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SEPA: Banks’ failure to act now could prove critical

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Banks awaiting the resolution of the Eurozone crisis or SEPA end-date regulation before putting in place their SEPA migration strategy may find that it is too late, says Marion Kleiss, Senior Product Manager, Financial Institutions, Commerzbank.  Certainly, those banks which fail to take action now face new market entrants eating into their payments market share.kleiss marion

There is reluctance among the European banking industry to make efforts to become ready to process standardised European payments prior to the issuance of the Single Euro Payments Area (SEPA) End Date regulation, which promises to outline a precise deadline for migrating domestic payments instruments on to SEPA standards. The hesitancy is highlighted by migration rates, which two years into the project are 20.5% for SEPA Credit Transfers (SCTs) and a very low 0.1% for SEPA Direct Debits (SDDs).

But by focusing solely on SEPA deadlines, financial institutions are looking at the narrow picture. Undoubtedly, SEPA will reshape the market forcing all participants to re-establish their market position. Many banks are therefore failing to acknowledge the opportunity in the creation of new rules and business models brought about by SEPA.

Elsewhere, the volatility and uncertainty in the Eurozone has added to the lack of urgency among financial institutions to migrate over to SEPA payments, with many focusing attentions on their balance sheets rather than on the breadth of their payments offering. The theory that the SEPA vision will not take shape, stemming from concerns over the future viability of the Eurozone, is gravely misplaced, however. Institutions must take note that the advancement towards standardised payments will continue unaffected by the ‘financial crisis’. Therefore, banks awaiting developments in the Eurozone are risking their long-term futures.
Inevitably, SEPA migration will entail necessary costs, including administrative expenses, training of staff, and heavy investment in technology with the ability to support SEPA payment instruments. Understandably, some banks may be unable, or perhaps unwilling, to assume these considerable expenses. In these cases, it is imperative that in order to remain competitive, they find a suitable global banking partner which possesses the technological expertise and SEPA know-how to assist them in devising strategies and deploying payments solutions.

Need for a proactive approach
The opportunities afforded by SEPA are numerous – enabling banks to increase efficiency, lower operational costs and improve quality, value and breadth of services offered to the market. Further to this, SEPA offers them the opportunity to consolidate many payment systems, simplifying the number of processes and resources involved.
Yet, many banks have adopted a reactive approach to SEPA migration and run the risk of finding themselves increasingly isolated in a competitive market.  Certainly, businesses with international operations – or aspirations of transnational expansion – are likely to become increasingly disillusioned if their bank is unable to provide efficient SEPA payment support. In this situation, banks face two choices: attempt to make up lost ground by hastily implementing SEPA systems (which will incur considerable costs) or face losing business to more forward-looking competitors. Either way, their reputation is likely to be inextricably tarnished.
Given this danger, a strategic approach is needed. It is essential banks realise that once the end-date has been set, there will only be a short period to become SEPA-ready, with no extension provided. For institutions ignoring the issue and failing to act now, the chance to grasp the opportunities afforded by SEPA may already have passed. For instance, if the end-date were to be confirmed as February 2014 (which seems likely), each financial institution would have a transition phase of just 24 months to handle all payments in the SEPA format.
Banks must be proactive and take steps to educate and inform their corporate clients in regards to SEPA payments.  They must ensure their clients understand how they can centralise direct debit processing and drive improvements and efficiencies in their treasury and cash management operations, for instance.

Not just the usual suspects
Banks who fail to view SEPA as more than a compliance exercise are vulnerable to the ambitions of competitors. It is noteworthy that competition no longer presents itself solely in the form of banking institutions. The lowering of barriers under SEPA encourages non-bank payments institutions to enter the market, and it is these that may pose the greater threat.
Crucially, these innovative and consumer-focused non-bank institutions will be attracted towards the high-value, high margin SEPA revenue streams. This will mean banks that are unprepared for such fierce competition will have to operate in the least profitable areas of SEPA such as compliance and settlement. Essentially, banks must regard SEPA as a strategic concern, rather than just a regulatory exercise.

Choosing the right banking partner
Choosing a banking partner with the expertise to advise on wider SEPA strategy and adoption is vital considering the complexities of becoming SEPA-ready. Some banks may opt to acquire their own proprietary systems to process payments in-house. However, outsourcing SEPA migration to the right bank with the technological capabilities to offer efficient SEPA credit transfer and direct debit services can minimise costs and risks. Naturally, this would also remove the burden of ongoing system maintenance to comply with SEPA upgrades.
Leading global banks such as Commerzbank have the expertise and experience to advise on the most appropriate SEPA strategy for an institution. They have the capacity to manage the migration and subsequent operation of SEPA payments in a highly efficient manner, which importantly is transparent to clients. Yet there is only a limited amount of resources afforded by such global banks to help smaller financial institutions migrate their payments processing on to SEPA standards. Banks that delay therefore leave themselves at a significant disadvantage. And given the long list of institutions willing to step into their shoes, this lethargy could be detrimental to their future success.

