John Culkin, Director of Information Management, Crown Records Management
The EU’s new General Data Protection Regulation moved a step closer recently when MEPs voted in favour; how will it affect the financial sector?
The honest answer is that we are still waiting to find out – it could be well into 2015 by the time the regulation is enshrined in law; and inevitably the fine details are likely to change once national regulators and governments become involved.
But the initial indications are it could have a big impact on the financial sector, even affecting customers and their data that reside outside of the EU. Interestingly, the “data” discussed is not only electronic but also includes paper records, which is another consideration. And the setting up of a new umbrella Data Protection Agency will be watched very closely.
What do you see as the biggest challenges it could provide?
The devil is in the detail and depends on what makes it into legislation and is applied around the EU. But a requirement for all data breaches to be reported is a particular challenge.
At the minute there are no common guidelines as to exactly what constitutes a data breach e.g. staff viewing certain data; and yet the financial punishments – and the potential reputational damage – for reporting mistakes are significant.
The rules at present are simply not clear and there are fundamental questions to be asked. Leaving sensitive customer data on an usb stick on the tube is obvious enough but is leaving a customer’s name and address on a photocopied sheet on a desk at lunchtime a breach? Where is the line going to be drawn?
Banks will also be interested to know how far up the chain responsibility lies. If a small subsidiary or a small company owned by a larger one incurs data breaches, where does the responsibility stop?
Sanctions discussed so far are based on annual enterprise turnover; and with the apparent anti-City feeling in the EU the climate may not be favourable to watering this down.
Who are meant to benefit from these new regulations?
It’s intended to be the consumers; but I’m not entirely convinced. The regulations could actually increase costs, which are inevitably passed onto to consumers. The speed of progress on the matter since 1995 is not encouraging effective planning and retroactive changes are always more expensive to implement.
In your experience how well prepared are banks at present?
The banks are probably technically more than capable if the rules are clear and concise; which of cause they may not be. It may not be clear what constitutes customer data for instance. For example is data from social networks customer data or public data? What about customer service or sales data – does it need anonymising? The bigger challenge, however, is the culture change required – one that says the customer is all powerful and effectively is the owner of their data.
The ‘Right to be Forgotten’ for a customer has been much discussed and seems to be at the heart of new regulations; does this provide another huge challenge for the financial sector?
I believe it does. The regulation is likely to only apply to websites or marketing data rather than customer service records; but once the principle of the ‘right to be forgotten’ is enshrined then there is no end to the way it can be implemented.
The cost implications for all sectors could be huge if customers have a right to call and demand information is destroyed; it could lead to whole departments being set up to deal with such requests.
You can draw comparisons to the Freedom of Information Act, drawn up with good intentions by the Government but which now costs local councils millions of pounds as they are required to service FOI requests.
Imagine the cost implications for major banks as millions of customers demand to know what information is stored and choose what is deleted. How far back will documents have to be searched? And what about cross references in documentation? Where many customers are mentioned should some be redacted or the whole document destroyed? Again, we are watching the developments very closely.
The laws are likely to include a requirement for all organisations to employ Data Protection Officers. In your experience are businesses is the financial sector prepared?
The first thing people are asking is – will it be a designation or an actual role? Can our CIO not take it on? Can it be out-sourced to a company like Crown Records Management? Clearly if it requires an entirely new role then training and qualification will become an issue and there are, once again, cost implications.
As it stands there are plans for fines of up to five per cent of worldwide turnover for those who breach the rules. How is that being received?
These are big figures and could drive down competition when the lower-cost providers decide the EU is not worth the risk if they have large business interests in the Americas or Asia. Also, it would be difficult to ascertain how serious a breach should warrant a globally-based fine, especially if it only affects a single set of customers in a subsidiary in one country for example.
Interestingly, businesses that are issued with a valid ‘European Data Protection Seal’ would face immunity from fines unless the breach was “intentional” or involved “negligent incompliance”. But who provides the seal and what must be done to receive one is not yet clear.
So what would you say the general feeling is in the financial sector about these proposed regulations as it stands?
I would say people have put their heads in the sand hoping it won’t happen or that if it does, it is significantly diluted; and the likelihood is that will be the case. But even so there is also significant public backing for the principles behind these regulations – so this may only be the start of changes and not the end of them. There has never been a greater need in this industry to be prepared for significant change in information management and to be prepared to take advice.
