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Unique on the European continent

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Could you give us an idea of KBL European Private Bankers’ [epb] strategy?
Since the 1980s, KBL epb has devoted its strategy to private banking and a pan-European onshore presence has been built up by putting the emphasis on well-known local private banking brands. Thanks to organic growth and successive acquisitions we have now become the only network in Europe to have private banking as its core business, a tradition going back 200 years.

With the backing of its network of pure-play private banks in Belgium, France, Germany, Luxembourg, Monaco, the Netherlands, Poland, Spain, Switzerland and the United Kingdom, KBL epb offers a response to the needs of a significant clientele across Europe which wants to entrust its wealth to a banker with an international reputation: specialised in wealth management; capable of offering made-to-measure solutions; using open architecture which allows efficient instruments from other financial players to be integrated easily; close to its clients and their culture and looking for a relationship where integrity, discretion and friendliness are favoured.

In addition to private banking, KBL epb has strengthened its investor services by basing itself on the name of the financial centre of Luxembourg which serves as a platform for the fund industry and the financial industry. We have also created synergies with private banking.

To sum up, we are committed partners. In Europe, the private bankers of KBL epb are trusted investors and trusted advisors who put the client at the heart of things. I would like to add that we are also trusted employers since our model is attractive for private bankers.

Your strategy is also based on a Hub which provides services for the whole group?
Yes, we have an operational and IT Hub which is centred on Luxembourg. The aim is to increase overall efficiency and limit risks. The platform takes care of executing transactions, custody and cash management. As a parent company, KBL epb also has central control units which extend across the group (audit, compliance, risk management).

And KBL’s expertise extends beyond private banking even though that remains your core business?
Yes, we are also active in the field of investment funds and the finance industry in general. The Grand Duchy of Luxembourg is the number one centre in Europe for the domiciliation of investment funds and the number two centre for this in the world. From this location in the heart of Europe KBL epb has developed top expertise in the creation, domiciliation and administration of undertakings for collective investment. This is in addition to our core activity as a private bank. A dedicated unit, Global Investor Services, promotes these services to our clients.

Our experts represent a well-known, solid financial institution, a pioneer on global financial markets in Luxembourg and give our institutional clients access to all the major markets as well as to our vast range of products and services, which we constantly adapt to their own specific needs. From a basket of stocks to a structured product or a fund,  KBL epb allows institutional investors to carry out their transactions easily online and in real time.  Our sales, execution and trading desks help investors get higher returns, develop new ideas and also simply limit risks by suggesting investment ideas. KBL epb offers immediate and direct access to all the major equity, bond, derivative, fund, precious metals and money markets.

Since KBL epb has a large network of sub-custodians it is in a position to offer custodian bank services to fit the needs of a varied client base such as banks, insurance companies, pension funds and external managers. Multilingual managers set up client accounts, implement operational flows and provide day-to-day assistance if there are difficulties.

What makes you stand out from your competitors in the field of private banking?
Our biggest added value is our staff. We stand out by the high quality of service that we guarantee our clients and also by the long-lasting partnerships that we create with them. We are not content just to manage our clients’ assets. The prime role of a private banker is to take a step back from what is going on now and to look at his clients’ portfolios in their entirety and over the long term.

Our private bankers will not try to impose a particular strategy or product on their clients in the global approach to their wealth. Whether it’s managing assets, structuring or passing on wealth or even optimising their tax situation, our clients will have the benefits of an open and independent service providing solutions – external ones if necessary – which will be thought out and structured around them in the long term.

To become our clients’ trusted advisor, we make the following undertaking: we will listen to their wishes and their needs, establish a long-term personal partnership, use clear and simple language and adopt a proactive aproach to management of their assets and wealth.

Why is the KBL epb model original?
The originality and attractiveness of the KBL  epb model lies in its organisation and management model. On the one hand the entrepreneurial spirit of local managers is favoured and each is allowed a great degree of latitude in commercial development. On the other hand, each entity can count on the solid support of the group through shared expertise and due to the range of services provided by KBL European Private Bankers in Luxembourg through the Hub Service Centre. The entities are freed from a whole series of operational tasks and can focus fully on their core business and objectives, providing a high quality service to clients within the framework of a mutually profitable relationship and privileged access to all products and services. This model favours the proximity and respect of cultures and identities within the framework of private client, institutional and professional services.

What plans do you have for the future?
We are aiming at selected and continued growth. KBL epb is solidly rooted in western Europe and intends to continue its development on the European markets where it is already present and also wants to explore new paths in the Middle East, Asia and South America.

Getting the boards back in control

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The board of directors are elected by the owners of a company to act on their behalf; and while taking care of their interests they are also bound by regulation aiming at policyholder protection. There are a number of different board decisions to be made, ranging from recruiting the executive team to setting the business strategy, from choosing a distributional channel to the branding of the company, from mandating the executives to challenging them.

The board work in its totality consists of a diversified portfolio of topics of which only a few are regulated. But there is indeed one area that receives high attention from both regulators and supervisors, and that is the area of risk appetite and risk management. From their perspective there is especially one question that needs to be addressed, and that is: How do you know that you can afford what you plan?

The missing link
In some elementary text books on insurance the pooling of risks in an insurance company is like setting up a betting game. But insurance is not about gambling, but rather about taking on risks in a controlled manner. Nevertheless the balance sheet is highly geared, and to protect policyholders regulators require capital. Capital to meet the bumps on the way stemming from heterogeneity in insurance risks, gains and losses in the investment arm, operational failures and so on.

