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To maximise agility, financial organisations must free themselves to proactively divest

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To maximise agility, financial organisations must free themselves to proactively divest

Steven Boyle, CEO of Integrated Cloud Group, discusses

For financial organisations looking to optimise processes and ensure they are as agile as possible, proactive divestment could be their next and best step towards enhanced performance and growth.

It’s a vital, but too often overlooked, component of effectively managing a bank’s IT assets.

Steven Boyle

Steven Boyle

However, the nature of a bank’s divestment strategy is fast being regarded as a litmus test of its ability to meet the fresh demands of a rapidly-changing marketplace.

A bank’s willingness to embrace the need to divest itself of obsolete paraphernalia could be the difference between enhanced performance and growth and a state of paralysis.

Too many in the sector continue to deploy a reactive divestment strategy when it comes to their infrastructure, only doing so when absolutely necessary – but such an indolent approach only hampers long-term goals.

Retail banks’ historic reluctance to divest rests on an unsustainable belief. This holds that whilst fresh investment is considered a positive action, divestment is an admission of weakness. This is simply wrong.

Indeed, postponing divestment until the point at which your organisation is overtly failing guarantees risks being seen as a panic measure rather than as the dynamic cornerstone of an organised stratagem.

The recent financial crisis provided a robust example of divestment proving to be a highly effective tool and those who escaped the worst of it were those who acted in a decisive, pre-emptive manner.

The first act of the banks when the tsunami struck was to divest themselves of all their toxic debt so that they didn’t have the drag of liability. However, they only did so due to external pressure. If they had acted earlier when the red flags first began to appear they might have escaped the worst ravages of it.

So why is the finance sector so allergic to divestment? Part of it is human nature. Our hoarding and stockpiling recalls our earliest ancestors who were never certain what the new day might bring in an unpredictable, unstable world. Such ‘protectionism’ is continuing to have a pernicious effect on the modern banking community.

The situation has been further exacerbated by the low growth environment in which retail banks operate which has bred risk-averse cultures that tend to stifle innovative thinking. Lessons must be learnt.

Let me narrate ‘The Parable of Jack Ferguson.’ Jack is a young boy whose parents want him to deploy a divestment strategy in respect of his increasing mountain of toys.

There is an incentive. His birthday is imminent, and Jack will get new toys if he frees up space and gives his old ones to other children. Yet, despite good intentions and recognition of the need to divest, he insists on parting with just one solitary, broken toy. He cites strong emotional attachment and the quality – not the quantity – of the minutes in which he still plays with them, but he also risks them falling into disrepair and thus becoming of no use to anyone.

In the financial sector, Jack’s logic often reigns. A divestment ‘Spotlight on Europe’ study last year by EY found that 48% of European companies admit they hold on to assets for too long.

Banks will give you many persuasive arguments, even emotional ones, for rebuffing divestment. They cling to expensive data centres even when they are proven to no longer be fit for purpose or to be cost-effective.

In our rapidly digitising world, increasing duplication of platforms is creating a tech legacy drag for banks. Bigger banks are getting left behind because the performance capability of their infrastructure is being bled white. The constant cost and maintenance drain of ageing infrastructure stops them getting to market quickly enough.

In the race to the cloud, those financial organisations with no early divestment strategy will become prey to FinTech start-ups and challenger banks unencumbered by such sluggishness. These agile newcomers can steal a significant march because they don’t have costly data centres and dense hardware. Organisations that divest their IT assets proactively create substantially more shareholder value than those grimly holding onto old infrastructure.

Greater urgency and focus is required if the bigger banks are to level the playing field. A vital first step forward is to engage an external specialist with a proven track record. By doing so they are opening up to a degree of logical and pragmatic insight, freed from the baggage of old loyalties and embedded thinking. This can lead to a smooth transition whereby divestment becomes a routine part of ongoing strategy and IT portfolio assessment.

If banks opt to take that vital step, they can develop a strategy and delivery mechanism that will make them more pragmatic in their divestment approach. They will also be much more capable of taming and maximising disruptive technologies as they emerge.

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Current cryptocurrencies unlikely to last, Bank of England governor says

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Current cryptocurrencies unlikely to last, Bank of England governor says 1

By David Milliken

LONDON (Reuters) – No existing cryptocurrency has a structure that is likely to allow it to work as a means of payment over the long term, Bank of England Governor Andrew Bailey told an online forum hosted by the Davos-based World Economic Forum on Monday.

“Have we landed on what I would call the design, governance and arrangements for what I might call a lasting digital currency? No, I don’t think we’re there yet, honestly. I don’t think cryptocurrencies as originally formulated are it,” he said.

Bitcoin, the best-known cryptocurrency, hit a record high of $42,000 on Jan. 8 and sank as low as $28,800 last week, far greater volatility than is found with normal currencies.

