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Times are a changing

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Times are a changing

By Mike Hampson, CEO, Bishopsgate Financial

Change is constant in finance but while the banking sector has always been subject to the ebb and flow of political and economic currents, it’s currently facing challenges of an unprecedented scale and number. These are impacting across sectors including retail, payments, corporate and investment banking.

Mike Hampson

Mike Hampson

Customer expectations (both on the business and consumer sides) are rising, technology evolution continues at pace, the ever-changing global risk landscape, increasing operational costs, and a constant stream of new and updated regulation. These, coupled with the rise of the challenger banks and the quest for a diverse workforce, are all creating pressure on change teams and budgets.

Modern consumers are used to the intuitive, seamless service delivered by the likes of Netflix, Amazon and Apple. And we expect to see a continued push to improve digital offerings and customer experience throughout 2020, as incumbents react to the challenge posed by digital-first banks. In some cases this has already begun, with several banks launching completely new brands, such as RBS’s ‘Bó’.

When privacy meets technology 

As the digital economy matures, there is a tsunami of regulation coming into force with 107 countries now enforcing digital privacy and security laws. And, the punitive damages that may result from a data breach are sharpening banks’ focus on the integrity of their technology and data management platforms.

There is also a profoundly political tension between the localisation of data and sharing it cross-border. As data privacy laws tighten, global technology providers and banks will have to learn to accommodate this tension. Governments will continue to regulate on behalf of their citizens, and global businesses need to find methods of staying the right side of the rules without compromising performance. However, despite banks’ best efforts, the potential for a major incident remains so high that it’s surely only a matter of time before we see a large fine or penalty for a major industry player.

The move by regulators to force businesses into taking greater responsibility over consumers’ data is simply a recognition of the fact there is now real value attached to it. Too much tech-innovation has focused on sleek, front-end functionality rather than the nuts and bolts of data protection – something financial firms are far from exempt from. Critical processes are still reliant on outdated, cumbersome systems, making them vulnerable to data breaches and harsh regulatory responses when things go wrong. Consequently, we expect to see a continuing focus on updating these systems, migrating to the cloud and the implementation of tougher security and data management procedures.

People 
It’s clear banking leaders have a lot on their plates and are urgently seeking to adapt their business models, technology platforms and strengthen their processes. But regulations and technological change aren’t the only things troubling the sector.

At the same time as banking undergoes a digital revolution, it’s also facing a global skills shortage. The skills needed for twenty-first century banking are very different to those of even twenty or thirty years ago. And, like many industries, banking is short on digital personnel such as data scientists and agile practitioners – posing problems when banks need a digital skills to complete their digital transformation projects.

To compound this, the tax situation for freelancers and contractors – who provide most of the digital skills banks need – in the UK looks set to change The introduction of IR35 (in April 2020) shifts financial liability for defining the employment status of a freelancer from the individual to the employer. With 6% of the UK financial services workforce a contractor, this impacts a significant number of people and couldn’t come at worse time.

Lastly, there has been a lot of media noise surrounding Robotic Process Automation (RPA) and associated robotics and AI augmentation and this isn’t going anywhere in 2020. However, for all that robots have captured the popular imagination, it will be some time before this technology enters the mainstream. So the much fretted over white collar job cull is unlikely happen in the next few years.

But that doesn’t mean RPA isn’t being used. Some banks are already using the technology for operational activities. A great example is, automating the collection and verification of customer data against databases for Know Your Customer Screening. This can reduce the processing time and also frees humans for more complex tasks and is proof of the way RPA is actually being used to augment rather than replace human jobs in most cases.

Climate

2019 was the year the world truly became conscious of climate change. By the end of the year, it had become

part of standard business conversations and even usually sober institutions such asthe Bank of England (BoE) began using words like “catastrophic” to describe the threat. The apex of this was outgoing Governor, Mark Carney warning that firms need to wake up to the climate crisis, or face a diminishment in the value of their assets.

