How has fintech transformed the financial sector?
Martijn de Wever: Fintech companies have excelled in providing a better customer experience with less use of human capital.
Financial firms continue to struggle with information overload and too many legacy systems that don’t communicate with each other – generating a form of ‘data spaghetti’. In applying technology to capitalise on the ton of data that has been captured, Fintech companies are adding value to data that the sector has not been utilising. This use of complex data together with more transparent and user friendly experiences is driving change in the sector as a whole.
As a pioneering fintech entrepreneur, what are the key elements of a successful product?
Martijn de Wever: A great product excels in user experience by putting the user at the centre. Distillation of the actual problem you are looking to solve is essential, and simplicity of information is key. Too many people take the current status quo as a starting point, which is wrong. You should free yourself from any preconceptions and just try to find the best solution for a problem – and if that is close to the current reality, then that is great. If not, you reshape the reality but never compromise on usability.
How do your products achieve stand out in the increasingly crowded fintech market?
Martijn de Wever:
Floww is a unique combination of finance, technology and design. Too many fintech companies forget that user experience and design should be an integral part of their business. The touch and feel of the product and the insight that the user can gain from the system, is completely unique and unprecedented. The clean and clear interface and smooth interaction supports the whole process and experience.
Floww has been built in Microsoft Azure, maximizing usage of the Microsoft stack and more. It’s multi-tenant design makes it possible to pave the way for a new infrastructure of tomorrow whereby financial institutions can more freely communicate with their clients as well as collaborate with other institutions. The system capitalises on years of R&D and makes use of pieces of technology that are lightyears ahead of anything currently out there. To see the system come to life in the browser (meaning no integration for clients) is an exhilarating experience.
Floww is not just a system for one user – it is a whole eco-system straight out of the box. Institutions can now manage their assets, clients and employees all within one system in one unique beautifully designed language. Business intelligence is naturally a product of just working with the system and is no longer left to the demise of back-office functions within organisations. Managers gain instant realtime insight in the assets under management. The front-office can slice and dice their clients and understand the constitution of the client wallet. Investors finally get to speak the same language as their financial institution. Floww makes complex matter understandable, and lets the users play with data in real-time and with the utmost ease.
What do you look for in design and development partners?
Martijn de Wever: A pure creative collaboration was needed with a team that has experience working with interfaces of tomorrow. We strive to work with the best in class and have thoroughly enjoyed bringing talent of different disciplines into one room. An eye for detail and no compromises on user experience, stood at the foundation of the company. When you are doing something truly unique it forces the technology team to learn on their feet and built controls and solutions from the ground-up. There are no best practices when you go first – it is a continuous adaptation and tests the growth mindsets of every team member involved. I believe organisations extend further than the boundaries of a defined entity and design and development partners are part of the same journey.
What is the principle design consideration that underpin a good experience?
Lee Fasciani: The fundamental principle of design is communication. By understanding both the ambition of the product and the target audience (end users), we start to formulate a design solution that puts the user at the heart of the product. Our work will always be validated by user experience and their comprehension of the product. And, as we are breaking new ground, inventing new ways of visualising and manipulating data, it’s critical to keep the user front of mind.
How do you balance the need for simplicity with the inherent complexity of data sets?
Lee Fasciani: We’re designing the product to be used by a wide variety of people, from those with high technical knowledge to those with little exposure to technology in this sector. With this in mind, our approach to representing data is underpinned by common visual metaphors, line graphs, bar charts, colour, scale comparison, etc., to ground the experience in some sense of familiarity. The product then comes to life in how the user can manipulate these visuals in a myriad of ways including time and 3D space to give a unique sense of control. When initially briefed by Martijn he really wanted to empower the user with the technology and we’ve always used that as one of the guiding principles of the user experience. One key aspect of the work we’ve done is to allow the user to focus on any particular aspect of the data then give them the ability to discover more information through an additional interaction, essentially layering the complexity. This creates a system where the user can discover more information as and when they wish.
In summary, these digital platforms are great enablers because they allow for data to be physically manipulated, creating a real sense of tangibility to the information and allows the optimal level of complexity to surface as and when the user needs it.
How has the fintech sector changed since you first started working in this field
Lee Fasciani: The first product we worked on was Force Over Mass, an investment portal that launched in 2016. It brought an easy and sophisticated visual representation of financial data to private investors on a mobile first platform that was unprecedented in financial sector products at the time.
Today, fintech product are proliferating and specialising, adding real value to both private and professional users. And there are now a lot more financial services that are providing more user friendly products. In that sense, the effort to productise the personal banking and investment process has led to improvements in user experience design across the sector.
