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RECEIVABLE FINANCE

Simon Featherstone

Global Banking and Finance Review interview Simon Featherstone, Global CEO, Bibby Financial Services to find out more about Receivable Fianance and how SME’s benefit.

Hi Simon, please begin with a brief introduction to Bibby Financial Services and yourself.

Bibby Financial Services (BFS) is a leading independent international invoice finance provider, offering expert knowledge and a versatile suite of funding solutions to businesses.

BFS provides funding to almost 7,000 small and medium-sized businesses worldwide and has 46 operations spanning Europe, the Americas and Asia-Pacific. Our local expert teams help customers to maximise business opportunities both in their domestic markets and when trading internationally.

Simon Featherstone

Simon Featherstone

I joined BFS as Global CEO in September 2011, from the position of Managing Director at Lloyds TSB Commercial Finance. I am passionate about supporting SMEs and I believe BFS’s global presence, expertise and local decision making are unique within the industry, adding real value to businesses looking to achieve growth.

In addition to my role at BFS, I hold a Non-Executive Director role at Bibby Supply Chain Services Ltd, a £300m turnover logistics specialist.

I am also a Board member of the International Factors Group, a global trade association that represents the factoring, invoice financing and asset based lending industry. And I am on the Board of the UK’s Asset Based Finance Association which has been active in supporting the development and implementation of an industry code for the UK.

For those that are unfamiliar, what is receivable finance?

In the simplest terms, receivables are payments due to a company from external businesses supplied with a product or service. Receivables finance, also known as invoice finance, is a group term which covers all types of funding where the amount of money due on an invoice is advanced by a finance provider to a company until the company receives payment on the invoice.

There are different types of products available under the umbrella term of invoice finance, of which the main two are invoice discounting and factoring. Invoice finance can help businesses manage issues such as unreliable cashflow, late payments, overseas trading, fast growth and starting up a business.

Factoring is a ‘one-stop shop’ funding and collections facility that helps to bridge the cashflow gap between raising an invoice and getting paid. As well as an immediate cash-injection and an ongoing supply of working capital, businesses also benefit from a credit management and collections service. This saves them valuable time, as the finance provider will chase and collect outstanding invoice payments on the firm’s behalf.

Invoice discounting is a funding-only solution. Unlike factoring, the business maintains control of the sales ledger and continues to collect payments from its customers against outstanding invoices.

Invoice finance is a dynamic, flexible solution that grows with a business and provides a sustainable alternative to bank loans and other sources of finance.

How has the industry changed since you first started?

The type of finance service a customer chooses and how customers access these has changed significantly over the past few years.

Since the financial crisis there has been a tightening of credit terms and a drastic reduction in the availability of traditional business funding, which has led to more and more firms turning to non-bank funding to satisfy their current and future plans.

This has caused the industry to diversify and grow hand-in-hand with the increase in market demand. Whilst invoice finance has been available to businesses for many decades, an increasing number of businesses are becoming aware of it as well as newer services from crowd funding to peer to peer lending. Businesses can now access a wider and more competitive range of funding products, delivered in ways that are flexible and in line with their particular needs.

Many smaller companies are looking to access funding in different ways and choosing services that suit how they do business, such as an online finance service that releases funds within hours.

There is a very healthy drive towards being truly customer driven with the spotlight on improving service and product range. There is also a real focus on harnessing technology to maximise the customer experience. Finance providers must ensure they are providing the right services to help customers find the type of funding to suit their individual business.

What changes would you like to see brought to the sector?

Often, the language used by funding providers can be complex and alienate potential customers before they even pick up the phone.

Industry bodies play an important part in this, for example the Asset Based Finance Association in the UK has published a glossary of terms to help company owners understand the complexities of the language used in funding applications and processes. However, funding providers also need to take responsibility for ensuring their services are as transparent as possible.

Innovation is another key area which could help engage businesses and continue to mould the positive perception of the business funding industry. It is vital that all funding providers evolve their products and services to meet the changing needs of businesses and ensure that they have the right financial support to achieve their potential.

I believe there is also always scope to improve on demonstrating the value that working with a finance provider will bring to a customer’s business. Invoice finance experts have the knowledge and ability to advise a customer holistically, looking at the future aspirations of the business and enabling the customer to reach these goals through funding. This can partly be achieved with further investment in education and qualifications for industry members as well as more widespread and innovative marketing.

