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NEW BANKING REFORMS WILL REQUIRE CAREFUL REGULATION

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Banking

Julian Korek, CEO of Kinetic Partners

The Financial Services Banking Reform Bill will provide the most significant change to the UK banking sector in a generation. Designed to be the legislative response to the financial crisis and other banking scandals such as Libor, one of the bill’s primary objectives was to require banks to separate everyday retail banking activities from their investment banking activities by introducing a ring-fence around the deposits of individuals and small and medium-sized businesses. 

At the EU level, Michel Barnier, the EU Commissioner responsible for internal market and services, published a draft law earlier this year aiming to curb speculative trading at banks and, in certain instances, force banks to ring-fence other trading activities. That said, policymakers are seeking additional clarity on such topics as the degree to which the banks are allowed to trade with hedge funds and, in relation to market making, the thresholds that would trigger mandatory ring-fencing.   The new Capital Requirements Directive (CRD IV), which came into effect on 1 January 2014, brings into force financial buffers to ensure that banks are more able to absorb losses during a crisis. It will also enable the Prudential Regulation Authority (PRA) to hold senior bankers criminally liable for recklessly disregarding their responsibilities. There is likely to be a considerable burden of proof, but essentially, ignorance will no longer be a viable defence for senior managers.

Greater personal responsibility

Banking

Banking

One of the primary goals of the Banking Reform Bill is to increase consumer confidence by ensuring that savers’ assets are kept safe from certain risky investments. The bill will therefore place new responsibilities not only on the banks, but also on CEOs and heads of risk.

As a result, all of these individuals will be held personally responsible for examining how the firm’s funds are being used, as well as fostering an appropriate culture within their organisations. In order to achieve this goal, the bill will put senior staff under greater regulatory scrutiny, effectively making it much harder for those at the top to defer blame if their bank fails to meet its regulatory requirements.  Over the last two years the regulator has increasingly demanded attestations by senior managers, which require a firm’s leadership to sign their names to affirmations that systems and controls are in compliance with FCA rules. These written statements are meant confer a greater degree of personal liability to the signatory.

Interestingly, the findings of Kinetic’s recent Global Regulatory Outlook survey seem to show support for this stance. The survey of 300 senior executives revealed that 27% of CEOs and 40% of employees believe that making executives criminally accountable for the activities undertaken by the firm would serve the industry well, as opposed to only 33% who disagree.

As a consequence, financial services firms may find it more challenging to fill these senior roles, since fewer people may be willing to take on this risk. This sense of personal responsibility, however, is a necessary component of the bill, as it is designed to actively encourage firms to create a culture of responsibility within their organisations.

After all, unless firms are willing and able to make individuals accountable for certain aspects of the business and the functions that they oversee, decision makers will continue to pass important tasks and controls on to others the organisation, which can lead to problems falling between departments.  In order to address this issue, we have found that high-level health checks and deep-dive reviews can often provide senior personnel with a greater degree of confidence when they are asked to sign attestation letters requested by the regulator.

Re-gaining consumer trust  

Another key aim of the Banking Reform Bill is to develop greater transparency for consumers. However, there are no guarantees that this will be the case.  There is concern that the Banking Reform Bill’s restrictions on investment risk might actually limit choice for consumers, which would be counter-productive. Perhaps even more concerning, the operational changes required by the bill could potentially decrease banks’ ability to respond to certain market shocks, since they will limit the crossover between their retail and investment activities. As many have argued that many of the issues that led to the crisis were consumer-generated, for example sub-prime mortgages, one might reasonably question whether these measures realistically reduce the risk to the system.

The good news, however, is that we are already starting to see a significant cultural shift in some organisations, as the consumer protection elements of the bill are encouraging firms to adopt a new perspective on risk. As a result, banks are taking steps to secure repeat business by building greater consumer trust, and forward-looking firms are starting to see how these changes can help to support sustainable, long-term growth for the financial services industry as a whole.