Employee Ownership Trusts increasing in popularity amid a backdrop of continuing uncertainty
With 2020 behind us, the impacts of the COVID-19 Pandemic and Brexit are still being felt throughout the economy, and will no doubt continue to cast a cloud of uncertainty for a good while yet. Businesses and business owners find themselves in a state of flux, not quite knowing which way to turn as circumstances continue to evolve so rapidly.
A traditional sale to an aligned trade purchaser or private equity investor may still be appropriate to many business owners seeking to exit in uncertain times, the long lasting effects of Covid-19 are likely to give rise to an increase in protracted commercial negotiations over company valuations, particularly if trading performance for 2020/21 have been supressed for a long period of time, and the scarcity of potential purchasers who are fair and commercial, rather than those seeking a potential bargain or reasons to de-risk the deal. However, if the thought of going at it for another three to five years is even lower down the list, there are other alternatives available to an owner looking for a different way to hand over the mantle
The advent of Employee Ownership Trusts (EOTs) in September 2014 has opened the door to many owners searching for alternative succession plans, creating a framework for greater employee engagement, and participation in the upside of future success.
Castle Corporate Finance have helped a number of owners and management teams through the process of a sale of shares to an Employee Ownership Trust, enabling not only succession for founders, but also allowing companies to manage and implement ambitious growth plans. The evidence to date [insert source reference to EOA website] indicates a significant increase in productivity within employee owned businesses – perhaps another factor contributing to their increasing popularity.
“Employment Ownership Trusts are not the answer for everyone but offer a distinct path for many owners or founders who may have explored traditional exit routes without success, and who may not be aware of the existence or the potential benefits of an EOT. The number of employee-owned businesses is rising rapidly, and we expect that trend to continue in the coming year as founders seek to de-risk, and management teams seek ways to involve their workforce in the running of the company.” said Victoria Ansell, director at Castle Corporate Finance.
One of the other substantial benefits for sellers is also the generous tax break on this form of exit which currently exists, in the form of 0% capital gains tax on the proceeds of sale, provided the transaction complies with the legislative framework. Employees could also gain a tax-free cash bonus of up to £3,600 per employee per year.
Knowing who to turn to for advice is the important first step for any business owner looking to explore the options available to them. An EOT could be the right solution but there are important criteria and conditions to be met.
“Castle can initially help to assess the feasibility of an EOT, firstly as an exit strategy for the current owner(s), but secondly as to whether it is a viable framework for the company itself as one looks to the future. We can help to assemble (and project manage) an experienced team of professionals to support sellers and the trustees of the EOT alike, covering valuation, taxation, and legal aspects, and drawing all those strands together. Finally, by supporting shareholders or management when presenting the EOT to employees: helping to ensure that transition to employee ownership gets off on the right foot from the beginning is vital.” Victoria said.
Employee-owned businesses in themselves are not new and business models of shared ownership have been around in one form or another for over a century. However, this model is less than ten years old, and many are still not aware of it. Castle Corporate Finance believe it should form part of any discussion around succession plans, and particularly at this time the EOT framework could be a lifeline to some business owners who want to share the success of their businesses with their employees.
Is MiFID II still fit for purpose in a post-COVID financial landscape?
By Martin Taylor, Deputy CEO and co-founder at Content Guru
January 2nd, 2021 was the third anniversary of the implementation of MiFID II, a legislative framework instituted by the European Union (EU) to regulate financial markets in the bloc and improve protections for investors. This second iteration of the Markets in Financial Instruments Directive includes a range of binding obligations for financial traders, including the need to record and store any/all external communications that could result in a trade, for a minimum of five years.
MiFID II is a complex piece of legislation to put it mildly and compliance requires a great deal of time and effort. Despite this, its ‘real-world’ value currently remains subject to debate. While the EU Regulator recently stated that rules around investment research and analysis had been a success, it has previously conceded aspects of MiFID II targeting marketing data costs have been less so. In a wider sense, industry professionals affected by the new legislation have extremely mixed feelings about its benefits and detriments, both to their work as individuals and to the financial sector as a whole.
However, one thing that is clear is the imposition of financial penalties associated with non-compliance to MiFID II is likely to increase significantly in the near future. Under the original MiFID legislation, many high-profile organisations, including Goldman Sachs International, received fines running into tens of millions of pounds for failing to report transactions in an accurate and timely fashion. Conversely, less than €2 million in fines were handed out under MiFID II in the whole of 2019. Many industry commentators attribute this low figure to a grace period for the new legislation, with the Financial Conduct Authority (FCA) giving firms some wiggle room as they acclimatise to it. But as this period ends, fines and penalties are expected to skyrocket.