“The whole question of people having assurance that their payments will be made in something with stable value … ultimately links bank to what we call fiat currency, which has a link to the state,” Bailey said.

The BoE, like the European Central Bank, is looking at the feasibility of issuing its own digital currency. This would allow people to make sterling electronic payments without involving banks, as is currently possible with banknotes, and would in theory help avoid the volatility that renders bitcoin impractical for commerce.

Bailey said the appropriate level of privacy for digital currencies was likely to be hotly debated and was potentially underrated as a challenge in setting one up.

“This is a big one that is coming on to the landscape, the whole question of a privacy standard for transactions made in any form of digital currency, and where the public interest lies,” he said.

(Reporting by David Milliken, editing by Tom Wilson and Alistair Smout)

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EU sustainable investment rules need better corporate data – banking report

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EU sustainable investment rules need better corporate data - banking report 2

By Simon Jessop and Kate Abnett

LONDON (Reuters) – European Union rules aimed at defining sustainable investments should help reduce “greenwashing” by businesses, but better quality corporate data is needed to ensure they work effectively, a banking report said on Tuesday.

The sustainable finance rules will classify investments that can be marketed as sustainable, a move aimed at steering much-needed cash into low-carbon projects to deliver the bloc’s climate goals.

From January to August 2020, 26 of the region’s biggest lenders tested the EU framework across a range of core banking processes, including retail banking, trade finance and lending to smaller companies.

As the main providers of finance to companies across the EU, the ability of the banking system to track and report on whether corporate activities are sustainable or not could prove crucial in assessing the rules’ success or otherwise.

The lenders broadly welcomed the regulations as they seek to align their businesses with the transition to a low-carbon economy, the report by the United Nations Environment Programme Finance Initiative and the European Banking Federation found.

However, they also raised a number of issues, many of which were data-related and could require a phasing in of reporting requirements.

While many large companies are already required to disclose certain environmental and social information by law, the bulk of smaller and mid-sized banking clients are not, hampering banks’ assessment of their alignment with the rules.

Concerns over the quality, detail and standardisation of data is also an issue when looking at banks’ lending overseas, something that would be made more complex as other regions launch their own regulations.

The banks who tested the EU rules called on regulators to seek global alignment of regulations, and for better tools to manage data from clients, such as a centralised EU database.

While under no compulsion to lend to activities that can be classed as sustainable, banks see sustainable finance as a growth area that is likely to take on more importance in coming years should policymakers tighten environmental legislation.

With more investors globally looking to become shareholders of companies with a good record on managing environmental risk, banks are also likely to look to reduce their exposure to environmentally or socially harmful activities over time.

The European Commission is expected to finish the section of the rules covering climate change in the coming months, before they take effect in 2022.

(Reporting by Simon Jessop and Kate Abnett; Editing by Pravin Char)

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Bitcoin, crypto inflows hit record last week – CoinShares

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Bitcoin, crypto inflows hit record last week - CoinShares 3

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – Investment flows into cryptocurrency funds and products hit a record $1.31 billion last week after a few weeks of small outflows, as investors took advantage of the decline in bitcoin and other digital asset prices, according to the latest data on Monday from asset manager CoinShares.

Total assets under management (AUM) in the industry slipped to $29.7 billion as of Jan. 22, from an all-time peak of $34.4 billion on Jan. 8. At the end of 2019, the total AUM was just $2 billion.

Grayscale, the world’s largest digital currency manager, posted assets under management of $24 billion last week, down from $28.2 billion on Jan. 8. CoinShares, the second largest crypto fund, managed assets of $2.9 billion in the latest week, also down from $3.4 billion on Jan. 8.

“We believe investors have been very price conscious this year due to the speed at which prices in bitcoin achieved new highs,” said James Butterfill, investment strategist, at CoinShares.

“The recent price weakness, prompted by recent comments from Secretary of the U.S. Treasury Janet Yellen and the unfounded concerns of a double spend, now look to have been a buying opportunity with inflows breaking all-time weekly inflows,” he added.

Bitcoin dropped to a low of $28,800 on Friday, after scaling an all-time peak of $42,000 on Jan.8. It was last down 0.5% at $32,124.

About 97% of inflows went to bitcoin, the data showed, with Ethereum, the second largest cryptocurrency, posting inflows of $34 million last week.

So far this year, volumes in bitcoin have been considerably higher, trading an average of $12.3 billion per day, compared to $2.2 billion in 2020.

Glassnode, which provides insight on blockchain data, said in a report on Monday that bitcoin’s net unrealized profit/loss (NUPL) was getting close to exceeding the “belief” range and moving into the “euphoria” range.

Previously, when NUPL entered this range, it signaled a global top in bitcoin’s price.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang)

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