatory change may be some way off

chart-regulatory

The amount of regulatory change tracked by Thomson Reuters for financial firms around the world has doubled in the last two years. The world’s financial regulators issued an average 155 alerts on every business day in 2014 – a total of 40,603 for the year. These alerts relate to updates to their rulebooks, but also other announcements, policy papers, speeches and enforcement notices. In 2013, they issued an average of 103 updates every business day; in 2012 the number was 68.

These numbers provide hard evidence of the extraordinary growth of the compliance culture in the financial services industry worldwide. The figures have been compiled by Thomson Reuters Regulatory Intelligence, which monitors more than 950 regulatory rulebooks worldwide published by more than 550 regulatory bodies.

The number of daily regulatory updates is perhaps as close as we can get to an authoritative measure of the extent of financial regulation growth since the crash. We have been compiling these figures since 2008, as the numbers and extent of rulebooks (and rulemaking bodies) have grown.

We also know that the consequences of failing to comply are becoming ever greater. In 2013, the UK regulator issued fines some 18 times greater than its predecessor had in 2008. Last year our report on the rising costs of non-compliance noted the increased focus among regulators on greater accountability and personal liability for the individuals involved in breaches.  We also noted that every global systemically important bank has been fined in recent years. The cost of compliance is not simply the amount handed over in fines, but also the cost of ending a business line, or perhaps curtailing the provision of certain services. And there is also the risk of enduring reputational damage done to the brand. (more…)

Africa – a young, inter-connected continent

World Cup 2010 preview - cityscape

Africa is a continent predominantly of young people, and those young people are benefiting from modern communications networks which connect this vast continent as never before.

Two of the facts that struck me particularly at this month’s excellent Trading Africa conference in Cape Town were that six in ten Africans are aged under 25 and more than one-third of the population has a mobile phone.

As a continent, Africa is rich in resources. And I don’t just mean raw materials – the precious metals, the oil – I also mean people, and ideas, and in particular the aspirations of the young.

Young Africans are growing up in a fully connected continent, where access to communications, and consequently modern media, are transforming the attitudes and expectations of its people.

The great change that has taken place is that Africa is now fully engaged in two-way traffic. Africa is confidently asserting itself as an integral part of the global economy: Africans are producers and consumers, importers and exporters, all connected by modern communication networks to the world’s markets. (more…)

Growth and investment – the unintended victims of financial crime regulation

Reuters/Kieran Doherty

As a global industry, financial services needs to do a better job of opening bank accounts for people, investors and businesses.

It is perhaps the starkest example of the unintended consequences of regulatory reform – certainly the most visible consequence to customers – that it is now so difficult to open the bank accounts which are the first step in international commerce for any growing business. What began as a challenge to money launderers is now posing a palpable threat to the world’s financial centres, and we can do it much better.

This century has seen a welcome international consensus to ensure the proceeds of crime cannot be rendered invisible simply by being transferred across borders. Banks are now the front line of defense against organized crime and it falls to all financial technology providers to support them in stamping out money laundering and criminal financing.

But this is to agree the end and not the means. It is one thing for policymakers to decree that something has to be done; it is quite another for businesses to carry out that decree. (more…)

How technology is disrupting the markets

A trader watches his monitor at Egyptian stock exchange in Cairo

It’s only one year since the World Economic Forum launched its Disruptive Innovation in Financial Services work group, but the atmosphere is decidedly different. Last year the collective mood of this cross-industry group was one of denial, largely due to the regulated nature of the financial services industry. This year, a well-known Silicon Valley entrepreneur challenged us to think differently, suggesting we take a clean sheet approach. And the mood couldn’t be more different, as this group embraces the fact that disruptive innovation has arrived.

Many of us in the financial industry developed professionally in a world that was about technology. However, today the curve is absolutely steeper – just think about how Uber and PayPal have changed the nature of their fields. There is also a realization now that technology is but one part: it is really about data and technology. The emerging trend among corporations and banks alike has been to hire chief data officers. We have the term and industry issue “big data” partly to thank for this. However, many of these same firms have still kept their chief information officers; I’m often left wondering about the difference between data and information and how these roles work together.

The emergence of big data as a business issue has changed the industry’s conversations with clients, particularly around opportunities like powerful analytics used to discover trading and investment opportunities or manage risk. But these terms can also be alienating. (more…)

Compliance: Now it’s getting personal

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We may be on the brink of a new era in compliance – or at least in enforcement. This week the Bank of England Governor Mark Carney earned headlines around the world when he suggested that individuals’ base pay as well as their bonuses could be at risk if they failed to act properly. And he was not alone as other regulators and policymakers publicly voiced whether the current regulatory curbs were actually succeeding in improving behaviors in financial services.