Is the financial sector embracing and adopting fintech?
Martijn de Wever: Yes there is a very strong awareness that the world of finance has to adapt or risk becoming irrelevant. The larger organisations become the more counter-intuitive and innovation-averse they become, which is logical. As organisations grow, rules need to be put in place to keep control over the growing number of complexity, processes and people. Innovation – de facto – means breaking the status quo which is exactly what people in organisations are incentivised and trained NOT to do. The surge in fintech companies is putting the problem at the top of the agenda. Dealing with legacy systems, is however slowing that migration to the new world of excellent user experience. This is the reason that we created a system that can fit on-top of the existing infrastructure if they choose to – helping the organisation with the slow transformation and re-education of their workforce.
What are the trends / technologies driving the sector?
Martijn de Wever: Customers are expecting the same experience that they are used to in other aspects of their life. Combining this with a way of capitalising data that is untapped and complying to the latest regulation, gives Floww a truly unique position in the market and we think we are spot-on with the trend. Having set up a VC firm before setting up Floww, I would be more than willing to go into the latest trends in detail but I will leave that perhaps for another time.
Lee Fasciani: From a design perspective, the big trend is really about access to data in general. Because the average person needs clarity in a more digestible and understandable way, visual interfaces have become increasingly popular. We see a proliferation of applications and platforms that help to tell the story of performance, but not necessarily with any real level of depth.
Underneath all that, data security, trust, transparency and integrity are paramount for the end user when deciding on platforms or products. For businesses, technology can facilitate compliance and increase efficiencies.
What’s the biggest challenge to working with entrepreneurs in the tech sector?
Lee Fasciani: It’s about pushing the limits of what’s achievable in terms of optimising the interplay between technology, experience and design. All the entrepreneurs we work with share a common vision; they want to create a product that disrupts sector conventions and pushes the limits of what’s possible. As creative thinkers and product designers it’s always exciting to think up new, future-facing concepts for a product but the real challenge is being able to align these ideas with the ambition of the client, the available technology and the user at the centre of the experience. Our designs often mean developers have to come up with new technical solutions. so everyone needs to be on board from the start.
Martijn de Wever: CEO and founder, Floww
With 20 years of experience in trading and risk managing Financial products and derivatives, Martijn’s experience at several global banks allowed him to recognise a key gap in the market. A technologist, tech investor and serial entrepreneur with a proven track record in successfully leading and growing companies after founding innovative Venture Capital firm Force Over Mass in 2013.
A new and distinct venture and solution, Floww is Martijn’s vision for a streamlined modern financial ecosystem.
Lee Fasciani: Creative Director and founder, Territory Projects
Leading a team at the junction of innovation, technology and brand, Lee’s expertise lies in marrying future interface concepts with real-world technologies to create rich human-centred digital experiences. With over 17 years of experience, Territory Projects’ clients come from FinTech, consumer technology, health and wellness products, travel, entertainment, and property development.
Front line strategies for responding to the COVID-19 crisis: Experiences from legal team leaders around the world
By Diane Dix – General Counsel, Total Safety, Marc Michael – Chief Counsel, Global Dispute Resolution, AES Corp, Tim Williams – Senior Counsel, Dispute Management, Wärtsilä Corporation, Susan Dunn – Founder and CEO, Harbour Litigation Finance, Tamer Nassar – Managing Director, Eternal Energy, Derrick Dale QC – Fountain Court Chambers
A crisis like Covid-19 has presented a highly unusual set of challenges for global business. Whilst, for any business, ensuring the immediate health and safety of its workforce is paramount, a coordinated and considered crisis response strategy is also essential. Any such response strategy should include the in house legal function to mitigate litigation risk, assist in managing the dialogue with counterparties in business-critical contracts and to horizon-scan for legal and compliance risk which may develop from the crisis.
In this article, London-based Winston & Strawn litigation partner, Ben Bruton, speaks to 4 senior in house leaders, a leading Queen’s Counsel and the founder of a prominent third party funder to draw on their experience of managing their teams through previous crises and to share their perspectives on the legal challenges which businesses are encountering arising out of COVID-19.
BB: First of all, thank you to all of you for agreeing to share your experiences from managing your teams through the pandemic. As we all worked through the global financial crisis in 2008 onwards, I thought we could start by comparing the consequences of the current pandemic with consequences of the financial crisis. Do you see similarities?
DD: When lockdowns commenced around the world, we were better prepared than we were in 2008, in part because this crisis came on gradually so we had time to consider the possible scenarios and plan for them. We spent several weeks ensuring we had business continuity and crisis response plans in place, developing a communications plan and reviewing contracts for force majeure and other relevant provisions. We did not have that luxury in the 2008 financial crisis. What makes this crisis different is that it has significant health and economic impacts, and it is truly global, both of which create a very different dynamic from prior crises. And our response strategies have been much more employee focused.