Regulations like the Banking Reform Bill clearly have an admirable goal, as they aim to protect the financial system and build consumer confidence. The question however, is whether the public is truly taking any notice of these changes and whether anyone, including the government, fully understands the implications of the bill’s impact.

Kinetic Partners’ Global Regulatory Outlook survey found that 97% of financial services professionals don’t believe enough has been done to prevent a future crash and only 12% of respondents believe that regulators fully understand how the financial crisis was allowed to happen in the first place. This begs the question as to whether or not new laws and regulations could realistically have an effective impact if public confidence in the regulators is lacking. Building this confidence is imperative for success, and regulators must remain mindful of this as they continue to produce legislation.

Interestingly, Antony Jenkins, CEO of Barclays, stated earlier this year that it would take 10 years to rebuild trust in the bank’s brand. However, only time will be able to tell whether the Banking Reform Bill can help achieve this goal. In the meantime, firms must consider how these regulations can be used to support a fundamental shift in culture, so that consumer confidence can be restored and maintained across the board.

Banking

The Next Evolution in Banking

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The Next Evolution in Banking 1

By Young Pham, Chief Strategy Officer at CI&T

Everything we know about banking is about to change. A new industry around the sharing of financial data is primed to give birth to a host of new consumer services, all thanks to Application Programming Interface (API) technology. Already known for being the safest place for money, there are opportunities for banks to expand that relationship to other aspects of the customer relationship. Banks will no longer simply be just a place to deposit and withdraw your cash, but a one-stop-shop for a range of data-sensitive services.

The passing of GDPR and the Payment Services Directive (PSD2) were the first steps in this process of banks modernising how they handled their customer data. However, incumbent institutions have so far not engaged enthusiastically. Rather, it was only after growing pressure from fintech challengers and government regulation that they were forced to open up and share their data. This should not be treated as a regulatory challenge, but rather a way to grasp the unique opportunities that banks have to reposition themselves as the most trusted resource for their customers.

Expanding offerings

It is hard to overestimate the breadth of possibilities arising from open banking, should banks choose to take advantage of this evolution. While the public rarely holds bankers in high regard, it still puts a high level of trust in banking institutions. People are more willing to hand over their sensitive data than they would be to almost any other private entity. Furthermore, banks have a unique perspective into their customers’ behaviours, needs and desires. Spending habits, income streams and risk appetites are just a few examples of the data that no other institution can tap in to.

There is certainly appetite to expand offerings. In our recent study of business banking customers, over 68% of respondents indicated that they were open to their financial institution providing digital non-banking services.  This includes services such as tax support, managing payroll, or invoicing to help them with their day-to-day businesses.

More banks should consider how open banking can maximise their digital capabilities and create a greater range of services for customers to enjoy. Such offerings could be tailored according to each bank and their particular customer audience. For instance, banks could offer everyday services for most users, such as insurance for individuals or business management tools for business accounts. Alternatively, banks could offer more exclusive and specialised services for high net worth individuals to meet their specific needs, such as art appraisal and investment management.

The idea that a firm can expand its offering into new verticals is hardly new. Many of the world’s largest tech companies, such as Apple and Amazon, already offer diverse products including hardware, software, entertainment and cloud services. They are able to do this thanks to the vast quantities of data they have gathered, which provide invaluable insights into consumer behaviour and demand. Banks are in prime position to follow the example of these top tier tech companies thanks to their monopoly on key financial data.

Disruptors vs incumbents

The business model described above is already being adopted by numerous challenger banks. These firms have led the innovative charge thus far, thanks largely to their agility afforded by their smaller size. Indeed, some fintech banks already provide a range of non-banking services to their customers. Revolut, for instance, offers users several types of travel insurance as well as access to airport lounges as part of its premium service for a monthly subscription.

These offerings are not a sign that the challenger banks are about to topple the large incumbents. Rather, these disruptors have always flagged the gaps in the market that larger institutions have been too slow to fill. It is now up to the established banks to learn from their example.