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Seven lessons from 2020

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Seven lessons from 2020 1

Rebeca Ehrnrooth, Equilibrium Capital and CEMS Alumni Association President

 

Attending a New Year’s luncheon on 31 December 2019, we played a game that involved predicting the world in 2020. Some of the questions included: would Uber become profitable? Would the three-decade bond rally finally come to an end? Would the US hit a recession?

Unlike any of our predictions based on a traditional approach to business and predicting, we now know that 2020 became the year where business, professional and personal plans were turned upside down, reshaped and put-on hold. The proverbial black swan had arrived.

As revealed in a new CEMS Guide to Leadership in a Post-COVID-19 World, to which I contributed, the COVID-19 pandemic has exposed deficiencies in the 20th Century vision of leadership, giving a rare opportunity to question the status quo.

So, what are the main lessons from 2020?

  1. Humans are enormously adaptive.  This is not an extinction scenario. The world is getting used to dealing with global human disaster which may become a recurring event. Life continues guided by new parameters.

  1. No sector or country is immune to rapid change. Just as the leveraged finance and equity markets ground to a halt during the Global Financial Crisis, we have seen a disruption in the financial markets (including M&A) in 2020, including a significant redistribution of wealth between sectors; think tech vs airlines and the hospitality industry. When a market is disrupted it has secondary and tertiary effects such as less work for accountants, lawyers, financiers etc.

 

  1. Location is not as important anymore. The belief that finance staff need to be based in one of the financial capitals to be effective has been forever altered. Pursuing a career in finance from anywhere is becoming possible. However, it’s likely that over time, financial controls and human interaction will move the work model back towards the traditional office approach, as work is a critical sanctuary for people. While working from home may allow more time for family, chores and sports, it is mainly effective for people who already have their internal and external networks. For junior employees it presents a notable challenge as they may be forced to spend their formative years without a chance to really build their networks.

 

  1. Change is likely to be lasting. The opportunity for alternative finance and tech focused providers is enormous and 2020 will accelerate this shift. For example, many retail banks are providing rather poor customer service, blaming the pandemic. Even the most loyal customers will be heading elsewhere. For recent graduates and current students this is a major shift; future winners and key employers may not be names we are used to seeing in the headlines.

 

  1. There will be a spotlight on leaders with visionary strategy and understanding of the operations. 2020 showed many politicians and business leaders behaving like they were playing a game of snakes and ladders, rather than executing a thought-out strategy. The next wave of thoughtful leadership is urgently required.

 

  1. Collaboration leads to success. The definition of a pandemic is an infectious disease prevalent worldwide. A global problem requires a collaborative solution rather than each country and industry on their own. Quoting Steven Riley, professor of infectious disease dynamics at Imperial College London: “Once you have the knowledge and you share the knowledge, then you are able to take measures to push transmission much lower”. This principle is transferable to management education. In a world more complex than ever, investing in a degree is hard currency. Combined with the full global alumni network, corporate partners and schools, CEMS is capital that doesn’t depreciate.

  1. Resilience has become a watch word. Saint-Exupéry’s quote resonates with me: “If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” We are in a new paradigm – so prepare for the next change. For COVID-19, while we hope that the vaccine will soon upon us, the broader long-term positive challenge remains.
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Data after Brexit: How does the end of the transition affect GDPR?

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UK's Post Brexit productivity puzzle

By John Flynn, Principal Security Consultant at Conosco

The UK has officially left the European Union now that the transition period has ended on January 1st 2021. But this could raise issues with one of the biggest bugbears for many companies – the international transfer of personal data.

Businesses can relax, somewhat – GDPR, which took businesses months to get their heads around, is not being replaced. It will continue as the UK GDPR 2018, and will still be based on the criteria of the Data Protection Act of 2018. However, the UK will retain the right to change the UK GDPR as it sees fit in the future.

The main changes apply to those who receive data coming into the UK from Europe. Transfers from the UK to other countries can continue under existing arrangements.

We know it can be difficult to cut through the legal jargon, so we have simplified what you need to know to protect yourself and your data:

1 – Update your privacy notice

Most businesses do not have the correct clauses in place ahead of January 1st, potentially exposing their liability, should something happen to their data. All company privacy notices online will need to be updated to specifically state ‘UK GDPR’, as opposed to ‘EU GDPR’. You will also need standard contractual clauses in place, which cover both parties – those transferring and those receiving the data.

 The Information Commissioner’s Office (ICO) has a list of what needs to be included in the standard contractual clause here. The ICO will remain the UK regulator for data protection, regularly liaising with each EU member state.

This also applies to Multi Corporate Groups who operate in multiple countries, who need to update their documentation and privacy notice to expressly cover the data transfers.  The UK has applied for an adequacy assessment, which would negate the need for contractual clauses, however this has not yet been approved by the EU.

2 – Data privacy assessments

Any company which runs applications and software should always perform a Data Privacy Impact Assessment. This was also in the guidelines before, but these assessments are now more important for those who outsource their IT operations internationally.