SD: The main difference between 2020 and 2008 we have seen (as a litigation funder), is that we did not see litigation emerge seeking funding until a very long time after 2008. It seems people were assessing their position and knew they had, typically, 6 years to bring a claim, and therefore focused on re-building, not litigation, initially. This time round we have already seen people contacting us for funding of claims because they have to act right now to save their businesses. This is the big difference.
The other big difference is that litigation funding was less widely used and understood in 2008. In 2020, it is used by every type of client including those who might well have used funding in 2008 but were not being advised by their external lawyers that it was an option.
TW: The global financial response to COVID-19 was, I think, significantly influenced by the lessons learned from the previous financial crisis: governments moved quickly to signal and implement stimulus and offer support (including direct action on evictions and so on), which I think can only help.
MM: Unlike with the 2008/9 financial crisis, our first priority has been health and safety. Everyone is concerned about maintaining the safety of our workforce and customers. This has forced us to change the way we work at the plants and corporate offices. We really did not have to change our methods of working during the previous crisis, although we did worry about the financial wherewithal of certain counterparties.
TN: Whilst the 2008 crisis was financial in nature and the 2020 crisis heath related, the risks to business brought about are surprising similar. Once again we have been looking at developing strategies to save businesses, save jobs and adjust to what appears to be a new normal. Now, as then, we are looking at various strategies to reduce costs such as remote working, cutting travel and other related expenses, shedding value-add services such as consultants and the like and renegotiating pricing with vendors.
BB: The circumstances have obviously put supply chains and contractual relationships under significant pressure. What strategies have you deployed for engagement with contractual counterparties?
MM: The workload in the legal team increased dramatically. We received literally hundreds of notices claiming force majeure and/or change in law relating to the pandemic or the governmental response to it. Construction contractors have sought relief in meeting milestones given the disruption to travel and the difficulty in procuring supplies, for example. Fuel suppliers warned that stay-at-home orders and possible social unrest could impair their ability to deliver fuel to our facilities. We made an effort to compile and analyze these notices so that we could provide consistent guidance to all of our affected businesses.
SD: From the litigation funding perspective, a key issue is of course the solvency of claimant counterparties and defendants alike. We always pay close attention to that factor, regardless of these current circumstances. The number one question we always ask of any new matter is how do we and the claimant get paid if the case is successful. Inevitably there may be some impact on the businesses of particular defendants so we are paying even closer attention to this factor. And if claimants need putting into administration in order to protect and preserve their claim we will look to protect them in this way.
TN: On the whole, we sought to accommodate our clients’ requests to suspend contracts or otherwise terminate them outside of the scope of the actual terms of the agreement (e.g. notice periods, etc.). in many cases, we also advised our clients to do the same, such that they are not perceived as being opportunistic in their dealings with clients and vendors. Suffice to say, we have not been running straight to the contract in these trying times, but taking a rather pragmatic view of things.
DD: We reviewed all of our key contracts to ensure we understood our contractual rights and obligations so that we were prepared to act swiftly where necessary. We were also very proactive in engaging with our largest customers and suppliers to anticipate any disruption in services. And where projects have been delayed, we have been in regular communication about scheduling to ensure that work could resume as soon as possible. In some cases we have been asked for price concessions and we have asked our suppliers for price concessions. Our experience has been that our contractual counterparties generally are acting in good faith and trying to work together to get through this crisis.
TW: We have been working hard to keep customers, suppliers and stakeholders informed and involved, and to offer both short-term alternatives (such as remote monitoring of the equipment) and medium- to long term business continuity (how long will your safety spares last?). We have found that there have been fewer shutdowns in the supply chain than slowdowns, and we have been humbled by the responses of our individual employees who were prepared to keep going to work to keep the lights on.
BB: What are the key legal issues you have been contending with as a consequence of the pandemic and the government response?
TN: We have had to consider contract terminations and suspensions, generally predicated on force majeure; non- and late payments; employment terminations and furloughs; unilateral price revisions from clients; and disruption to the supply chain in terms of non- and late delivery.
DD: The legal issues have been numerous. We reviewed the various government aid packages in North America, Europe and the Middle East to determine which of them apply to our business; we monitored the state and local shelter in place ordinances to determine whether we are an essential business and can continue operating; we reviewed privacy laws globally in connection with actions to take concerning the health of our own employees as well as evaluating new commercial offerings such as coronavirus screening; and we reviewed contractual recourse, among many other issues.