Applying pre-COVID legislation in a post-COVID landscape
Of course, to say the financial landscape has changed somewhat in the last twelve months is a bit of an understatement, which makes adherence to MiFID II even harder than it was previously. In particular, the massive shift to home working has rapidly accelerated the adoption of new innovations and technologies aimed at making remote collaboration more effective, but not necessarily MiFID II compliant.
Organisations with well-established processes and methodologies have been forced to rapidly rethink their strategies. In many cases, the speed at which they’ve been able to achieve this has been extremely impressive, but it’s come at the expense of compliance. After all, MiFID II is applicable to any communication that may result in a trade. In a lockdown environment, where finance professionals are collaborating and screen sharing to make decisions, they are still operating under the compliance rules set out and their interactions should be recorded and stored. But how many organisations have actually put processes in place to meet these obligations as part of the ‘new normal’?
As the rollout of multiple COVID vaccines gets underway around the world, there’s growing hope of a return to more traditional working environments in the not-too-distant future. But with the popularity of home working leading to many organisations saying it’ll become a permanent fixture, where does that leave MiFID II compliance?
A complex compliance challenge
For compliance officers looking to shore up their organisation’s post-COVID remote work environment against MiFID II breaches, there are numerous concerns. For example, how can they ensure every pertinent conversation across numerous digital platforms, being used by hundreds of traders, is correctly managed and recorded? The issue can be broken down into two main categories. The first is the management of tools and services in question, and the second is management of the data being shared across them.
Technical complexity requires a proactive, technology-led response. Disjointed, reactive compliance is becoming increasingly unfeasible, given the depth and breadth of tools now being used. For instance, if trading professionals use Microsoft Teams, but their client prefers Skype, how can compliance officers ensure that each and every recording is properly maintained, regardless of which platform is used each time? The answer may lie in unified solutions, which provide a central platform to take advantage of these best-of-breed technologies and provides resources such as search-and-replay, e-discovery and end-to-end trade reconstruction across a diverse technical ecosystem. Unified solutions may allow firms to develop cost effective, enterprise-wide compliance and data management policies that are fit for purpose in the post-COVID landscape.
Effective data management and analytics will play pivotal role
One thing becoming increasingly clear is that the ability to manage and analyse datasets in their entirety, rather than relying on random manual sampling, will play a pivotal role in eliminating dangerous reporting gaps. Today’s analytics solutions and advanced speech-to-text technologies have already proven invaluable over the last ten months of restrictions and will continue to set the benchmark going forward. Tools such as universal search not only give compliance officers the visibility they need to do their jobs properly, they also help maintain effective standards across all relevant stakeholders.
However, such solutions have requirements of their own, particularly when it comes to robust data and storage. Firms must ensure that their systems utilise compliant data storage, that has sufficient capacity to retain all types of electronic communications data, including uncompressed stereo voice recordings, for at least five years after they are recorded, as stipulated by MiFID II.
The ability to comply with legislation such as MiFID II remains a key priority for every business within its scope. However, adhering to pre-COVID legislation in a post-COVID landscape is a lot easier said than done for many. Whether the creation of MiFID III will ultimately be required remains to be seen. Until then, it’s clear that successful compliance will rely on the effective implementation of technology-led solutions capable of overcoming the new barriers created by such a fundamental shift in work practices over the last 12 months.
FSS and India Post Payments Bank AePS Partnership Advances Financial Inclusion in India
New Delhi, January 12th,2020: FSS (Financial Software and Systems), a leading global payment processor and provider of integrated payment products, today announced partnering with India Post Payments Bank (IPPB) to promote financial inclusion among underserved and unbanked segments. As part of the collaboration, IPPB will use FSS’ Aadhaar Enabled Payment System (AePS) to deliver interoperable and affordable doorstep banking services to customers across India.
