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WHAT IS YOUR FUTURE IN BANKING? ASK LLOYDS, BARCLAYS OR RBS

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Maite-Baron

With the ground still shifting, those who choose to remain in the banking sector are going to require a good sense of balance.

By Maite Barón, CEO, The Corporate Escape

No sector of the economy can resist change forever, and any immunity that used to come with size is long gone.

Maite Barón, CEO, The Corporate Escape™

Maite Barón, CEO, The Corporate Escape™

The downturn we have just experienced has led to a substantial restructuring of the banking and finance sector, as corporate organisations have sought ways to ‘rebalance’ their investment in resources and personnel. Inevitably, one of the headline consequences is the wholesale loss of banking jobs. According to Switzerland-based global financial union UNI Finance, this adds up to 193,000 fewer jobs over the last two years in the 26 countries where it has a presence.

And these figures pre-date Lloyds’ and Barclays’ announcements of further job losses. Part state-owned Lloyds said last Tuesday that it will be cutting around 1,000 jobs as it pushes on with its three-year cost-cutting plan. Meanwhile, Barclays is set to cut 1,800 investment banking jobs, most of them expected to be at managing director level. And don’t forget Royal Bank of Scotland, which is planning to shrink its investment banking and international operations still further, including shedding up to 30,000 jobs.

What has happened since 2007/8 could be likened to an earthquake – pressure building up on a point of geological weakness, which is able to withstand the pressure for only so long before succumbing with a dramatic and sudden shift in the structural plates.

But, in fact, much smaller, incremental changes happen on a daily basis. Large businesses, given their size, often choose to ignore these, since constantly trying to adjust would be time-consuming, costly, and would create fundamental instability as the organisation sought to adapt.

And in any event, as a result of innate conservatism, the natural reaction is to put off making changes, however necessary they may be, for as long as possible. Sometimes for too long.

The blame for the recent failure of Lloyds’ ATM infrastructure was placed squarely on the shoulders of out of date or inadequate computer systems that have failed to keep up with the demands of an increasingly cashless society – a shifting undercurrent that either went unnoticed, or has been ignored.

That’s just one example. What other underlying trends are flying beneath the radar, but are likely to be instrumental in driving transformation?

The recent simplification of the bank account switching process is simply oiling the wheels of change for those upset and unsettled by breakdowns in service such as widespread ATM and website malfunctions. That alone could be the catalyst for sudden, large scale customer migration, leaving even the biggest names vulnerable and exposed. Add in concerns about out and out dishonesty, lack of support for small business, excessive pay and ethical opacity, and it’s little wonder there is growing momentum for switching to less mainstream, more transparent, accountable and customer-focused banking.

Even before that, changes in banking habits had already led to losses like the 1,700 jobs cut by Barclays as a consequence of the rise in online banking, meaning fewer customer-facing staff are required at branch level.

Clearly, large scale job losses are being driven by new technology and the rise of ‘big data’ – the wealth of digitised information now available for analysis. One 2013 Oxford University study suggests that 47% of today’s jobs could become automated over the next two decades, including those in the finance and legal arenas – echoing the ‘technological unemployment’ that doyen of economists John Maynard Keynes talked of in the 1930s.

That said, while making people redundant is one consequence of sector downsizing, the other size of the coin is that banks, along with other corporate organisations, may find it increasingly difficult to recruit high-quality employees in the first place. While graduates in decades gone by may have been lured through the doors by the promise of high salaries, big pensions, and career opportunities, these benefits have been eroded to the point where the corporate world is far less attractive than it once was.

Not surprisingly, many ‘bright young things’ are heading for more dynamic and exciting businesses that are more in keeping with the zeitgeist.

Inadvertently perhaps, banks and other large organisations may also have empowered workers to move on, should they choose. One of the simplest and most effective ways for large enterprises to make themselves more flexible – leaner and meaner – is to hire freelance staff on a contract basis. Great for easing the payroll burden in hard times, but a two-edge sword that makes it easier for ‘employees’ to walk away. No pension? No strings.