TW: Along with everyone else, a priority has been to balance our duties as an employer to provide a safe workplace with compliance with applicable law, changes of law, the practical challenges of restrictions on movement (we have a significant field service offering) with the flurry of force majeure notices, and of course the follow up contract notices that address events of delay. We have not sought to rely on frustration and impossibility to end contracts as we are in long term relationship businesses. We expect to see the impact of hardship to come in terms of insolvency events and possibly even foolish calls on performance bonds, and we have worked hard on alternative sources of supply, logistics and transportation. The key words have been continuity and cash flow. We need to keep getting paid, and paying our bills.
DDQC: In terms of commercial contracts the main focus has been analysing force majeure, frustration and termination rights under contracts. In terms of insurance claims, analysing the scope of the cover for business interruption claims has been centre stage and I suspect that in addition to coverage, issues of causation and loss will all be highly contested.
MM: In addition to force majeure and change of law issues, we’ve had to consider whether official governmental action in response to the virus may require us to provide to relief to utility customers or may even impair our rights.
BB: You are all responsible for managing teams. As a final question, based on your experience of the last few months, what guidance would you give in relation to how to manage a team remotely in an effective manner?
TW: If you are not already used to managing teams remotely, get used to the technology, use it, and use it often to stay in touch. Make sure your networks and infrastructure are robust. It also helps to use video where your network supports it to improve the quality of communication. No one wants to spend all day talking to their own screen. Virtual coffee breaks or even lunch breaks can help bring us together, especially if you have ‘lone wolves’ in your team.
MM: We’re a very collaborative organization, with frequent scheduled and impromptu in-person meetings throughout the day. Over the last few months, that has not been possible, because many of us have been working remotely, so we’ve had to rely heavily on technology to keep us connected. Videoconferencing has been very helpful with this, and in the Legal group we established guidelines to ensure that people are able to work productively at home and keep in touch with their colleagues. We also established a weekly call for the global Legal group, and a weekly virtual “happy hour” for the corporate Legal group so that we can connect with our colleagues more socially.
TN: We found that an effective method of remote team management has been to schedule weekly individual calls to set weekly objectives and review the prior week’s accomplishments. Communication in between those calls ought to be sparse and generally initiated by the team member, rather than the manager.
DDQC: Ensuring good levels of communication and teamwork within any litigation team is always essential and during the lockdown period we had to double up on this as solicitors and barristers navigated our way through gearing up for remote hearings, which seem to be the new norm for the foreseeable future. In our world ensuring that we have the requisite IT support to do this at all times has been essential. At Fountain Court, we have set up our large conference rooms so we can use them to dial into remote hearings and have leaders and juniors in the same room whilst the hearing is going on as well as having the IT support on hand.
DD: I have led a global team based across various jurisdictions for many years, so I’m very comfortable managing a team remotely. It has been a bigger challenge for colleagues who are accustomed to in-person engagement. They have learned to take advantage of video tools and grown more patient with background noise (children, dogs). As a leadership team, we have focused on frequent communication with our employees, being as transparent as possible about the state of the business and actions we are taking to address the challenges, and we have taken time to joke with one another and have a little fun. I find that when a team is working remotely, especially during a crisis, maintaining camaraderie and a positive outlook is very important.
How mortgage regulations are changing globally
By Globalaw members Oliver Foerster, Partner @ Huth Dietrich Hahn, Roberto Sparano, Partner @ Quorum Legal ,Paul Tully, Managing Director and Partner @ (McInnes Wilson) ,Tim Meng, Managing Partner @ Golden Gate ,Rory Campbell, Partner @ Hanson Bridgett ,Jose Gutierrez Partner @ Ramírez Gutiérrez-Azpe, Rodríguez Rivero & Hurtado, Andrew Chalmers, Managing Partner @ DCS Legal, Bryan Birkeland, Partner @ Jackson Walker
What is the most significant change we’ve seen in regulation in the past year?
UK: There are two key bodies that handle mortgage regulation in the UK. The first is the Financial Conduct Authority (FCA) and the second is the Prudential Regulation Authority (PRA). The FCA regulates all home-owner mortgages and lifetime mortgages such as equity release lending. Meanwhile, the PRA determines the amount of money that lenders, such as bank and building societies, need to hold, and the risk controls that they need to maintain. In October 2019, the FCA issued responsible lending rules and guidance covering borrowers who wanted to switch mortgage and were up to date with payments but did not wish to borrow any more money, by reducing barriers to such switches.