Regardless of the business model chosen for an insurance company, it is pivotal to know and manage risks or potential risks. Asking executives or board of directors what is a prerequisite of running a successful insurance company, the answer will be: managing risks. Knowing your risks is not some optional business opportunity – it’s like an axiom for financial institutions. So how come politicians are now starting to regulate this area, and calling for a higher sense of capital responsibility at board level?

The financial crisis has exposed a gap that needs to be closed – and the solution has already been embedded in the Solvency II framework. This is the ORSA.

The ORSA, or Own Risk and Solvency Assessment, is a new feature in the Solvency II framework. Usually financial regulation is aimed at tasks or behaviour implemented in a bottom-up manner. In the Solvency II directive, the ORSA process is the only part that has a top-down viewing angle.

This is crucial for the thinking of the ORSA. The assessment is owned by the board and can only be carried out from the board of directors level. We are back to the question of managing risks. From a regulator’s perspective the board of directors receives the responsibility of capital from the owners, i.e. that the company will not take on more risks on the balance sheet than can be met with either capital or management intervention. And since taking on risks has a prospective orientation, sound risk management will imply that you are aware of what risks you are taking and will be prepared to navigate them.

Regulators have set the bar lower by specifying a risk-based capital regime in Solvency II with a 12 month horizon. More precisely, the board of directors has to ensure that the company can only become insolvent if a ‘one in 200 years’ event occurs. Unfortunately, it is the supervisors’ experience that the majority of boards consider capital regulation a simple compliance exercise. It is not the case that boards of directors do not understand that capital is needed; but often the linkage between the chosen business model, the risk appetite, the organisation and then the capital needed is not present.

Another observation is that it is often the case that boards cannot articulate the risk that the company is facing – the basis for proper management of risks. And without the ability to articulate risks the understanding, awareness and communication of risks with the executive team is then lost. It could then be guessed how comfortable the individual member of a board might be when signing off his or her responsibility of capital for the particular company.

The ORSA process step-by-step
With the introduction of the ORSA process in Solvency II, boards are required to identify risks that the company may be facing over the business planning period. It is about merging business strategy with capital management – and therefore the time horizon is more likely to be three or five years ahead, rather the regulatory 12 months. There is no expectation that the board will engage in detailed discussions on technical matters; nor must they be more involved in the daily operation of the company.

In essence the board members need to ask relatively simple questions to the executive team and request answers presented in a way that they, with their respective backgrounds, will be able to understand and willing to exercise their capital responsibility upon. The way that the executive team responds to the requests of the board is by use of the whole organisation. Hence the process is not an examination of the executive team, but rather a joint process of reaching a common understanding of how to run the company.

A very important aspect of the outcome of the ORSA is that the process is an assessment of overall solvency needs, and that where this number is higher than the required regulatory capital it does not in itself imply that the company needs to hold capital above that level.

Boards are free to choose their own way to conduct the ORSA process, but are expected to at least cover the following eight steps. These steps are already being taken in well managed companies today, and hence inspire good practice in this field.

Step one in the process will be initiated by the board asking, “What are the risks that this company might face during the strategic planning period (e.g. three to five years)?” Delivering a full risk picture back, presented in a way that the individual board members comprehend, will qualify a discussion of the common risk picture. This first step should not be interpreted as the probability-severity risk matrix currently exercised in the sector. The implementation of this matrix is often through a discussion of potential future scenarios rather than through a more profound understanding of the risks underlying the company.

Step two will be deciding on which risks should be met by capital and which should be mitigated by management actions only. Often risks can and should be met by capital but for some risks – like the reputational risk of the company – the mitigation is likely to be by other means, in this case by implementing a general code of conduct among employees.

In step three the organisation will quantify the risks to be met with capital, and develop suitable mitigating actions for other risks.

In step four the board asks, “How robust is the assessment of risks? What is the quality of key processes involved (e.g. claims handling)?” and will be presented with results from sensitivity analyses. At this point the board will have the basis for an initial overall assessment of the risks and be ready to stress that assessment.
Step five will be company specific stresses, i.e. “What are possible future scenarios that we will have to navigate, and what is the likely impact?” Here the competitive landscape is just one of the topics to be discussed.

Step six covers stress scenarios that affect the whole sector, which are often due to changes in legislation, high court decisions, structural changes in insurance risks, or changes in the financial markets not captured in the calculation of required regulatory capital.

In step seven the assumption of going concern is revisited, requiring a discussion of what the important aspects of remaining in going concern are. The importance of this discussion is illustrated below.

Finally, step eight is the digestion phase, considering if there is anything that has been learned about the risk profile that impacts on the assessment of regulatory capital.

As should be clear from this walkthrough, the thinking of the ORSA process is that simple questions should go from the board of directors to the executive team, and they should be answered in an appropriate and understandable way – not necessarily requiring a background in economics or the skills of an actuary.

Furthermore, is it not about transferring a huge pile of papers upwards in the system, obscuring the full picture with highly technical detail. It is about achieving a clear communication using a common language on risks, and ensuring that there exists an informed basis for proper decisions at board level.

The going concern discussion
The importance of understanding the basis for going concern can be illustrated from what happened for some insurers in the Nordic European region in 2010. Before entering 2010 the top performing general insurers were running their businesses with a combined ratio (CR) in the range of 88 to 92. That is, for every €100 of premium, claims costs and expenses were amounting to between €88 and €92. With a fully fledged business this would allow them to fund their risk based capital through the remaining €8-12 per €100 premium.

