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Has Regtech failed fintech?

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Has regtech failed fintech?

Regtech is being touted as the next big thing after Fintech, and the basis for this is clear. Fintech is the paradigm that is supercharging financial services, so it follows there needs to be a corresponding increase in the ability to control, regulate and monitor such new systems and organisations. Regtech is simply a technology enabler for Fintech in the compliance and monitoring space. Without the technology advances of Regtech, the growth of Fintech will be severely limited, so it is natural that it will be the next area to get some focus from industry.

There is a key difference though between Fintech and Regtech. Where Fintech has seen a large number of start-ups and SMEs joining the sector, regulation and compliance systems have often been the preserve of larger enterprises. This is because most suppliers assume compliance to be an enterprise activity, but with the number of start-ups and SMEs, this has to be recognised as a growing and important market. In the UK alone, since 2005, over 60% of entrants to the financial services industry were new players and these are taking increasing levels of revenue from traditional banks [1]. Many of these entrants will be small. Overall, SMEs now account for over 50% of private sector turnover [2] so there is significant market size.

Let’s look at where Regtech needs to develop to support the SME Fintech market and in which areas SMEs should look for their own biggest Regtech gains.

Gavin Scruby

Gavin Scruby

The current situation – where the market is focused on enterprises – is not unusual. Most complex IT systems are made for the enterprise market first. SmartDebit is a Fintech payments SME that competes with enterprise suppliers, so we need functional equivalence on core IT such as resilience, monitoring, identity and privilege management. To achieve this, we have to operate as an enterprise – with the exception of our size. However, we have found it difficult to find enterprise-equivalent systems that are priced and aimed at the SME market, and we see the same with Regtech. Often such systems have minimum user number pricing which is far above SME requirements, but it’s not about price alone. SME products need to be operable without specialist skills or significant ongoing work. Even cash-rich SMEs have a limited pool of talent and are always time poor: they can’t afford to hire too many specialists who do not add to the bottom line. As such, systems that abstract complexity or reduce effort are essential to be practical.

Part of the reason for this gap in the market is that such systems were only of interest to enterprises in the past; SMEs just didn’t bother with them. This is changing. There are two drivers now that increase the enterprise-like requirements of SMEs. The first is that regulation and compliance are becoming increasingly required for smaller organisations. Due to the demands of GDPR and need for visible and demonstrable information security policies, security accreditations and quality standards, many companies are finding much more detailed regulatory work is needed than in the past. Secondly, SMEs are increasingly targeting enterprises as customers, and once they have scalable systems (which the public cloud can provide almost out-of-the-box), the only impediment is sufficient compliance and regulation to satisfy customer compliance teams. This is causing a significant demand in compliance and Regtech from ambitious SMEs since it allows them to compete on an even footing with larger players.

So, what areas of Regtech should be of interest to SMEs? Essentially, they need systems that provide core parity with enterprises and don’t require too much expertise or resource to implement and run. At a minimum this will require automation of policies and controls for standards such as ISO27001/ISO27002 for Information Security, ISO9001 for Quality Management and, specifically for Fintech in the UK, anything that simplifies FCA compliance. SMEs need systems that can automatically map processes to policies in order to measure coverage and integrate control test results, and in a format that provides evidence to external auditors. This all needs to be done with minimal effort or specialist expertise from internal staff. Turn-key and automated solutions are not an initial priority for Regtech suppliers as enterprise buyers have resources and expertise that make such development investment less urgent, but this is what is needed to make SME implementation practical.

Suitable systems have been so hard to find that we have been investigating how to use off-the-shelf AI to better automate our own compliance when trying to map processes to policies. We have also co-opted traditional ITSM ticketing systems to cover checks and controls, but we are not a Regtech or AI specialist and would much rather use an SME-targeted commercial system. We hope this is the direction the market takes.

Regtech suppliers need to move out of the enterprise mindset and look at what SMEs need in a more focused way. The market is significant and growing and so is the requirement for regulation at all levels. With a worldwide focus on security, regulation and compliance, there is no reason to think the regulation trend will change but whether Regtech suppliers will change their approach to support the SME market, where IT system suppliers have failed in the past, remains to be seen.

By Gavin Scruby, CIO SmartDebit 

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German exports to UK fell almost a third in January as Brexit hit

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German exports to UK fell almost a third in January as Brexit hit 1

By Paul Carrel and Rene Wagner

BERLIN (Reuters) – German exports to the United Kingdom fell by 30% on the year in January as the impact of Brexit turned Europe’s largest economy away from the UK, exacerbating the hit to business from the coronavirus pandemic, official figures showed on Tuesday.

The UK left the European Union’s single market at the end of last year, raising barriers to trade. That final split followed more than four years of wrangling over its terms of exit from the EU, during which German businesses had already begun to reduce their interactions with Britain.

“Since 2016 – the year of the Brexit referendum – German exports to the UK have steadily declined,” Germany’s Federal Statistics Office said in a comment on the preliminary figures. It did not give a sector-by-sector breakdown.

The Office attributed the January slump to “the effects of Brexit after the year 2020, which was marked by the Corona pandemic.”

The impact of COVID-19 meant that the UK economy was smaller in January than a year earlier. The International Monetary Fund estimates that the UK and euro zone economies will not return to their pre-pandemic levels until next year.

Ahead of formal departure from the EU on Dec. 31, British businesses rushed to bring goods into the country – stockpiling that often results in a dip in activity later.

The January slump in bilateral trade compared with a more modest decline in December 2020, when German exports to the UK fell by 3.3% on the year, to 5.0 billion euros, and imports from the UK dropped 11.4% to 2.8 billion euros.