On 31 January 2020 the FCA announced a new mortgage advice and selling standards rules with immediate effect and a transition period running to 30 July 2020. These rules are intended to give consumers more choice in how they buy a mortgage and remove barriers created by earlier legislation. The rules centre around ensuring that consumers only pay for specific mortgage advice and ensuring that advisers must explain why they are not recommending cheaper mortgage options.
Germany: There were no significant changes in regulation regarding non-commercial mortgages.
US: The significant regulatory developments in the U.S. residential mortgage industry are:
- Federal Developments:
- Mortgage Underwriting: The Consumer Finance Protection Bureau (CFPB) has indicated that the “GSE Patch” (a temporary category under which loans eligible for purchase or guarantee by Government Sponsored Enterprises) will be extended beyond its pending expiration in January 2021. It will permit federally backed lenders continued underwriting leeway in addressing the 43% debt-to-income underwriting standard and is expected to preserve over $250 billion in loan originations.
- Flood Insurance Reauthorization: The National Flood Insurance Program has been extended until September 30, 2020. It preserves flood insurance for approximately 5 million insurance policies, 22,000 communities, and provides $1.3 trillion in coverage.
- CMBS Markets: The Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac’s regulator and conservator, has implemented its goal of creating a common mortgage-backed security (MBS) protocol via the “Single Security Initiative.” It is being done via a common securitization platform (CSP) which will now underpin the operations of the $4.6 trillion MBS market.
- COVID-19 Regulation: The COVID-19 Aid, Relief, and Economic Security Act (CARES ACT) applies to federally backed mortgages, which account for approximately 70% of all residential mortgages in the U.S. For borrowers under financial distress due to COVID, the CARES ACT provides for forbearance (payment delays) on mortgages for up to 12 months. Late charges, extra fees and penalties are prohibited. Limited documentation is required to prove eligibility. Multifamily loans under HUD programs also have forbearance, but under shorter forbearance periods (up to 90 days). Loan servicers on federally backed mortgages are prohibited from starting foreclosures before May 18, 2020.
- State COVID Response
- Beyond federal limitations, state and local authorities in many U.S. states have issued COVID-19 focused temporary orders restricting remedies on residential mortgages. These vary state-by-state. Examples include:
- California’s suspension of residential foreclosures state-wide through May 31, 2020;
- New York’s 90-day moratorium on the enforcement of foreclosures and prohibitions “until further order” against filing foreclosure actions and other non-essential cases; and
- Florida’s suspension of residential mortgage foreclosures through May 18, 2020.
Mexico: There were no significant changes in regulation regarding non-commercial mortgages.
China: Since August 2019, China’s central bank (PBOC) has changed the way commercial lenders set interest rates for loans. The mortgage rates will be based on Loan Prime Rate, or LPR, the new benchmark rate system, which will be linked to the PBOC’s medium-term lending facility (MLF) interest rate.
New mortgage loan rates for first-home buyers shouldn’t be lower than related LPRs. It has also been reported that the rate for second-home buyers must be at least 60 basis points higher than LPRs. Also, the loan prime rate is set on the 20th of every month, instead of daily.
Borrowers could negotiate with lenders on how to adjust their interests of mortgage loans each year based on changes of the LPR.
What impact will COVID-19 have in shaping regulations in the future if any?
UK: The FCA issued guidance on 20 March to mortgage lenders specifically dealing with COVID-19. This guidance is to be reviewed in the next 3 months. It is based and builds on two important principles binding mortgage lenders, namely, to treat the interests of its customers fairly, and to act honestly, fairly and professionally in accordance with the best interests of the customer.
The main principles of the guidance are that:
- A borrower experiencing difficulties or who reasonably expects to do so, may ask for a payment holiday and if that request is made, a 3 months’ payment holiday is to be offered, unless the mortgage lender can demonstrate that it is reasonable to do otherwise. More favourable arrangements can also be offered such as reducing or waiving interest.
- A payment holiday should be offered to anyone that indicates that they are or may be in difficulty making their mortgage payments.
- No fee or charges can be applied to any request.
- Any request for or any payment holiday agreed must have no impact on the credit rating of any person concerned as this is due to circumstances entirely outside of their control.
- No repossession should be commenced or continued at this time. This applies irrespective of the stage which any repossession proceedings have reached.
Germany: The impact of COVID-19 will most likely depend on how fast the country’s economy will recover. If the recovery materializes at a slower than expected pace, it is fair to assume that stimuluses will be introduced to promote the recovery of the economy. Instruments that reduce interest rates and an easier access to lending might be one of those stimuluses. This can lead to higher prices for real estate which – in turn – can change the ratio of equity and debt in relation to the financing of the acquisition prices. Loans are likely to be backed by mortgages. In consequence, the level of indebtedness will increase, and the solvency of the debtors will decrease, thereby also decreasing the value a mortgage can provide to secure the lender.