We know that financial fines are getting bigger. In 2013, the UK regulator issued fines some 18 times greater than its predecessor had in 2008 – but that is by no means the whole story. Our survey on the rising costs of non-compliance – published this week – highlights the increased focus among regulators on greater accountability and personal liability for the individuals involved in compliance breaches. Enforcement cases now routinely see the departure of senior executives and the clawing back of any recent bonuses. In market abuse cases individuals rightly face prison sentences.

The pressure is on compliance departments, therefore, to keep their businesses – and their bosses – on the right side of their regulators, certainly, and where possible to future-proof their business activities by monitoring and anticipating the latest thinking among the world’s regulators. (more…)

A new dawn for China – and the global investment community

shanghai dawn

This is a genuinely historic week for the world’s financial markets. For the first time investors worldwide can invest directly in the companies driving this country’s amazing growth story via the Hong Kong-Shanghai Stock Connect initiative.

From this week, investors are able to trade in shares listed the Hong Kong and Shanghai stock exchanges, with some minor restrictions. Until now, investors outside China faced lengthy application processes to acquire the required approvals from the Chinese Securities Regulatory Commission. Now, to a great extent, if you can deal on one exchange you can deal on them both. (more…)

Bringing illicit trade and crime out of the shadows

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Illicit trade and organised crime is something that that surrounds us all. While the illicit economy is by its nature difficult to measure, one of the more staggering estimates is that it is as large as 20 to 30 percent of the global economy or about $50 to $70 trillion dollars.

Illicit trade and related terrorist or criminal activity is not something that just operates in the shadows. An economy of this size is not something that can be stuffed under mattresses. It is extremely complex and equally sophisticated. Illicit funds reenter the licit world through routine activities like real estate investments, the sale of high value goods like antiquities and art or financial transactions, not to mention more nefarious activities like wildlife crime or human trafficking.

Governments and regulators have already zeroed in on banks as the first line of defence, placing stricter requirements that impose more due diligence checks on clients’ relationships in order to help prevent terrorist financing and other financial crimes. (more…)

Who is responsible for managing compliance risk? You are, say regulators

High profile scandals and enforcement actions around the world have elevated the stature and scale of the compliance function across our industry.  This could be seen as, perhaps, one of the few good outcomes of the financial crisis.  Yet compliance is moving into unchartered waters.  The focus on personal liability as an enforcement priority is sending a chilling message to boardrooms and compliance teams alike, just as regulators are also shifting focus from rules-based compliance to concepts which are harder to measure, none more so than culture and conduct risk.

But measure is exactly what we must do.  This week at our 10th annual Compliance & Risk Summit in London, the UK’s Financial Conduct Authority (FCA) enforcement director Tracey McDermott spoke to a packed house of 500 compliance professionals.  Ms McDermott’s message is that conduct and culture will be key indicators used to assess if the customer is being treated fairly.

Conduct risk was not even on the radar of most compliance officers three years ago and its exact meaning is still not strictly defined.  What we do know is that conduct risk is not market, credit, liquidity or operational risk; it is more about the way that firms and their staff conduct themselves. For compliance teams this means traditional quantitative-based analysis around the compliance of rules won’t suffice in assuring boards and regulators that their firms have done the right thing by the customer. (more…)

The rise of the renminbi as a truly global currency

US dollar vs China yuan

Now that China is overtaking the US to become the world’s biggest economy, the rest of the world is seeking to assess when the renminbi joins the ranks of the world’s reserve currencies.

Last week the World Bank reported that in 2011 the Chinese economy had been around 87 per cent the size of the United States economy. If China’s growth meets International Monetary Fund expectations, it could therefore expect to overtake the US to become the world’s biggest economy later this year.

To an extent, this is an abstract concept: nobody gets a medal for being the world’s largest economy. What is really interesting is the emergence of the renminbi as one of the world’s major currencies, in spite of the controls inherent in China’s centrally-planned economy.

This week we published the latest figures for renminbi trading across Thomson Reuters foreign exchange platforms. As might be expected, the renminbi trading volumes on both of Thomson Reuters venues – Matching and FXall – climbed to record highs during April. It is now one of the top 10 traded currencies on FXall, and one of the top four currencies on Matching.

The critical question is therefore just how and when this  powerhouse currency joins the US dollar and the euro to become one of the world’s reserve currencies: what is the roadmap for the renminbi?

white paper we supported with the trade association ASIFMA and Standard Chartered on the future of the renminbi looks at this very question. (more…)