There was then a tough winter with an excess of snow claims, followed by a very wet spring with flooding. Suddenly these prior top performers were now running at CR close to 100 or above, and hence were not able to fund their capital. Some of them were even realising bottom lines in the red.

Bearing in mind that it usually takes 18-24 months to recover from such a hit by premium increases, swift action needed to be taken. Strangely, during that spring, only a few of the boards initiated the discussion of how to fund capital – they were simply not aware of the impact of results on going concern.

Reality today or trend tomorrow
It is almost unnecessary to say that the objective of the ORSA process in Solvency II is not only related to the insurance business but spans the majority of the financial sector. There are initial indications that similar regulations could be the broader political response to the financial crisis and government support in the banking area, and the analysis steps could soon be considered good practice in financial institutions.

In monitoring this upcoming political debate it should be remembered that compared to banking, where there is a natural inherent imbalance in the business model in borrowing short and lending long, the business model for insurance is a far more stable one.

Case study: Denmark
As a response to the preparatory work of Solvency II, the Danish Financial Supervisory Authority forced in the autumn of 2009 a change of regulation introducing an ORSA-esque process as a mandatory requirement, in addition to the existing risk based capital regime. Key triggers for the regulatory change was the missing link between risk identification and decision making at board level on what capital to hold, and the lack of articulation of risks.

Having had the regime in place now for 18 months, the experience to share is: boards are often not aware of their capital responsibility, and do not find the simple questions on risks and how to navigate them as natural. Moreover, they are struggling with the appropriate division of responsibility between themselves and the executive team, and finding the balance between lack of technical expertise and at the same time being responsible for the company’s capital.

They are moving from the passenger’s seat to become the navigator of the company – which indeed is what the owners expect them to be. The Danish Financial Supervisory Authority assesses the change in regulation to have improved the quality of the board work with more joint discussions of risks taking place and a better understanding of what to manage. But it does not change overnight. It is like a cultural change – it takes time to settle.

Jan Parner is Deputy Director General at the Danish FSA

Establishing a company in Cyprus

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Michael Kyprianou & Co LLC is a broad based legal practice based in Cyprus and Greece. One of its areas of specialisation is the company formation, management and administration of Cyprus and offshore companies, and formation and administration of Trusts.

Cyprus business law
A Cyprus company needs to have at least one director, one shareholder, one secretary and a registered office in Cyprus.  The minimum share capital of the company is €0.01 (denominated in any currency). The first step in the process is choosing the name of the company, to be approved by the Registrar of Companies. The name must include the word “Limited” (or Ltd) to signify limited liability status. Approval takes six or seven business days, but for urgent cases Michael Kyprianou & Co LLC can offer a list of names already approved by the registrar.

After this, the memorandum and articles of association of the company are prepared and submitted for registration to the registrar, together with details of the officers and shareholders of the company. It will take approximately five working days to obtain a company registration number and another five working days to obtain the company’s corporate documents. Again, urgent cases can be serviced with a list of shelf dormant companies that are already registered.

Cypriot jurisdiction
Cyprus has a very advanced tax planning culture based on an extensive network of double taxation treaties. In recent years – following the accession of Cyprus into the European Union – a large number of international structures involve a Cypriot company. Cyprus at present features the lowest fixed corporate tax rate (10 percent) in the European Union and a very competitive VAT rate (15 percent).

As of the end of 2010 there were 237,372 companies registered in Cyprus, and 19,278 new incorporations in 2010. The Cyprus government recognises the importance of company formations and protects such services by maintaining low tax rates as well as other measures to attract foreign investors to the country.

Professional services
Michael Kyprianou & Co LLC provides a full complement of services under one roof, with the highest level of confidentiality.  The firm’s staff of corporate administrators, lawyers, tax advisors, accountants and auditors all work together to provide a complete package of services necessary for prudent administration and management of companies and trusts.

For more information Tonia Antoniou,+357 253 636 85, tonia@kyprianou.com.cy; www.kyprianou.com.cy

Surfing the wave of wealth management

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Up until now, Wealth and Investment Management (WIM) has been a fairly stable business in all the key areas such as market evolution, client behaviour, investment performance, competition, regulation and technological innovation.

However, a series of different factors are reshaping this industry. Firstly, demography and wealth distribution are changing. As the over-64 world population holds around 34 percent of wealth, mortality and inheritance will globally shift an estimated $18 trillion market to a new generation of people. Another 30 percent of wealth will be owned by the baby boomer generation, currently aged approximately 55 to 64. They will gradually shift from accumulation mode to retirement mode, and will be quite equally distributed in Europe. In the USA, Asia and Pacific regions, they will also bring new needs into the market place.

A second factor stems from the global financial crisis of 2008. Poor investment performance, increasing onshore and offshore competition and new regulations – such as MIFID in the European Union – have dramatically changed the scenario for the WIM sector. Clients have become much more careful and selective about financial service providers. These changes have had a strong impact on investment protection and risk management strategy and decisions.

Additionally, the fast pace of technology evolution is radically changing the way relationship managers, advisors, private bankers and clients interact. For example, computing platforms are quickly shifting from the web client oriented to mobile operations. The use of smart phones and tablet devices is increasing rapidly. It is estimated that the end of 2011, there will be 400 million users, with this figure likely to double over the subsequent three years.