Gabriel Felbermayr, president of the IfW economic institute in Kiel, said the January export slump was probably an “outlier” as the pandemic slowed trade, and as exporters adjusted to new customs formalities.

“In the long term, we assume that German exports to the UK will be 10% below the level expected without Brexit,” Felbermayr told Reuters.

The Brexit deal is “far removed from the rules of the single market” in the EU and will dampen trade, he added, with many firms on the continent having already reorganised supply chains and scaled back business with Britain.

NEW RULES

New customs rules which took effect in January have increased the cost and complexity of trade between Britain and the EU, especially for smaller firms, and caused delays to freight at the borders.

In 2020 as a whole, German exports to the UK fell by 15.5% compared to 2019, recording the biggest year-on-year decline since the financial and economic crisis in 2009, when they fell by 17.0%, the Office said.

In 2015 German exports to the UK amounted to 89.0 billion euros. In 2020, German they totalled 66.9 billion euros.

Imports to Germany from the UK totalled 34.7 billion euros in 2020, down 9.6 % compared to 2019.

(Reporting by Paul Carrel; Editing by Madeline Chambers and Catherine Evans)

 

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UK’s National Grid to invest 10 billion pounds in power network by 2026

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UK's National Grid to invest 10 billion pounds in power network by 2026 2

(Reuters) – Britain’s National Grid said on Tuesday it broadly accepted a price control proposal from regulator Ofgem and would invest around 10 billion pounds in the power transmission network that it operates by 2026.

In December, Ofgem gave the go-ahead for 40 billion pounds ($53.4 billion) in spending on utility networks between 2021-2026 to prepare for more renewable power, including a higher-than-planned limit on grid operators’ returns.

National Grid said it was pleased to see the increase in allowances and accepted the overall package for its role as electricity system operator, while broadly accepting the package for electricity and transmission businesses.

The price controls take effect from April 2021.

“This package will allow the critical investment required to maintain the resilience and reliability of our networks,” National Grid said.

At nearly 2 billion pounds a year on average, investment would be higher than the previous price control period, it said.

National Grid said it would submit a technical appeal to the Competition and Markets Authority (CMA) regarding Ofgem’s proposed cost of equity and downward adjustment to allowed returns in expectation of future outperformance.

SSEN Transmission, part of utility SSE, said it would also appeal these issues with the CMA, in addition to areas relating to new exposure to transmission charges and the loss of appeals right relating to total expenditure.

If accepted, the six-month appeal process would begin from April and final determinations could be expected in October.

National Grid said it expected credit metrics to remain below the required threshold levels of a BBB+/Baa1 debt rating on an ongoing basis due to the increased investment programme.

It said it was confident of retaining access to debt markets even if agencies downgraded the National Grid Group’s ratings.

National Grid said it aimed to deliver annual dividend per share growth in line with the British CPIH inflation from the full business year 2021/22.

(Reporting by Nora Buli in Oslo; Editing by Jason Neely and Edmund Blair)

 

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Betting on death of petrol cars, Volvo to go all electric by 2030

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Betting on death of petrol cars, Volvo to go all electric by 2030 3

By Nick Carey and Helena Soderpalm

LONDON (Reuters) – Volvo’s entire car lineup will be fully electric by 2030, the Chinese-owned company said on Tuesday, joining a growing number of automakers planning to phase out fossil-fuel engines by the end of this decade.

“I am totally convinced there will be no customers who really want to stay with a petrol engine,” Volvo Chief Executive HÃ¥kan Samuelsson told reporters when asked about future demand for electric vehicles. “We are convinced that an electric car is more attractive for customers.”

The Swedish-based carmaker said 50% of its global sales should be fully-electric cars by 2025 and the other half hybrid models.

Owned by Hangzhou-based Zhejiang Geely Holding Group, Volvo will launch a new family of electric cars in the next few years, all of which will be sold online only.

On Tuesday it unveiled the first of those models, the C40, a fully electric SUV, which will have an initial battery range of around 420 kilometres (261 miles).

Volvo will include wireless upgrades and fixes for its new electric models – an approach originally pioneered by electric carmaker Tesla Inc. This means the C40’s range will be extended over time with software upgrades, Chief Technology Officer Henrik Green said.

Carmakers are racing to switch to zero-emission models as they face CO2 emissions targets in Europe and China, plus looming bans in some countries on fossil fuel vehicles.

Last month, Ford Motor Co said its lineup in Europe will be fully electric by 2030, while Tata Motors unit Jaguar Land Rover said its luxury Jaguar brand will be entirely electric by 2025 and the carmaker will launch electric models of its entire line-up by 2030.

In November, luxury carmaker Bentley, owned by Germany’s Volkswagen, said its models would be all electric by 2030.

Electrification is expensive for carmakers and as electric vehicles have fewer moving parts, employment in the car industry is expected to shrink.

Volvo CEO Samuelsson said that industry-wide, electrification will mostly affect engine plants and auto suppliers providing everything from oil filters to fuel injectors and spark plugs.

“Those are a lot of jobs of course,” he said. “But overall I don’t think there will be a big difference.”

Volvo said it will “radically reduce” the complexity of its model line-up and provide customers with transparent pricing.

The carmaker’s global network of 2,400 traditional bricks-and-mortar dealers will remain open to service vehicles and to help customers make online orders.

So far Volvo has not been affected by a pandemic-fueled global semiconductor chip shortage that has temporarily shut a number of assembly plants, which Samuelsson said was thanks to constant communication with suppliers.

“So far, knock on wood, we have not had to stop any assembly line,” he said. “But it could happen any day.”

(Reporting By Nick Carey; editing by Barbara Lewis, Gerry Doyle and Susan Fenton)

 

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