Another possible instrument could be a regulation differentiating the access to lending by the level of the borrower’s exposure to the COVID-19. For instance, a borrower who is more exposed to other individuals or is employed in an industry which largely depends on the contact of individuals (i.e. the hotel or catering industry) could possibly be treated differently from a borrower who has no such exposure.
Background for this differentiation would be that the more exposed borrower is more likely to be infected and therefore might be considered to present a higher risk to default on a debt. On the other hand, depending on the impact of COVID-19 on the economy, it is also a possibility that the government will guarantee to the lender to a certain extent that a mortgage-backed loan will be repaid. In this scenario, it is likely that the regulation on mortgages would be relaxed.
US: COVID-19 is disrupting every aspect of the U.S. economy and social life. It will continue to effect massive political, legal and social changes. Stop-gap regulatory responses will continue to attempt to “flatten the curve” of this disruption, but it is hard to see how the industry and the legal infrastructure can manage the fallout (it is still hobbled by lockdown in many places). With over 33 million people filing for unemployment and an unlikely V-shaped recovery, lenders will be facing a tsunami of distressed borrowers, mortgage defaults, impaired collateral, and deteriorating credit quality.
While the residential real estate market has been particularly hard hit, in recent weeks effective short-term solutions have been created for both homeowners and mortgage servicers. Depending on the length and severity of the economic impact created by COVID-19, it has yet to be seen if these temporary adaptations will result in longer-term changes for the residential mortgage market.
Lenders are likely to seek relief (and receive it) in adjusting underwriting standards and recalibrating debt-to-income and credit quality standards. It is also likely that banks may propose that the Federal Reserve and Treasury establish a credit facility for mortgage servicers, who are being hit hard by the relief provided to borrowers.
For borrowers, we expect continued stopgap measures to spread out payment regimes in the short-term. Despite major efforts to provide liquidity for the market via monetary policy and stimulus programs, borrowers are faced with a highly damaged economy, rent strikes and impaired income prospects. They will enhance bottlenecks in having loans underwritten, as lenders attempt to respond to an evolving regulatory and economic environment. However, federal, state and local temporary mortgage forbearance measures as well as moratoriums or restrictions on foreclosures and evictions, in particular, seem unlikely to continue for the long-term after the economic impact of the COVID-19 situation stabilizes.
Mexico: COVID-19 is more likely to have an impact on business practices and not so much on legislative matters, since the consequences and results of an event such as this one is already regulated. However, when drafting an agreement, the will of the parties mainly dictates the rules, and for this reason, the impact would be reflected in the clauses of the agreements when dealing with acts of God and force majeure events. For this reason, it is likely that moving forward, these types of clauses will play a greater role in all kind of agreements, including the insertion of rules and exceptions for the enforcement of a mortgage guarantee under a scenario like the one we are currently facing.
China: Since January 2020, the China Banking Regulatory Commission and other governmental agencies released a number of measures to outline the special circumstances being implemented as a result of COVID-19. Under these measures, generally, financial institutions should flexibly adjust personal repayment arrangements such as housing mortgages and reasonably postpone the repayment period. Also, financial institutions are encouraged to negotiate with borrowers and appropriately reduce the interest on individual housing loans for those who temporarily lose their sources of income due to the pandemic.
In practice, most banks should grant an extension for instalment repayments for borrowers = affected by COVID-19. For example, for those who have lost their income temporarily due to the pandemic, the Bank of China (BOC) can offer 3-6 months’ delayed repayment arrangements dependent on individual circumstance. Another example of this is if confirmed or suspected cases or their spouses are overdue in making repayment during the pandemic period, the China Industry and Commerce Bank will not consider this a breach of contract or include them in the list of defaulting customers.
During the COVID-19 outbreak, banks and other financial institutions have been encouraged to actively use online technical means to handle banking services. In the event that borrowers could not apply for the extension of the banking agreement and sign the extension agreement through traditional face to face meetings, the banks could take the form through a non-contact approach, primarily through online financial services tools such as WeChat to solve the problem.
What regulations can we expect in the future?
UK: COVID-19 is likely to have a long-term impact on the economy and so it may well be that the guidance issued and referred to above will be extended beyond its initial three-month term. If the economy returns to normal, it is unlikely that COVID-19 will result in any specific new regulations in what is already a heavily regulated sector.