As a result, clients will challenge the financial advisors with radically new expectations in terms of product needs, service demands, customer relationship and experience. A high performance WIM strategy will therefore require two main imperatives: a shift to an advisory approach to clients using targeted business models, and the adoption of a new information technology platforms.

An advisory approach to clients
Financial sector operators need to focus on a new set of actions. These include:
– developing a broad and deep knowledge of client’s values, risk attitude and priorities;
– creating new tailored product and service bundles;
– shifting the paradigm of WIM professionals from relationship managers to trusted advisors;
– investing in traditional and innovative distribution channels; and
– improving each client’s relationship and experience by enhancing integration and personalisation across different channels.

In order to keep up with the changes and implement a high performance WIM strategy, tailored business models become essential for specific customer segments. The first level of differentiation is between the Private Wealth Management and the Retail Advisory Sales business model.

The Private Wealth Management business model targets three sectors with tailored operating models. The first, Affluents, requires an assessment and a financial planning process using an underlying open product catalogue architecture approach. Financial advisors should quickly understand the client’s balance sheet, their needs, the risk profile and potential investment approach.

High Net-Worth (HNW) is the main target area of all private banking operators, and demands a sophisticated and tailored global advisory service. Their trusted advisor should be able to deliver holistic, integrated investment advice, spanning across asset allocation and drawing upon outside expertise in areas such as legal, trust, tax optimisation.
 
Finally, the Ultra High Net-Worth (UHNW) sector represents the top level private banking operators. This requires a trusted advisor delivering an integrated exclusive investment advisory service, spanning across asset allocation, real estate, corporate management, arts and philanthropy and draws upon outside expertise in all these areas.

Retail Advisory Sales business model addresses retail customers who ask for basic products focused on their needs, such as loans, mortgages, saving products and ‘simple’ investment solutions. The challenge is to set up a ‘light’ advisory service with a low cost-to-serve approach, which enables the relationship manager to exploit the combination of bank subsidiary face-to-face channel and internet client portal channel to easily and quickly map customer needs and serve them with the right blend of banking products.

High performance needs innovative software
WIM information technology platforms must change from the current conventional application ‘silos’ to a single integrated platform. ObjectWay has therefore designed and delivered ObjectWay Financial Software Platform (OFS) in order to support this.

From a business perspective, OFS platform is a suite of specific business applications, which work together to support each process area of the WIM lifecycle. From a technology perspective, business applications and components share a common data model, integration and infrastructure layers. OFS therefore enables the financial institution to implement the key success factors of an effective service and operational model.

OFS also offers comprehensive support of the whole WIM process, from the client and contact management through to order fulfilment. The software offers real-time access by both the financial institution staff and clients to an all-embracing and unique spread portfolios and products.

For advisors, the analytical tools within OFS help develop a deeper, more predictive insight into customer needs allowing advisors to gain a unique view of the customer and a context-based understanding of their needs, not easily replicated by competitors. Advisors also have a powerful integration between decision-making systems, execution systems and channels.

This system generates several business benefits, making it easier to acquire and retain customers, improve customers experience, increase efficiency and reduce costs. These factors are vital for serving all customers, from the largest retail and Affluents segments to the smallest HNW and UHNW clients, even if the work is complex and sophisticated.

 These business applications are available to the financial institution staff and the clients across different sales channels, whether advisors, branches, service centres, internet, and through various interfaces, such as the web, tablets and smartphones. In the last year ObjectWay has extended the OFS with a set of mobile business applications, OWealth Portfolio and OWealth Studio, to support both advisors and clients.
Three business solutions are currently available through OFS:

– OFS Private Wealth Management: designed for high and ultra high net worth customers and focused on a global advice approach. It supports global portfolio accounting, analysis and performance attribution, personalised asset allocation strategies and tax optimisation
– OFS Premiere Wealth Management: tailored for affluent customers and focused on the client’s accounting and advice in terms of financial planning, portfolio allocation, retirement management and health management.
– OFS Advisory Retail: for retail customers and focused on customer data aggregation, household budget and needs analysis. The software features specific simulators and estimators for loans saving products, life insurance, pension gap analysis, retirement fulfilment and simple investment products. The whole sales process is included in the solution, from the proposal to the contract signature.

These platforms are customised by ObjectWay for each financial institution with a collaborative approach, to obtain a tailored application platform that implement the institution specific operational model according to its positioning, its product and service offering and its organisation.

The choice for success
ObjectWay has supported several private and retail banks in Europe, including Barclays and Unicredit–Fineco, reshaping and tailoring their wealth management services.

The implementation of the OFS platform allowed Barclays PLC to promptly enter the affluent wealth management market segment in Europe in just a few years. According to Euromoney’s 2011 Private Banking and Wealth Money survey, Barclays was able to reach a position in the first top 10 global banks for the first time and has won the super-affluent category in Western Europe.

Barclays PLC adopted the OFS Premiere Wealth Management business solution to support the financial advisory services in the Western Europe Division. This focused on Italy, France, Spain and Portugal and met with the requirements of the MIFID directive. Using a unique platform, Barclays set up the service in these four different countries, according to the business needs of each county native languages and idioms and fully integrating the solution with the bank’s core legacy systems.

Fineco, part of the Unicredit Group and an Italian leader in advisory services, has implemented OFS Premiere Wealth Management Business Solution in Italy. Fineco delivers independent and strong qualified advisory services on a fee-only base. Fineco Advice is based on a multi-brand open architecture product catalogue and on a direct processing of analysis, recommendation and order execution process, with each customer receiving a tailor-made solution according to the individual objectives and risk profile.