The BoE also launched a “stress test” to find out which companies and sectors would be worst hit by climate change, with initial results to be published in late 2021. The public interventions from senior figures have been followed by over 30 global banks with USD 13 trillion of assets have signing up to a UN collective commitment to climate action – a clear commitment to helping customers move to a low-carbon economy.

Is this the moment banking got serious about climate change? It certainly appears so and we expect banks to begin assessing their entire business model and its impact on climate change in the year ahead.

As we stand on the brink of a new decade, 2020 promises to be a bellwether year for the financial sector. The changes banks and financial firms make in the next 12 months will set the tone for the ten years ahead.

How should banks react to the impending climate crisis? How will external shocks such as Brexit affect the economy? Will interest rates remain low? Will big tech and the challenger banks become serious competition for the established players? These are all questions that banks must wrestle within the year ahead.

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Tänak wins easily in the Arctic as Rovanperä grabs early title lead

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Tänak wins easily in the Arctic as Rovanperä grabs early title lead 1

Finn becomes youngest ever WRC leader with Belgian Neuville back in third.

Ott Tänak sealed a dominant start-to-finish victory at Arctic Rally Finland Powered by CapitalBox on Sunday afternoon.

The Estonian was never seriously challenged during the three-day encounter in Lapland’s frozen forests. He built a comfortable lead during the first two legs and eased through the finale to win the FIA World Rally Championship’s second round by 17.5sec.

Home hero Kalle Rovanperä fended off a charging Thierry Neuville to claim the best result of his career in second. At just 20 years old, he became the youngest driver to lead the WRC in the championship’s 49-year history. Neuville finished 2.3sec adrift in third.

Tänak won five of the 10 snow and ice speed tests in his Hyundai i20. Apart from a brush with a snowbank on Saturday, he avoided trouble on superfast roads near Rovaniemi to kick-start his title bid after retiring from the season-opener in Monte-Carlo.

“The pressure was there and we knew it was going to be very complicated to take the fight,” he said. “In the end we did a very good weekend, with only one mistake. It’s an amazing place, definitely one of the best places to have a winter rally.”

Rovanperä, starting just his ninth top-level rally, began the final day with a 1.8sec buffer to Neuville. He extended it by a tenth in the first of two passes through the 22.47km Aittajärvi test, before winning the final Wolf Power Stage to retain his grip on second.

The Toyota Yaris driver moved four points clear of Neuville at the top of the standings, relegating world champion Sébastien Ogier who had a disappointing weekend. The Frenchman finished 20th after burying his Yaris into a snow drift.

Neuville’s third place provided a double podium for Hyundai Motorsport, which reduced Toyota Gazoo Racing’s manufacturers’ championship lead to 11 points.

Craig Breen finished fourth in another i20 after a four-rally absence. Tyre management was crucial and the Irishman fell back on Saturday as he struggled for grip on deteriorating roads after ending the opening day in second. He was 52.6sec adrift of Tänak.

Breen kept Elfyn Evans at bay in the final test after the Welshman closed to within 3.6sec in the penultimate stage. The final gap between them was 8.9sec. Japan’s Takamoto Katsuta rounded off the top six in another Yaris.

Tributes were made on the podium to Finnish rally great Hannu Mikkola. The 1983 world champion and three-time runner-up died on Friday and the Finnish Air Force led the accolades with an F18 Hornet flypast.

The WRC moves to the asphalt Croatia Rally for round three, which is based in Zagreb on April 22-25.