While challenger banks may have a first-mover advantage for these services, the incumbents have two key advantages: capital and credibility. Firstly, the top banks have enough cash to fund this overhaul of their business models. While the challengers have been able to afford to do so in recent years, they lack the reserves to tide them over during economic downturns such as the current pandemic.

Secondly, even though challenger banks are perceived as more convenient and are less vilified than traditional banks, the public still trusts the latter. Many of these large banks can point to their extended histories and long-term investment success – accolades young challengers simply cannot match. In short, people don’t have to like their bank to trust them with their cash and their data. These two advantages strongly suggest that large banks are better positioned to take advantage of the open banking business model in the long term, despite being slower to adopt and adapt.

What’s next?

All this opportunity is within reach. We already have the technical capabilities for data sharing, and the regulatory framework is not insurmountable. Rather, the key for this evolution of the sector lies in banks’ appetite for risk and willingness to reinvent their business model.

Banks need to take a leap of faith and leave behind the business paradigm to which they’ve become accustomed. They should embrace transparency, run towards regulation and take advantage of opportunities to invest in these areas or collaborate with outside technology firms. Only then will banks be able to make the most of their data assets, creating value for the customer and further strengthening the relationship.

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Banking

Banks talk a good game, but are bankrupt when it comes to change and innovation

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Banks talk a good game, but are bankrupt when it comes to change and innovation 2

By Erich Gerber, SVP EMEA & APJ, TIBCO Software

You hear all the time about the incredible pace of change in technology and the way that it affects business, but sometimes we kid ourselves about the real speed of that change and the depth of its effects. Retail banking is a perfect example to illustrate the yawning chasm between the illusion and the less attractive reality. In this article, I want to provide a critique of the banking sector and its failure to change fundamentally and to modernise.

Banking is an old sector: the Banca Monte dei Paschi di Siena has its roots in the 15th century and the oldest UK banks go back to the 17th century. We often talk about legacy holding companies back, restricting their speed of operations and hampering their ability to adapt. Well, established banks have legacy in spades.

They also have cultural challenges. The old saying has it that something is “safe as the Bank of England” and that is a standard for security. But today we need banks to be more dynamic and represent something more than being a deposit box for our wealth. Consumers are accustomed to the superb customer experiences in entertainment (Spotify), devices (Apple), retail (Amazon), travel (Uber) and much else. Surveys show that they want their banks to be responsive, easy to use and available across multiple channels. They’d like banks to be secure but also to be advisors, enable flexible movement of assets between accounts, provide useful data analytics, be cloud- and mobile-friendly and offer deals that are specifically targeted at their interests.

S-l-o-w progress

At their core, banks now must become digital enterprises but, frankly, it has been slow going. As Deloitte observed: “While many banks are experimenting with digital, most have yet to make consistent, sustained and bold moves toward thorough, technology-enabled transformation.”

Erich Gerber

Erich Gerber

We all know that retail banking has changed significantly: you can see that in the proliferation of apps and the fact that, in pre-pandemic times, the morning and evening commute are peak times for transactions as people arrange their finances while sitting in trains, buses and subways. Banking has become a virtual, often mobile business, thanks to new tech-literate consumers pushing banks in that direction. But my fear is that the banks aren’t moving even nearly fast enough and that’s bad for us as consumers and bad for the banks themselves.

Banks are under pressure to change because challengers don’t have the legacy constraints of incumbents and because PSD2 and open banking regulations are having the intended effect of promoting banking as a service, delivering transparency and greater competition.

Attend any business technology conference and banks will talk about their digital transformations and customer experience breakthroughs, but it’s my contention that a lot of this work is more window-dressing than platform building. Or, to put it another way, banks are injecting Botox, rather than undergoing the open-heart surgery that they really need. It’s a case of ‘look: fluffy kittens and shiny baubles’ in the form of apps and websites, but the underlying platforms remain old and creaking and that means that the banking incumbents are hampered.