The winning approach to WIM therefore as demonstrated by these successful examples, is to select and adopt cutting edge technology that is able to support the new customer relationship and experience model.

LiteForex assists growth

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LiteForex Group specialises in providing online trading services and placing financial instruments on the commodity, stock, future and currency markets. It has developed an impeccable reputation thanks to its consistent management and highly qualified specialists, and an ongoing commitment to develop new ideas and projects provides clients with continually improving services and facilities.

The group was founded in 2005 with a mission to provide the highest standards in service and facilities, with an emphasis on providing each client with a balanced and optimal service package for trading on the financial markets.

Today the brand is steadily expanding into new regions and key hub countries, helping a strong increase in its client base – some 300 new trading accounts are opened every day, and the total number of traders who have registered with LiteForex since its inception is steadily approaching 300,000. The broker is enjoying particularly strong growth in Asia, and as a result of its popularity in the region won the prestigious award for Most Reliable Broker in Asia at the 2010 ShowFX World exhibition, as well as the award for Best Forex Broker in Nigeria – 2010 by the Online Forex Traders Association of Nigeria.

Account types
The group has created a set of trading conditions that are comfortable both for new traders who are just taking their first steps into the market and for professional traders who are in charge of managing significant capital. To accommodate this spectrum, LifeForex offers three types of account: LITEForex, REALForex and FLOATForex.
LITEForex is a cent type of account that provides beginners with the opportunity to feel confident while dealing with real money. By opening an account with the minimum deposit required, a client who is new to forex can easily gain valuable experience in financial market trading.

REALForex is an account that is usually chosen by traders with practised market experience, who want to operate with large amounts.

The FLOATForex account type allows clients to carry out transactions with unfixed spreads starting from zero pips. When executing trades on a FLOATForex account it is possible to use any of the trading instruments provided by LiteForex Group. There is no commission for executing transactions with a FLOATForex
account.

Equal conditions for using leverage, no hidden commissions and a fixed spread starting from three points are provided for trading on all account types.

To let its clients profit from every opportunity the financial market gives, LiteForex provides 83 trading instruments, including a wide range of currency pairs, precious metals, currency indices and CFDs.

Trading is powered by the popular and accessible MetaTrader4 platform and MetaQuotes Soft – an update version of MetaTrader5. The 5 terminal enables clients to work simultaneously at the major financial floors in the framework of the single account, as well as carry out transactions with currency pairs, commodities, world indices and CFDs.

One of the many advantages of the new MetaTrader5 terminal is automatic trading support with the use of scripts, advisors, its own indicators, and the ability to create bespoke trackers with MetaEditor5, MetaTrader5 Strategy Tester and MetaQuotes Language 5.

Partnership opportunities
The LiteForex trademark is widely represented in a number of countries, where it offers partnership programmes to people who are ready to dedicate their time to developing a client base within their region. LiteForex affiliates are rewarded with spread-based commission, fostering a successful and solid cooperative instrument. In bestowing upon LiteForex the award for Best Affiliate Programme – 2011, World Finance recognises the positive conditions offered by the programme and the new opportunities LiteForex can offer for its affiliates. In the past LiteForex Group was also awarded the prize for Affiliate Programme Innovator at ShowFX Asia 2010.

LiteForex Group makes every effort to develop successful partnerships through its four programmes – Bring a Friend, Internet Partner, White Label and Regional Representative – which were developed for the clients who wish to start their own business in the online trading area.

Partners of the Bring a Friend programme receive substantial bonuses to their trading accounts for recommending LiteForex brand to their friends and acquaintances working in the forex market.

The Internet Partner programme invites partners to attract new clients to LiteForex. For cooperation in this programme a bonus is transferred to a special partnership account based on the new client’s trading.

Regional Representative status is an offer for experienced partners who are able to promote the LiteForex brand in their region and manage a local office. Special partnership conditions and individual assistance for each representative help to incentivise and optimise their work.

Finally, the White Label programme involves further cooperation between LiteForex and regional representatives. Partners working in this programme are not involved in the basic scope of administrative work and so don’t bear any responsibility for the clients’ deposits. The details of the White Label cooperation, including remuneration, are decided individually.

By engaging with these affiliate programmes, LiteForex clients can receive an additional income. The innovative MultiRebate service is extremely popular, as it opens prospects of additional income to each of LiteForex’s clients. Traders using MultiRebate are paid back 1.5 pips from each transaction what is the maximum spread rebate amount. Partners registered in this programme receive 0.4 pips of commission from each referral’s transaction and 10 percent from each attracted partner’s income.

“Solvency II is here to stay”

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A golden rule in management indicates that changes should ideally take place before problems emerge, anticipating them and ensuring a timely response, thus enhancing effectiveness. In order to do so, changes need to be thought and discussed when the existing environment is still functioning correctly. This is exactly how Solvency II was designed.

It is now over a decade since the European Commission triggered a fully comprehensive project that would bring risk-based regulation and supervision to the field of insurance. It was not only ambitious, but also revolutionary, and it has taken some time for all stakeholders, from supervisors to insurers, to acknowledge that Solvency II was on its way and that the change would be significant – and lasting.

Lots of relevant strategic decisions have been taken, shaping Solvency II in the way we see it now. Such decisions have implied risks, and have addressed them, but also have allowed building upon opportunities that the project brings to insurance.