For example, when using a service such as a cloud-based system, the company must be sure that its service provider adheres to UK GDPR and stores the data within the European Economic Area (EEA), or has a binding corporate agreement with the company, where data is stored outside of the EEA. You should also, as mentioned above, make sure that a contractual clause is in place.

3 – Review local legislation

Contracts should now have contractual clauses that specify the responsibilities of the data controller and the data processor. If you are receiving personal data from a country territory or sector covered by a European Commission adequacy decision, the sender of the data will need to consider how to comply with its local laws on international transfers. You should check local legislation and guidance in this case.

4 – Cyber Security health check

The ICO is increasing its capacity and efforts to crack down on data breaches, post-Brexit. Now is a great time for all companies to have a health check to understand their Information Security posture and GDPR compliance. Nobody wants to be caught handling data improperly and fined when it could have been prevented with education and training.

A gap analysis performed by an expert is money well-spent. It’s also a fact that companies that have cybersecurity and Information Security controls are not only able to better defend against attacks but are also far better placed to recover from an attack.

Looking forward

It’s important that all businesses – large and small – are properly preparing their data storage and transferring for the 1st January. ICO has been busy setting examples by fining large, high-profile companies for failing to keep millions of customers’ personal data safe.

It will continue to come down hard on the data breaches of personal identifiable information and special categories of data. The saying ‘prevention is better than a cure’ rings truer than ever this year, and you will thank yourself if you make the efforts to properly store your data now, and not when it’s too late.

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2020 reflections and 2021 outlook

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2020 reflections and 2021 outlook 2

By John Hunter, Head of Banking and Fiduciaries, Finance Isle of Man

Reflections on the most surreal year

The Covid-19 pandemic has completely changed the world as we knew it, resulting in catastrophic loss of life and fears of a downturn hang over global economies like a sword of Damocles. In the UK, the new strain has further exacerbated the situation. As I am sure many have already said we are living in what could be called the most surreal times. People have been trying to cope with this “new normal”, by changing their lifestyles and evolving behaviours.

The Isle of Man responded swiftly to the pandemic by closing its borders and enforcing social restrictions which everyone respected and adhered to. Socially and culturally the Island demonstrated all the good things that come from living on a relatively small Island where community still means so much.

The Isle of Man’s financial services sector adapted quickly, seamlessly transitioning to working from home. The banks too adopted flexible remote working practices and continued to support clients around the world helping them navigate the challenging situation and making the most of any opportunities that arose.

Although there is no substitute for face-to-face interactions, we all embraced web-conferencing platforms like Microsoft Teams and Zoom to stay connected with contacts around the world and build and nurture business relationships, whether it was with financial services firms or high net worth individuals looking to relocate to the Island.

Furthermore, a priority for the Isle of Man has been to reinvigorate the business and cultural ties with South Africa. In a normal world, we would have travelled to the country, held in-person meetings with businesses and industry representatives and talked about building on our wonderful historic ties. However, because of the scale and breadth of disruption we had to change all our plans! We hosted a virtual roadshow which comprised a series of webinars exploring why it has never been more important for South African businesses and individuals to choose the right jurisdiction for long term financial planning.

Looking ahead to the future

We are all hoping that the global rollout of vaccines will provide the pathway to some form of return to normality and all the things people are missing will be back. Like amidst all periods of immense turmoil, interesting, new possibilities have emerged such as the revolution in work culture and a renewed importance of being close to nature and green spaces is. And these possibilities can help reshape society for the better.

The global economic recovery and rebuild might seem further away in the current environment especially amidst the new lockdowns. But we are confident in the resilience of economies and are hopeful that different industrial sectors and governments working together would result in green shoots.

The financial services industry has an important role to play in getting the world economy back on its feet. It is a core component of the solution to continue facilitating the financing of corporates, as well as to develop sustainable finance and nurture digital technologies which have proven to be vital during the pandemic. The sector should continue its cooperation and collaboration with governments and regulators to ensure efficient capital flows and financial stability for businesses and individuals.

Banks too have a crucial role to play as they are instrumental to the effective transmission of monetary policies and stimulus packages. As mentioned in a report by EY: “Financial insecurity in the wake of COVID-19 will require banks to boost consumer confidence and help build a more resilient working world.”

We expect the Isle of Man’s financial services sector and banks to continue navigating the situation with resilience as they have been doing thus far and contributing to the global recovery process. Also, we truly hope this will be our busiest year ever (subject to our ability to travel), with an extensive global schedule of planned activity to promote the Island as an international financial centre of excellence and innovation. Personally, I had planned to be in South Africa for the British & Irish Lions tour, but regrettably, it might not take place and as such we will look forward to catching up with friends there as and when we can.

Conclusion

No doubt, there are significant challenges for the world ahead but as Albert Einstein said: “in the midst of every crisis lies great opportunity”. And it is this opportunity that we all need to work together to identify and make the most of. We are confident that in 2021 the Isle of Man will continue to support financial services businesses help their clients, employees, and the wider society through these surreal times. We are all in this together.

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