Final positions

1. O Tänak / M Järveoja EST Hyundai i20 2hr 03min 49.6sec

2. K Rovanperä / J Halttunen FIN Toyota Yaris +17.5sec

3. T Neuville / M Wydaeghe BEL Hyundai i20 +19.8sec

4. C Breen / P Nagle IRL Hyundai i20 +52.6sec

5. E Evans / S Martin GBR Toyota Yaris +1min 01.5sec

6. T Katsuta / D Barritt JAP Toyota Yaris +1min 37.8sec

FIA World Rally Championship (after round 2 of 12)

1. K Rovanperä 39pts

2. T Neuville 35

3. S Ogier 31

4. E Evans 31

5. O Tänak 27

 

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Euro zone factories buzzing in February as demand soars

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Euro zone factories buzzing in February as demand soars 2

By Jonathan Cable

LONDON (Reuters) – Euro zone factory activity raced along in February thanks to soaring demand, a survey showed on Monday, although the burst of business led to a shortage of raw materials and a spike in input costs.

Restrictions imposed across the continent to try to quell the spread of the coronavirus have shuttered vast swathes of the bloc’s dominant services industry, meaning it has fallen to manufacturers to support the economy.

IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) jumped to a three-year high of 57.9 in February from January’s 54.8, ahead of the initial 57.7 “flash” estimate and one of the highest readings in the survey’s 20-year history.

An index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good guide to economic health, climbed to 57.6 from 54.6, well above the 50 mark separating growth from contraction.

“Manufacturing is appearing as an increasingly bright spot in the euro zone’s economy so far this year,” said Chris Williamson, chief business economist at IHS Markit.

“The solid manufacturing expansion is clearly helping to offset ongoing virus-related weakness in many consumer-facing sectors, alleviating the impact of recent lockdown measures in many countries and helping to limit the overall pace of economic contraction.”

A Reuters poll last month showed the bloc was in a double dip recession and that the economy would contract 0.8% this quarter after shrinking 6.9% in 2020 on an annual basis. [ECILT/EU]

Rocketing demand for manufactured goods pushed factories to increase staffing levels for the first time in nearly two years.

But lockdown measures disrupted supply chains and factories struggled to obtain raw materials, leading to a big increase in delivery times.

“The growth spurt has brought its own problems, however, with demand for inputs not yet being met by supply. Shipping delays and shortages of materials are being widely reported, and led to near-record supply chain delays,” Williamson said.

Those shortages allowed suppliers to hike their prices at the fastest rate in almost a decade. The input prices PMI bounced to 73.9 from 68.3.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)

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Strong exports lift German factory activity to three-year high in February – PMI

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Strong exports lift German factory activity to three-year high in February - PMI 3

BERLIN (Reuters) – Higher demand from China, the United States and Europe drove growth in German factory activity to its highest level in more than three years in February, brightening the outlook for Europe’s largest economy, a survey showed on Monday.

IHS Markit’s Final Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a fifth of the economy, jumped to 60.7 from 57.1 in January.

It was the highest reading since January 2018 and came in slightly better than the initial “flash” figure of 60.6.

Factories have been humming along during the pandemic on higher foreign demand, helping the German economy avoid a contraction in the last quarter of 2020 and offsetting a drop in consumer spending amid a partial lockdown to contain COVID-19.

Many manufacturers reported higher demand from Asia, especially China, as well as the United States and European countries, with export sales posting their biggest increase since December 2017, the survey showed.

Phil Smith, Principal Economist at IHS Markit, said supply chain pressures intensified as more firms reported delays than ever before in nearly 25 years of data collection.

“There looks to be further upward pressure on inflation in the German economy from supply bottlenecks and a subsequent surge in manufacturing input costs,” Smith noted.

The survey suggested that supply disruption is making it more difficult to replenish stocks, which could complicate production in the coming months, he cautioned.

“Nevertheless, the overriding sentiment for the longer-term outlook is optimism, with a record number of manufacturers expecting to see output rise over the next 12 months.”

Still, economists expect the economy to shrink in the first quarter of this year due to a stricter lockdown, which has shut most shops and services since mid-December, and freezing temperatures that slowed construction activity in February.

(Reporting by Michael Nienaber; Editing by Hugh Lawson)

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