It is worth focusing on some of these strategic areas, and look at the decisions made and their implications.

Timing of the project
Solvency II will come into force on 1 January, 2013. However, its design started in 2000 and will not conclude with the implementation date. On the contrary, after 2013 further refinements and improvements will be made to the system. This is one of the opportunities streaming from a principle-based first-level directive, which is complemented and developed with detailed second level implementing measures. It is our task and obligation to make the best out of it.

The project has been designed with sufficient time to create a framework aimed to be a regulatory reference for the next few decades. It has certainly benefited from continuous testing of the different alternatives considered, improving its technical quality and ensuring all options were tested before implementation. A series of quantitative impact exercises have ensured the appropriateness of the system, with more than 95 percent of technical provisions or 85 percent in terms of premiums of the EU insurance sector participating in the last study.

As important as it is to look back, it is now vital to look forward to 2013 – and beyond. The scope of Solvency II is such that there needs to be a smooth shift from the current regime to the new risk based regulation, and it cannot imply artificial or unjustified disruptions. There are two ways to do so: either by deviating from the principles of Solvency II (i.e. watering down the project), or by setting up appropriate transitional measures.

The choice seems clear but there is a risk to be addressed: phased steps make sense provided they assist a smooth transition, but it is paramount that they are not prolonged unduly, or they will lose their positive effect. In other words, it is not about bringing old problems to the new framework, but about avoiding creating new problems.

Design of the project
Solvency II brings risk-based supervision to European insurers. By doing so, insurers will need to hold regulatory capital according to the risks that they are facing and the way they are managing them, and to do so in a fully transparent manner. It is a risk-based, principle-based, economic-based system, and has the right elements and incentives to become a regulatory reference throughout and beyond the field of insurance.

Following the approach set up in the banking regulatory environment, it includes three pillars, covering quantitative requirements, qualitative requirements, and transparency and disclosure rules. Two main risks emerged from day one: the risk of simply transplanting banking regulation onto the insurance sector without recognising their differences; and the risk of  giving more weight to one of the pillars, particularly to quantitative issues, than the others.

If we look at the insurance business, it relies strongly on the liability side of the balance sheet, demands sound Application Lifestyle Management practices, and presents long-term commitments. None of these elements are present in the banking sector, where risks such as credit and liquidity are the primary focus. A simple copy-and-paste of the banking framework therefore would make no sense. The insurance sector must be differentiated from the banking sector – and this best way of doing this is by starting from areas of similarity, such as ensuring quality of capital requirements. By doing so, insurers will be in a position to explain and justify that banking measures regarding, for example, liquidity risk, simply do not make any sense when it comes to insurance.

Risk-based supervision is built on a very basic premise, by which the regulatory framework has to introduce sufficient incentives to foster good risk management within companies. If we look at Solvency II, the recognition of internal models, both partial and full, indicate that the regulator had this premise in mind and has been ambitious enough to give an extra step compared to banking, so as to allow for both full modelling and recognition – in terms of effective capital requirements – of diversification effects.

Just as important as the capital and risk management requirements is the commitment that Solvency II makes in terms of market valuation of assets and liabilities, and enhanced transparency of the system. Market consistent valuation is one of the cornerstones of Solvency II. Insurance can only benefit from a better understanding by all its stakeholders of how it operates and the solvency situation of the different undertakings. This will become particularly important in the upcoming years, where both countries and other areas of the financial sector, and in particular banking, will have to refinance significant amounts of money.

Last but not least, Solvency II will not only enhance transparency and disclosure, but will also address one of the main concerns with the current regulatory regime: the lack of comparability among insurance companies operating and doing business in different countries, particularly due to the fact that technical provisions are calculated with completely different discount rates within Europe. EIOPA calculates that at present, for every 100 basis points added to (or subtracted from) the discount rate, it affects the total amount of technical provisions by 10 percent – a colossal impact.

Implications of the project
Solvency II will affect the insurance world in different ways, and will demand changes both from supervisors and supervised companies. The question that remains in the air is whether it will also bring changes with regards to consumers, in particular regarding access to products, cost of products or amount of offer.

The main change to consumers will be a positive and fundamental one: Solvency II will improve the management of risks within insurers. Recent years have demonstrated how weak risk management, soft internal controls and excessive risk appetite can lie dormat for years before building to an almighty crisis. From that perspective, Solvency II emerges as the right regulation at the right time. Everything that has a positive effect on the way risks are managed will be of benefit to consumers.

When it comes to supervisors, they will have to undertake radical operational change. Areas such as validation of internal models will certainly change the way supervision is undertaken, and the enhanced focus on qualitative issues that the second pillar of the system demands should also mean a new way to supervise.

All these changes come at a time when there is a complex debate regarding how supervision should be undertaken and how intrusive it should be; and also when supervisory authorities are facing a big risk of losing some of their experts to industry, with the risks that it implies. Therefore we can conclude that Solvency II will not be less challenging to supervisors than to supervised entities.

What about insurers? Will they be able to meet the new requirements and, more importantly, will they be able to adapt their risk management to what is expected out of Solvency II? We have to be positive.

Of course it will be challenging. The system will demand changes: in terms of how to manage the business, and in terms of practices that made sense in the past but do not necessarily fit with Solvency II in terms of reporting. Yet the insurance sector is doing excellent work to be ready for the implementation date. The solvency situation of insurers under the new Solvency II rules is also a sound one, as demonstrated by the recent quantitative impact exercise that showed an excess of capital over regulatory requirements of €400bn.