For some, that means moving to another job, but for a growing number it means going in a new direction entirely, either to provide high-level consulting services using their knowledge and expertise, or to set up in business for themselves.

So that same low cost technology that’s leading to job losses is also creating previously unknown markets, where local businesses are now able to operate globally. So who can blame those with talent for increasingly turning their back on traditional employment and deciding to take their chances on going it alone?

Above all, working for yourself gives you the one thing that has been palpably lacking in the banking and finance sectors over the last few years, and that’s security – when you work for yourself, it’s you who holds your destiny in your hands, not someone else.

And with the British economy surging forward, with a predicted growth rate for 2014 of 2.4%, there may be many more looking to grab their piece of the entrepreneurial pie.

These and similar unsuspected undercurrents are constantly reshaping every business and its marketplace, ensuring that uncertainty is the only truth we can bank on.

At The Corporate Escape, preparing professionals for success in a future world of work is our passion. You can start to retake control of your career by downloading our free guide – ‘7.5 Strategies to Thrive in Your Career or Business’. And for more valuable resources on how to break free and find independence outside the corporate world as a business owner, go to TheCorporateEscape.com.

Banking

AML and the FINCEN files: Do banks have the tools to do enough?

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AML and the FINCEN files: Do banks have the tools to do enough? 1

By Gudmundur Kristjansson, CEO of Lucinity and former compliance technology officer

Says AML systems are outdated and compliance teams need better controls and oversight

The FinCEN files have shown that it’s time for a change in AML. We must take a completely new approach in order to catch up with the speed of innovation in financial crime.

Despite what you’ll read in news headlines, we can’t lay all of the blame for anti-money laundering failures at the doors of the banks. The majority of compliance teams are doing what they can, and what they are being asked to do.

Historically, AML has, in large part been a box-checking exercise. Banks have weaved through mountains of false alerts, investigated cases, sent SARs, and then got on with business as usual. In some jurisdictions, banks can‘t even interfere with customers under investigation, in fear of jeopardizing cases.

But the sentiment towards banks’ responsibility in AML is changing. They are increasingly looking at AML as a corporate social responsibility issue and even a competitive advantage. Banks are looking to protect their brands from the horrors of an AML scandal, and as such are taking a more proactive approach.

They are also throwing a lot of money at the problem. Deutsche Bank claims to have invested close to $1 billion in improved AML procedures and increased its anti-financial crime teams to over 1,500 people. Most big-brand banks have a similar story to tell.

With reputation on the line, better AML controls can become good business.

So where does the problem lie?

From the thousands of SARs discovered in the FinCEN files, lack of customer oversight is evident. Banks need to establish a method of knowing their customers through their actions across the organization and beyond the organizational walls. By doing so, banks can better understand AML and compliance risk, which gives them the necessary tools to bar customers from doing business or limiting their activity.

While banks are striving to better enforce regulations by pouring money and resources into CDD and transaction monitoring, forming this type of intelligent customer overview might be the real solution. Proper Customer Due Diligence and customer risk monitoring can only be achieved by continuously tracking customer behaviour and transactional networks. With the latest developments in Artificial Intelligence – that is now possible.

But, the reality for compliance teams is they are hindered by outdated technology in their risk assessment and transaction monitoring systems and because of this, banks are fighting a steep, uphill battle against serious organised crime.

In 2019, the Bank of England issued a statement that claimed: “existing (money laundering) risks may be amplified if governance controls do not keep pace with current advancements in technological innovation.”

I know from my time working as a senior compliance technology officer that many traditional AML systems are inefficient, slow and labour intensive, and often lead to inaccurate outcomes. In fact, most of the systems pre-date the iPhone, so they are using last-generation technology and techniques to detect criminal activity.

In short, legacy AML systems are not fit-for-purpose. Legacy vendors built them for the box-checking world of the past, and they are focused on one suspicious transaction at a time – rather than looking at ‘bad actors’ in the financial system, and patterns in their behaviour.