How do inconsistent payment regimes hurt SMEs?

Inconsistent payment terms can have a serious impact on the success of an SME. A small business can find it is almost impossible to forecast and plan as it is difficult to predict with any certainty how much income it will take each month if payment terms are not standardised. This uncertainty has the potential to limit a business’ ability to service new orders and therefore grow as the liquidity needed to pay for more staff, raw materials and equipment for example is simply not available. The business must wait for payment on orders already completed before it can take many new orders.

This is true for a business whether trading locally or exporting internationally, however differing payment terms between countries can have even more of an impact, as terms can stretch to 90 days or more depending on the business culture of the country you are dealing with. Businesses should take the time to understand payment practices in other countries and move to ensure their payment terms are aligned with local practice.

For example, one company we work with in the UK, Oak Exports, trades with several countries around the globe including countries in the EU as well as the United States, Australia, North West Africa and Asia. The owner finds that customers outside of the EU tend to pay more quickly than inside the EU, meaning he has to factor longer terms into the price of goods and build these terms into his business forecast.

Increasing awareness of more flexible funding solutions such as invoice finance will also play an important role in enabling SMEs to capitalise on recovery, meet new demand and continue to grow.

What are the biggest challenges SMEs are facing?

In my experience, the most important challenge still facing SMEs around the globe is an understanding of the many options available when it comes to business finance.  It is the responsibility of the industry, along with policy makers and industry bodies, to provide greater education to businesses.

Hopefully, as the global economy starts to turn the corner, then you will tend to see SMEs being able to finance more in a growth scenario than you do in a downturn, ironically, because their balance sheets aren’t there to keep pace with their growth. If they’re not educated enough to look at aware of other funding options such as invoice finance, that’s going to be a big challenge for them to fund their growth. It’s a big opportunity in the industry, but it’s a big challenge for SMEs as well.

How do you preserve the client/customer relationship for your clients?

The relationship we hold with our customers is the most valued part of our business. We know our customers want expert advice, a funding provider that really understands their business and someone at the end of the phone to help whenever needed. We aim to provide all these with dedicated local teams of finance experts and tailored products that support customers with their present and future business aspirations.

In a world where many business transactions are done using technology alone, we still value face to face customer contact. Many other finance providers have made cutbacks in this area or are solely internet based, but we offer support in whichever way suits the customer best, whether over the phone, face to face or just online.

How do you feel about competition in the market?

The market is now seeing a new breed of small companies which are agile and aggressive, and without legacy systems or processes holding them back, they are innovating and changing the marketplace. This will inevitably create further competition as finance providers rush to provide these SMEs with funding that will fit their needs.

This gives customers greater choice, which can only be a good thing. Competition is healthy for the marketplace and for businesses, so we very much welcome it.

What role if any does Corporate Social Responsibility play at Bibby?

CSR is a very important part of Bibby Financial Services and our parent company Bibby Line Group. Bibby Line Group has a “Giving Something Back” programme which sees the Group’s employees collectively raise money each year for charities worldwide.

Since its creation, the Bibby Line Group’s Giving Something Back scheme has raised more than £6.9million for a range of charities and in 2013, we contributed to more than £1.3million to 235 employee chosen charities. This year our teams will take part in fund raising events including a community build in Nepal and treks of Ben Nevis and The Great Wall of China.

I am an active supporter of several social and charitable organisations and hold an active role in the UK’s Prince’s Trust, as a member of its Midlands Leadership Board, together with providing business mentoring to aspiring entrepreneurs.

Interviews

Front line strategies for responding to the COVID-19 crisis: Experiences from legal team leaders around the world

Front line strategies for responding to the COVID-19 crisis: Experiences from legal team leaders around the world 1

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.

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Interviews

How mortgage regulations are changing globally

How mortgage regulations are changing globally 2

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:

  1. 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.
  2. A payment holiday should be offered to anyone that indicates that they are or may be in difficulty making their mortgage payments.
  3. No fee or charges can be applied to any request.
  4. 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.
  5. 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.

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Interviews

Delivering Innovative Wealth Management Solutions

Odetta Morton

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?

Thank you.

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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