Perhaps we should address openly another question that many may have: will Solvency II lead to concentration in insurance? The answer is that the system provides good incentives for all companies, big or small, that appropriately manage their risks. Therefore, small companies with sound management and a good business model that aims to provide added value to their customers will certainly reinforce their position after the implementation of the framework. How could it be different if, ultimately, Solvency II is about understanding risk, managing risk, and making the best out of the underlying opportunities that come with those risks?
I started by saying that Solvency II is here to stay. After reading this, I hope you agree that it is also here for good.

A journey of transformation

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The story of Cairo Amman Bank (CAB) has been described as a corporate rebirth – one in which a small financial institution with humble foundations completely reinvented itself by tapping the potential in the Jordanian banking landscape to redefine its brand position.

In the 1990s, the prognosis for CAB’s growth in the market was fairly poor, with a relatively small branch network and a financial foundation that was wavering under the weight of substantial non-performing corporate loans. Today CAB is a shining model of innovation and growth, thanks to the intelligent transformation strategies that the bank initiated in 1998. By focusing its attention on the Jordanian retail sector – at the time an under-serviced, untapped market segment – and by adopting a strategy in 2002 of cooperating with its defaulting clients instead of alienating them, CAB successfully reversed its fortunes.

Back then the ratio of the bank’s non-performing loans amounted to 26.2 percent of its total portfolio – this has since dropped to an impressive four percent in an industry that averages 7.2 percent. In 2009, a year of marked transformation for CAB, the bank’s net profits reached JOD 25.5m ($36m) – a 25.8 percent year-on-year increase. This was a particularly impressive feat because the industry’s average for the same period had dropped 16 percent.

“The revolution that swept through Cairo Amman Bank over the last decade is more than just another corporate success story,” says CAB’s General Manager, Kamal Al Bakri. Mr Bakri first joined the bank in 2002 as the head of its legal department and was a key element in its internal overhaul. After spearheading the process of settling the bank’s financials, the bank’s management quickly realised that he was just the type of executive they needed to steer the bank’s aggressive reentry into the market. In 2006, he was named Deputy General Manager to Khaled Masri, CAB’s Chairman and CEO. In 2008, he was again promoted to his current position of General Manager.

Repositioning the CAB brand required fundamental changes. Upon assuming his role as Deputy General Manager in 2006, Mr Bakri presented to the management his rather ambitious plan for reinventing CAB. The plan, which was eventually set in motion, identified key transformational pillars that would later allow the bank to make a true turnaround.

Building strong foundations
The first such pillar was human resources, which has always been a key focus for CAB. Mr Bakri’s prime objective was to retool the bank’s employees; to foster the morale and skills required to meet the bank’s new objectives. He saw that the bank’s entire culture had to change, and this called for younger, more adaptable employees and for grassroots capacity-building approaches. The result was the bank’s famed Future Banker programme; an in-house, salary-paid, eight-month training programme that helped fresh Jordanian graduates find work anywhere inside and outside Jordan.

At the time, the local banking industry was calling back many of the Jordanian talents that had previously travelled to the Gulf, which ultimately resulted in a host of incentive campaigns designed by CAB to retain its most competent trainees. CAB has shown an unwavering commitment to invest in and develop its human resources, even long after recruitment, with a plethora of training programmes that help them realise their full potential.

IT innovation
Another integral pillar of CAB’s development is its revolutionary IT infrastructure, which was also substantially overhauled during the bank’s recent transformation. “I wanted to reestablish the bank as an IT and technology driven entity,” explains Mr Bakri. This approach culminated in the introduction of several infrastructural changes and technologies that would forever redefine both the way the bank operates and its corporate image.

Key examples of such services are CABfx – a powerful web-based currency trading platform – and IrisGuard, which facilitates banking transactions by allowing customers to validate their identities through on-site ocular scans. The latter was a pioneering achievement on a global level – up until that point, the technology had only ever been implemented in airports. The technology also spared customers the longstanding inconvenience of ATM cards and PIN codes, further underscoring the potential effect of technology on the conventions of banking.

“The recreation of CAB’s IT infrastructure was crucial to its eventual turnaround in the market,” says Mr Bakri. “The technologies we introduced substantially influenced the way customers made transactions and the way they perceived the CAB brand.

“With IrisGuard, for example, we reduced client-identification time from three minutes or more to less than 50 seconds. Cutting edge technology is now an inseparable element from our brand image and will continue to be among our top priorities where future growth and development are concerned.”

Growing the brand
Of course, one marked area of transformation for CAB was geographical penetration. Today, the bank operates a total of 90 branches, 21 of which are in Palestine. This was made possible through an aggressive expansion campaign that saw the bank address the high costs and limitations of a network expansion by integrating manned points of sale in 90 post offices around Jordan. This allowed the bank to secure a presence at key public interaction spaces, not to mention reach remote areas in governorates nationwide. According to Mr Bakri, geographical penetration will remain an integral pillar of the bank’s long-term development strategy.

Last but not least was CAB’s relentless approach to product development, which was an area in which the bank had created a solid foundation over the years, particularly in the arena of retail banking. With a diverse product portfolio that caters to a multitude of consumer segments, innovation became CAB’s central focus. This movement was perhaps rooted in the bank’s earlier success with government salary transfers, having successfully persuaded the Jordanian government in 1998 to transfer the salaries of its employees into CAB employee accounts instead of paying them directly. This was arguably the retail turning point for the bank.