FSS’ AePS solution combines the low-cost structure of a branchless business model, digital distribution, and micro-targeting that lowers acquisition costs and improves reach. This strategic partnership offers significant opportunities to bring millions of unbanked customers into the financial mainstream. Currently, there are nearly 410 million Jan Dhan accounts in India. A primary reason for low usage of banking and payment services is the challenge of accessibility in rural areas and the cost of maintaining active accounts — including transaction and transport— outweigh the benefits. In rural and peri-urban areas, the average time to reach a banking access point potentially ranges between 1.5 and 5 hours, compared with the average of 30 minutes in urban areas.
Leveraging its vast network of over 136,000 post offices, and 300,000 postal workers, IPPB has been setup with the vision to build the most accessible, affordable, and trusted bank for the common man in India to deliver banking at the customer’s doorstep. With the launch of AePS services, IPPB now has the ability to serve all customer segments, including nearly 410 million Jan Dhan account holders, giving a fresh impetus to the inclusion of customers facing accessibility challenges in the traditional banking ecosystem.
Speaking on the tie-up, Mr.Krishnan Srinivasan, Global Chief Revenue Officer, FSS said, “We are proud to be IPPB’s technology partner in this monumental nation-building exercise. The collaboration is evidence of FSS’ deep payments technology expertise and commitment to bringing viable, market-leading innovations that promote financial deepening. FSS’ AePS solution combined with IPPB’s expansive last mile distribution reach empowers citizens of the country with a range of digital payment products and advance India’s vision towards less-cash economy.”
“Through the vast reach of Department of Posts network along with the advent of the interoperable payment systems to drive adoption, IPPB is uniquely positioned to offer a range of products and services to fulfil the financial needs of the unbanked and the underbanked at the last mile. Having launched AePS services, the Bank has become the single largest platform in the country for providing interoperable banking services to customers of any bank. The strategic partnership with FSS provides us with an opportunity to expand the portfolio of financial services and improve customer experience whilst maintaining operational efficiency, thus building a digitally inclusive society,” said Mr. J. Venkatramu, MD & CEO, India Post Payments Bank.
The infrastructure created by IPPB addresses the accessibility challenges faced by customers in the traditional banking ecosystem. It fulfils the Government’s objective of having an interoperable banking access point within 5 KM of any household and creating alternate accessibility for customers of any bank.
The operation of FSS’ AePS solution is based on agents performing transactions on behalf of customers using a tablet, micro-ATM or a POS device. The system is device agnostic and can accept transactions originating from any terminal. Customers of any bank can access their Aadhaar-linked bank account by simply using their fingerprint for cash withdrawal, balance enquiry and transfer of funds into an operating IPPB account, right at their doorstep. FSS’ AePS exposes APIs to third parties to develop an expansive services ecosystem and extend a broad suite of financial products and tools including micro-insurance, micro-savings, micro-finance, mutual fund investments, enabling the bank to further services adoption among low and moderate-income consumers.
FSS (Financial Software and Systems) is a leader in payments technology and transaction processing. FSS offers an integrated portfolio of software products, hosted payment services and software solutions built over 29+ years of experience. FSS, end-to-end payments products suite, powers retail delivery channels including ATM, POS, Internet and Mobile as well as critical back-end functions including cards management, reconciliation, settlement, merchant management and device monitoring. Headquartered in India, FSS services leading global banks, financial institutions, processors, central regulators and governments across North America, UK/Europe, Middle East, Africa and APAC. For more information visit www.fsstech.com.
About India Post Payments Bank
India Post Payments Bank (IPPB) has been established under the Department of Posts, Ministry of Communication with 100% equity owned by Government of India. IPPB was launched by the Hon’ble Prime Minister Shri Narendra Modi on September 1, 2018. The bank has been set up with the vision to build the most accessible, affordable and trusted bank for the common man in India. The fundamental mandate of IPPB is to remove barriers for the unbanked & underbanked and reach the last mile leveraging a network comprising 155,000 post offices (135,000 in rural areas) and 300,000 postal employees.
IPPB’s reach and its operating model is built on the key pillars of India Stack – enabling Paperless, Cashless and Presence-less banking in a simple and secure manner at the customers’ doorstep, through a CBS-integrated smartphone and biometric device. Leveraging frugal innovation and with a high focus on ease of banking for the masses, IPPB delivers simple and affordable banking solutions through intuitive interfaces available in 13 languages.
IPPB is committed to provide a fillip to a less cash economy and contribute to the vision of Digital India. India will prosper when every citizen will have equal opportunity to become financially secure and empowered. Our motto stands true – Every customer is important; every transaction is significant and every deposit is valuable.
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