Emissions scandal – the LIBOR moment for motor manufacturers?


As I write we are in the opening days of a reputational crisis for the world’s biggest carmaker which could conceivably have major ramifications for the entire automobile industry.

Volkswagen, the “people’s car,” has admitted to installing software into its diesel cars to cheat on emissions. This is not just financial fraud, then: it has immediate environmental implications, as it means toxic gases emitted by VW cars were way beyond legal and environmental limits. It was not an accident, nor a cover up, but was allegedly intentional.

It has all the hallmarks of the LIBOR scandal: US regulators finding European companies cheating the law, loss of trust, multi-billion dollar fines, reputations and personal careers destroyed. But this crisis is a public issue which impacts health, trust, consumer confidence, the wider reputation of the car industry and German engineering. A 20 percent share price decline for Volkswagen might just be the beginning.

So what are the lessons learned and what should car manufacturers do now? (more…)

Human trafficking – Big data will help combat a big issue


Last month, the Thomson Reuters Foundation brought some of Europe’s biggest financial firms together with law enforcement authorities in London, uniting their resources to combat modern day slavery. The financial institutions met with Europol and the UK’s National Crime Agency to identify the behaviors of potential people traffickers, to understand the dynamics of this global challenge and to ensure a greater understanding of how financial data might uncover the criminals.

The Thomson Reuters Foundation ran a similar project in the USA in 2012 with the office of Manhattan District Attorney Cyrus Vance Jr, which was credited with increasing significantly the reporting of suspicious transactions which might be linked to this cruel trade. The challenge is great, but the need to act is greater. More than 35 million people are effectively enslaved – trapped in forced and bonded labor, sexual exploitation, and other forms of servitude. Four in five of the victims identified in the EU are female.

The criminals involved use and generate significant amounts of cash – this fast-growing crime is estimated to be worth more than $150 billion worldwide – so clearly the money will emerge in the financial system at some point. The challenge for banks and law enforcement agencies alike is to identify such transactions and turn them into actionable intelligence which can lead to breaking the criminal networks.

It is astonishing that more than two centuries after the UK outlawed slavery that this practice can endure across the world. It is right, then, that we use the best in 21st century technology to track and ultimately unmask the beneficiaries of this vast criminal enterprise. At Thomson Reuters, we are working with clients and voluntary bodies to develop resources for companies which will help them to scrutinize their own supply chains and their sources of labour down to the subcontractor level.

The Thomson Reuters Foundation and the members of this new working group are to be commended for their contribution to stamping out this crime. Together they are marshaling considerable forces against those who seek to profit from slavery, and one that has no place in modern society.

Renminbi ascending: The global rise of China’s currency


A new report from Thomson Reuters, Standard Chartered, the Atlantic Council and the City of London explores how China’s currency impacts global markets, foreign policy and transatlantic financial regulation

Being curious people and deeply involved and enabling the intersection of currencies, commerce, regulation and development, we asked ourselves:  “What does the rise of the renminbi (RMB) really mean for financial markets and centers, regulatory development, investment inside and outside and foreign policy?”.

Others too were interested in this question and we partnered with Standard Chartered, the Atlantic Council, and the City of London to jointly research and understand these questions and gain greater insight, awareness and profile for our businesses globally

Six months later we are proud to share the final report, which was released on June 22. (more…)

How law firms are helping tomorrow’s businesses in emerging economies


Tomorrow’s entrepreneurs are finding leaner, more cost-effective platforms to raise their essential finance, and a fascinating report issued this week shows law firms around the world are offering their skills voluntarily to helping social enterprises develop sustainable and successful businesses.

Economic development and microfinance projects are supported by some 40 percent of law firms which contributed to the second TrustLaw Index of ProBono. TrustLaw is the Thomson Reuters Foundation’s global pro bono legal program, and its index charts the amount of work law firms across the world are providing on a free, voluntary basis to charities, non-profits, social enterprises and individuals.

The report analyzed data provided by 141 firms from 77 different countries, representing over 49,000 lawyers. It found that over the last 12 months, these lawyers donated 2.08 million hours of free legal support, on average investing about one week (43 hours) of their time assisting clients on a pro bono basis.

According to the report, the unprecedented rates of economic development across Asia and the Pacific have attracted international law firms to these rapidly emerging economies, bringing with them the culture of pro bono activity. (more…)

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


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


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…)