To be fair, I have lots of sympathy here. They simply can’t move as fast as the challenger banks that have had the luxury of starting their infrastructure from scratch and sooner or later that will come back and bite them. Look, for example, at cloud platforms where only 10 or 20 percent of infrastructure has been migrated despite promises of cloud-first strategies and the banking data centres where monolithic on-prem hardware still reigns.

You feel that slowness of action in your interactions with banks that communicate only via issued statements, letters notifying you of changes to Ts and Cs, and threats when you go into the red. Inertia is nothing new in banking either: we like to think that technology change happens in the blink of an eye but in banking contactless NFC took the best part of 20 years to go mainstream.

This is the dirty secret of banks. They see the need to change but remain shackled. Why are the banks so slow? Historically, because it was hard for competitors to gain banking licences and the capital to really challenge so there was no catalyst or mandate for change. Also, because change is tough and fear of downtime or a security compromise to critical systems is very real. More recently, because internal wars in organisations set roundheads against cavaliers, the risk-averse against the bold, resulting in impasse and frustration.

I said change is tough and that’s why banks need to power through on the basis of Winston Churchill’s wisdom that ‘if you’re going through hell, keep going.” How? By a combination of maniacal focus on expunging legacy systems, placing maximum emphasis on superb customer interaction experiences and digitally enabling anything that moves.

Right now, the banks are surviving, not thriving; they’re rabbits blinking into the headlights of approaching traffic, frozen in the moment. But they need to disrupt themselves before others do it to them: change is painful but not as painful as the alternative. They have to do much more or they will see a decline in their fortunes due to their bankrupt capacity for innovation and their inflexible infrastructures.

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Banking

Vietnamese National Citizen Bank Rises to Excellence with Three Global Financial Awards

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Hanoi, Vietnam – Global Banking & Finance Review is proud to announce the sweeping victory of National Citizen Bank in the 2020 Global Banking & Finance Awards®. The bank was recently presented with three prestigious global financial awards: Best Place to Work Vietnam 2020, Fastest Growing Retail Bank Vietnam 2020, and Best Investor Relations Bank Vietnam 2020. The Global Banking & Finance Awards® recognize the innovation, enterprise, method, progressive and influential transformations that transpire every year within the global finance community. National Citizen Bank would like to extend their thanks and appreciation to the community and their customers for their continuous loyalty and support throughout the last 25 years.

Vietnamese National Citizen Bank Rises to Excellence with Three Global Financial Awards 3

 

The National Citizen Bank was recognized for its all-inclusive professional working environment and ongoing staff development that enhances its internal communications and employee relations. Throughout the last 25 years, National Citizen Bank has focused on the core fundamentals of regulatory modifications with the underlying goal of dividing the volume of both business and administrative tasks. As a result of this, the bank has successfully strengthened its staff’s capacity to obtain, manage outstanding liabilities, and acquire assets to negotiate and retrieve capital efficiently and reliably.

When asked what allowed the bank to triumph against the fierce competition, Wanda Rich, Editor for Global Banking & Finance vocalized, “one of the key factors that stood out to the committee is that National Citizen Bank strives to maintain and maximize profit to shareholders through the implementation of stable, sustainable business operations and advanced production methods. The bank has also remained stable, positive, and had a high growth rate in all of its activities, which is not often seen; however, it clearly indicates how prestigious and overall accomplished they are. They should be exceptionally proud of all three awards.”

About National Citizen Bank

The National Citizen Bank was initially established as a rural bank in 1995 under the name Bank of Kien River. The bank optimized its competitive standing within the global financial industry, later transforming into an urban banking institution where they reinstated their name as the National Citizens Bank. With a team of highly professional financial experts and customer service representatives, the bank embraces each customer’s diverse needs to ensure customary, efficient, and trustworthy experiences from start to finish. Over the years, the bank has prided itself on its continued emphasis on risk management and global business relations with investors, customers, and partners. For more information, please visit the National Citizen Bank.

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