As launderers constantly evolve their techniques to circumvent rule-based or simple statistical detection, the AML systems market has not kept up. There is a dire need for innovation.

Unless systems are updated, banks can continue to file suspicious activity reports (SAR), but if bad actors can conduct their business ‘as usual’ and shuffle money around the globe to hide its malicious origin, the effectiveness of a SAR is significantly diminished.

What’s the solution?

I believe we need to rethink our entire approach to AML. We need to empower compliance departments with better controls and oversight, and move away from outdated, traditionally rule-based systems and towards a modern, AI-enabled, behavioural approach.

While the bad guys have learnt how to evade rule-based systems, they find it extremely difficult to get around AI algorithms that search for anomalies in behaviour. The advancement of AI algorithms, especially in the field of deep learning, provide an opportunity for banks to detect more complex and evasive money laundering networks.

So the answer is to establish continuous automated risk monitoring and implement a workflow system that provides money laundering risk scores for customers.

The latest AI software could kickstart a new age of customer AML risk-based overview. Instead of relying on static and self-reported KYC data, AI systems can analyse behaviour over a period of time and compare it with peer-groups and past actions. It provides compliance teams with a continuous risk-rating of their customers, actor insights and summaries to facilitate efficient and thorough investigations, and an organizational-wide overview.

Recent advancements in AI have not only made the above possible, but also practical. Our latest Human AI models contextualize and explain the appropriate data, making it easier for banks to spot sophisticated crime.

By looking at AML not simply as a box-ticking exercise, but as a competitive advantage that can increase customers’ trust in their financial institutions, banks have a lot to gain. Moving towards behaviour-based AML systems is a move towards making money good.

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Banking

Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild

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Local authorities and business networks play a key role in small business success, and must be protected during COVID rebuild 2
  • 23% of UK’s top performing businesses have been supported by local enterprise partnerships and growth hubs
  • Similarly, 30% of Britain’s strongest businesses have obtained external finance in the last 3 years
  • New findings come as part of an independent, holistic study into small business success, commissioned by Allica Bank to support British businesses

A new study, commissioned by business bank, Allica Bank, shows that a high level of engagement and interaction with external institutions and resources, is central to SMEs’ prospects of success.

The study analysed data from over 1,000 companies and ranked their success on a scale that evaluated factors including productivity, growth, consistency and outlook. To measure SMEs’ external engagement, survey respondents were asked whether or not they had engaged with local enterprise partnerships, growth hubs, or external financial advisers, as well as whether they had obtained credit or sought re-financing advice, in the last three years.

The benefit to small businesses in making the most of external resources are clear to see, with a quarter (23%) of the UK’s top performing SMEs – those in the top tenth percentile – actively engaging their local enterprise partnership or growth hub in the last three years. This compares to just 16% of all other small businesses. With such a clear benefit to businesses, these external networks must not only be protected but prioritised by any Government plans to rebuild the economy post-COVID.

Similarly, of the top performing SMEs in the country, 30% have obtained external credit in the past three years, compared to less than a quarter (24%) of all other businesses. This figure drops even further for the weakest performing businesses – those in the ninetieth percentile – where just 12% of businesses have obtained external financial support in recent years.

Chris Weller, Chief Commercial Officer, Allica Bank, said:

“At Allica Bank we understand that no two businesses are the same. We also know that no-one knows a business as well as its owners and managers. But they can’t be expected to be experts on everything.

“In the UK there is a wealth of external advice and support for small businesses and we urge each and every business out there to tap in to the external resources around them. Third-parties, such as business clubs, chambers of commerce, local enterprise partnerships and trade bodies, can be invaluable sources of advice and further resources. And although they have excelled in their given field, business owners may still lack knowledge in many other areas of running and growing a business. Therefore, engaging with third parties can give business owners the kinds of insight – and fresh perspectives – they need to succeed.