Other regulation that looks likely is facilitating the ability of borrowers to switch mortgage providers more easily. Research published in March 2019 shows that borrowers are reluctant to switch even if they could get far better deals elsewhere. The FCA is looking to intervene to help borrowers who do not switch and is issuing a consultation paper on potential remedies later in 2020, which may lead to new regulations.
The PRA is expected to introduce new mortgage reporting requirements for regulated home lenders and home finance administrators effective 1 October 2020.
Germany: We’re likely to see legislation geared towards breaking the vicious circle of cheap money, high real estate prices, increase of indebtedness of the acquirer, decrease of acquirer’s solvency, and decrease of the value of a mortgage for the lender; regulation might be introduced to limit the ratio of the acquisition price allowed to be financed by loans and backed up by mortgages.
US: If a new administration is elected, especially if the majority of the Senate shifts, significant “New Deal” restructuring can be expected.
On a more pragmatic level, the need to improve logistics surrounding closings has become quite evident as a result of state and local orders that have closed businesses, including title companies, and imposed social distancing requirements that often make in-person closings difficult or impractical. While virtual closings would seem to present an answer, current laws pertaining to electronic signatures, recordings, and notarizations make closings in an online world more difficult. The SECURE Notarization Act, proposed in March—permitting remote online notarization nationally—may, if passed, be a first step in the path to a digital transformation of the mortgage industry.
Mexico: There are a number of financial institutions which have been granted grace periods and subsequently restructured under certain conditions the repayment of loans, as otherwise a high volume of lenders would default, pushing lenders to foreclose a large sum of mortgage guarantees; a situation similar to what we saw during the 2008 financial crisis, which is not a desirable outcome for lenders or providers.
As a result, the Bank of Mexico and the Mexican Bank Association have issued policies to considerably reduce the inter-bank interest rate as well as to negotiate its payments terms for four months in order to support the real estate market, which has been paralyzed to date as a result of COVID-19.
However, these conditions have developed through the will of the parties concerned and not through a binding decree or regulation. Therefore, in order to protect the interests of the parties involved, we could see future regulations of a public nature that bind financial institutions to behave similarly in the treatment of delinquency interest and in the terms of loan payments.
China: There is currently a high level of financial pressure and an increased risk of defaults. As a result of this, debt restructuring volumes will increase. It is also likely that the interest rate will be reduced for a prolonged period. Other measures such as debt relief and tax cuts may also be adopted to promote business activities.
Online technology and big data related technology will also be encouraged to use to make lending process more quickly and efficient.
Delivering Innovative Wealth Management Solutions
For more than half a century Deltec Bank & Trust has been providing global private banking services to high net worth clients. Deltec Bank & Trust has delivered comprehensive financial solutions and exceptional client support to meet the international wealth management needs of successful individuals, families, and businesses.Since becoming CEO in 2019, Odetta Morton has focused on leveraging Deltec’s unique global network to serve its private and corporate banking clients with an emphasis on efficiency, innovation, and the highest ethical standards.
In the process, Mrs. Morton has made Deltec Bank & Trust an agile, innovative and solutions-driven institution. Deltec has consistently built on its client service, and Mrs. Morton is committed to growing shareholder value by building the bank of the future with access to the most unique network of opportunities for its clients. On the occasion of winning Best Private Bank in the Caribbean 2020
Global Banking & Finance Review interviewed Mrs. Morton, CEO of Deltec Bank & Trust to find out more about the bank and their plans for the future.
Congratulations on your award- winning success. What initiatives do you feel have led to your success?
I attribute our success to the extraordinary talent that extends across our organization. Our success has always been because of the people who work tirelessly to ensure that we give exceptional service to our clients.
As a team, we’re focused on the future, trusting disruption and investing in technology that delivers 24/7 financial solutions. This audacious approach drives our team to offer award-winning wealth management and financial services.
What are the biggest challenges you see taking place right now and how is Deltec Bank & Trust prepared to help clients navigate this difficult time?
Within the last few years, Deltec’s main focus has been to ensure we have a business model that can withstand the pressure of an ever changing financial environment, which is faced with major disruption due to new regulations, a changing customer base, and emerging digital technologies.
These preparations have helped us tremendously to transition to the COVID-19 dilemma we see today. We have been focused on resilience, having developed a robust and tested business continuity plan as part of our enterprise risk management framework as an essential of component of the Bank’s business model.
With our headquarters positioned in a hurricane belt, we are no stranger to facing crises and our enterprise risk management framework has served us well in this unique environment.
Additionally, our conservative strategy serves as one of Deltec’s advantages – with healthy liquidity ratio, no debt, no proprietary trading, zero commercial loans, and no leverage. We remain conservative in our credit policies and commitment to sound capitalization. These prudent practices ensure that there is no threat to the Bank’s sustainability, safety and soundness.