“As the economy and the country comes to terms with the impact of the COVID-19 pandemic, it is important these vital SME resources are protected and given the funding they need to continue providing invaluable insight and support to small businesses up and down the country.”

Allica Bank’s SME Guide to Success identified six ‘rules to success’ that were more likely to be displayed by top-performing SMEs compared to their counterparts. The full report contains a wealth of additional data and insight into each of these topics.

As part of its mission to empower small businesses, Allica Bank is making the findings freely available and running a series of free online workshops with relevant partner organisations for businesses to attend.

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Banking

Do we really need banks? Yes, but digital transformation industry-wide is vital

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Do we really need banks? Yes, but digital transformation industry-wide is vital 3

By Charley Cooper is Managing Director at enterprise blockchain firm, R3

The Coronavirus crisis has taught us that we are capable of going digital quickly when we need to. As the banking sector faces a second wave, the ability for individual firms to grow and succeed will be reliant on better connectivity and efficiency at the industry-level, writes R3’s Charley Cooper.

The sudden and dramatic pace of change has been seen globally over the last six months. Decades of paper-based practices are being updated, digitised and overhauled as the whole word adapts to working online. As of today, countries are accepting “alternative arrangements” for original paper export certificates, New York is allowing notary services by video, and global banks are accepting “original” documents and acceptances by email.

Over the coming months, we will see this digital transformation extend from individual use cases and firm-level deployment to entire industries. And perhaps in no other industry is this more critical than in financial services, where the role of banks continues to be challenged because of the inefficiencies they face as a result of decades of siloed technology deployment.

While unquestionably an improvement over reliance on manual processes, regular “digital transformation” as implemented by a single bank has limited benefits. These typically include greater automation of business processes, acceleration in adoption of electronic channels, elimination of manual processes, standardisation of non-value-adding business practices and a focus on driving up data quality and speed of information flows.

Now consider achieving digital transformation at the level of the entire market, rather than on a bank-by-bank basis. Whilst a digital transformation project for a single bank might automate a business process between a front and back office, a digital industry transformation project might optimise the trading and settlement of the asset between buyer and seller and their custodians too.

Of course, such things have been attempted before. But there have been many failures and the successes are notable by how they have resulted in new dominant centralised providers – for example for market data, messaging or settlement. The advent of blockchain architectures showed us there was a new way to tackle the problem, one that worked with the grain of existing markets.

Done right, the prize is a huge “productivity dividend” as entire markets are unshackled from their analogue histories.

Tackling interbank reconciliation at the industry level

The Italian financial services industry provides a pertinent use case of digital industry transformation. 32 banks in Italy went live in March with one of the first real-world deployments of enterprise blockchain technology in interbank financial markets. 23 more banks went live in May, with further institutions scheduled to go live this autumn. Built by the Italian Banking Association, ABI, the Spunta Banca DLT app on R3’s Corda Enterprise platform tackles the market-wide issue of interbank reconciliation.

The traditional reconciliation process for interbank transactions in Italy—formerly governed by the “spunta” process— is notoriously complex. Resolving mismatches in transactions is a labour-intensive process, hampered by a lack of standardisation, fragmented communication and no “single version of the truth.” The Spunta Banca DLT app automates the reconciliation process and enables banks to pinpoint mismatches in interbank transactions quickly by sharing common data in a secure way.

Connecting such a large and diverse group of banks in a live environment to tackle a shared problem is a major milestone for digital transformation in the Italian banking sector, providing a glimpse into a brighter, more efficient and interconnected future for all financial markets.

Changing mindset

The current crisis has accelerated the launch of digital technology for many use cases across a diverse range of sectors, but those that stand the test of time will be developed with an industry-level mindset, not firm-level.

It is now clear that the age of inter-bank optimisation is over – the path forward from this crisis will be paved by software that focuses on adding real value for entire markets, connecting banks to overcome the biggest challenges they share as an industry.

Banks must adapt and start thinking about technology in new and innovative ways if they are to retain their critical role in the global economy.

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