We are well-served by our commitment to and investments in technology to transform the way we work: rapidly responding to this challenge, finding opportunities and quickly scaling effective solutions for our clients.
In our discretionary portfolios, we have ensured that we are in the best possible position to deliver both investment services and ongoing performance in the face of the uncertainty posed by COVID-19.
As the pandemic has unfolded, we have been proactive and agile in our strategic response. Our team has come together with a renewed commitment to confront new challenges to ensure that we thrive in the new normal.
We believe that these times have revealed why Deltec is so special:
- our team is guided by our mission to serve and protect our clients; and
- our commitment and flexibility to rise above the challenges of this moment by solving difficult problems in real time.
How has client’s attitudes towards wealth management changed over the past few years?
With new digital technologies and an always-on culture, clients expect wealth management solutions to be available 24/7. It’s important to add that there is a new generation of clientele emerging- the savvy and empowered digital consumer – who is interacting with their bank in completely new ways.
This is why the role of fintech has become so prominent. Clients want to be more involved in the way their wealth is managed and protected.
At Deltec Bank, we have embraced this and invested in a digital transformation designed to not only provide 24/7 financial services but revolutionize how wealth management and financial services are offered today.
Client relations have always been at the core of your banking operations. Why is this and how do you continue to strengthen these relations?
Quite simply, we provide a network of unique opportunities with white-glove service to our clients. Our approach is two-fold. On one hand, we take the time to understand our clients, their unique situations and we build around that. On the other hand, we have embraced that our service must be available in real-time and available across different time zones. Our technology plays a big role in that. Our clients can interact with us based on their preferences and our expert team of professionals are committed to giving our clients world-class solutions and service.
How do you support clients’ in achieving planning for and achieving their financial goals?
We believe that understanding the financial needs and goals of our clients is one of our most important responsibilities. Whether the client already knows what they require, or would like help developing an appropriate investment and wealth plan, we seek first to understand. This allows our team to more accurately leverage Deltec’s in-house financial and investment expertise and match clients with the right solution for them.
From an investment perspective, we simplify the process for our clients by offering a selection of discretionary model investment portfolios to match their risk profiles. From there our experienced team of investment analysts and portfolio managers make clients capital work for them, applying Deltec’s robust investment framework to investment markets.
Moreover, one of the distinct advantages of Deltec is that we’re a true financial partner to our clients. The Deltec International Group offers diversified solutions, ranging from fund administration, corporate advisory, merchant banking, global insurance to digital asset financial services, therefore at Deltec Bank, we’ve been able to create synergies to match our clients with a wide range of financial solutions.
With over half a century of operations, you are now servicing several generations. What are the challenges in multi-generational wealth management?
Every generation has a distinct set of values, thinking patterns and expectations. For example, we know that the new generation of wealth management clients, which include Gen X and Gen Y, even baby boomers who have been influenced by the younger generation expect to have more control over their finances and are less concerned about authority than previous generations – in fact, they lean on their peers for feedback and advice.
One of the ways we’ve been able to successfully service multi-generational wealth is by being a pioneer in the wealth management industry. At Deltec, we always embrace the future and anticipate what’s next. This approach has positioned the Bank to meet and exceed the expectations of the many generations of clients we serve.
What role is technology playing in the development of services for wealth management?
Technology is changing the way our clients interact with us and enhancing how we deliver financial solutions. We see this transformation happening in many other industries and wealth management is no different.
At Deltec, we’re leveraging technology to provide one of the most advanced wealth management platforms, pioneering models and algorithms for real-time financial solutions based on individual client suitability and preferences. As an international bank, we’ve place priority on 24/7 wealth management and financial services, and technology is the engine behind that.
How does Deltec Bank & Trust support the socio-economic development in the Caribbean?
Deltec Bank has long held strong ties within the local community in The Bahamas through our Deltec Initiatives Foundation, which was designed to foster an environment that empowers young Bahamians to drive positive social impact through the power of arts, entrepreneurship and education.
Since 2013, the foundation has discovered, launched and mentored many talented, motivated and driven Bahamian artists, artisans and entrepreneurs. The Deltec Initiatives Foundation comprises three pillars: The Initiative for the Arts, The Initiative for Young Entrepreneurs and The Initiative for Scholarship & Education.
What can we expect to see from Deltec Bank & Trust over the next 3 years?
Over the next 3 years, I expect to see a complete transformation of wealth management and financial services, and Deltec will be at the forefront of the advanced thinking emanating from the industry. Our technology and processes will provide a model for private banks and wealth managers around the world and deliver even more value to our global clients 24/7.
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