Today, roughly 65 percent of the bank’s business comes from retail, which remains Jordan’s largest market segment.

Pioneering online banking and cardless identity verification was only the beginning of a long streak of product innovation. Next in line was cardless access to ATMs, a service that allows a client to request cash via mobile phone. The client sends a text message to the bank, which automatically responds with a number to be keyed into any of the bank’s ATMs – the client can then access their account and withdraw cash. “If you forget your wallet somewhere or lose it, you can still access cash through any of our ATMs around the Kingdom,” explains Mr Bakri. This innovation streak was further expanded with the introduction of CAB’s instant loans via ATMs, which allowed prequalified customers to request instant automated loans via ATMs based on their credit worthiness.

This unwavering commitment to innovation fundamentally influenced customer experience and thus redefined CAB’s brand perception. “Our transformation strategy was ultimately all about customers,” says Mr Bakri. “We simply wanted to improve our customer experience, and upon focusing on that singular objective, we found massive untapped potential in the industry that allowed us to innovate. We are fully committed to maintaining the streak of innovations we began with IrisGuard and to forever transform the global banking landscape.”

Modern markets demand constant connectivity

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Trading dynamics have changed radically in the last decade. Investors used to wait months or years for investment prospects. Today, technology allows traders and investors to seize opportunities instantly and manage risks directly. The $4trn daily foreign exchange market offers what other markets failed to attain, and is now easily accessible and affordable for everyone.

IronFX Financial Services Limited developed a vision to challenge and recreate one of the most attractive trading environments in the industry. The result was IronFX, developed with cutting-edge in-house technology to provide an exclusive, best of market product range, equally suitable for the most serious of investors as well as people just beginning their trading path.

The company’s goal is to become one of the world’s major brokerage firms. IronFX chose Cyprus for its headquarters, seeking regulatory bodies that provide protection to investors as well as secure European standards. IronFX Financial Services is authorised and regulated by CySEC under licence no 125/10.

The philosophy of the IronFX strategy does not end there. A team of IT professionals constantly enhance the quality of its product and financial services range, and produce advanced yet user friendly platforms to give clients easy and reliable access to their investments from anywhere in the world. From their work comes IronFX’s ‘One Account, Seven Trading Platforms’ offering – providing access to the markets 24 hours a day, five days a week through platforms available for PC (MetaTrader4, MultiTerminal and download-free WebTrader), Android, Blackberry, and iPhone/iPad OS.

The IronFX product range covers a comprehensive spectrum of investors: from new starters, to expert traders, to the professional institutional investor raising the standards of online financial services:

– Standard accounts, which are specifically designed for new traders, start from only $500. Standard accounts help new traders gain experience easily, without a high exposure to risk.
– Premium accounts start from $5,000, and are designed for experienced active traders who are looking to seize opportunities on a daily basis. With better trading conditions, they tend to reduce risks and increase profitability.
– Institutional accounts start from $25,000, and offer the best trading conditions and unbeatable advantages, including dedicated market analyst support and market views around the clock, as well as breaking news with instant feedback on how they will affect the market.

Leverage and flexibility
With as little as $5,000, IronFX clients can invest as much as $2.5m, leveraging their investment to obtain optimum performance at a reasonable risk. Traders are allowed to modify their leverage at any time to manage the psychology of risk that goes through every investor’s mind in today’s markets. The state-of-the-art client portal also allows clients to modify any account feature or conduct any operation in an automated and instantaneous manner.

This flexibility is key to IronFX’s philosophy – the firm believes that constant access is crucial to success in today’s highly dynamic and fast moving markets. IronFX’s robust platforms for the three major smartphone systems give traders access to live streaming prices, charts, news and current trades – so constant access to the markets is not only simple, but trades can be executed in an informed way. It’s the new frontier in online financial services, and positions IronFX with the best players in the market.

Similarly, transparency is more than a mantra for IronFX: traders are totally aware of their costs, without any hidden fees or opaque charges.

Accuracy in prices and excellent execution for clients’ orders is another vital consideration when choosing to invest with a broker. IronFX managed successfully to bring the lowest spreads on the market starting from only 0.4 pips on a major forex cross. Similarly features like free hedging and micro lots only add value to a trader’s experience.

Portfolio diversification
Conventional investment wisdom advocates investments that combine multiple financial products. IronFX has studied its investment proposal and is offering multi-purpose investment accounts that grant access to more than 130 financial instruments, ranging from forex to commodities and equities, fulfilling the majority of the investment spectrum, all from the comfort of the client’s office or home.

Security of funds is another concern. IronFX has achieved a first by offering SSL technology capabilities for secure transactions and order execution. Security is further enhanced with the use of the encrypted ‘One Account, Seven Trading Platforms’ trading functionality and secure access to the client portal for account management. The level of security is common on all platforms to protect clients’ funds from any fraudulent behaviour.

When investors scrutinise a broker, their first impression often comes from the support offered by the customer service department. With round-the-clock support in more than 20 languages provided by professional account managers, IronFX offers instantaneous fulfilment of clients’ needs – opening an account can take less than five minutes, and is accomplished in three easy steps.

Client support also extends to analysis: IronFX employs experienced market analysts to provide accurate and timely financial news and market analysis for its clients. This can be accessed through a range of products: from daily newsletters to market views, on both the fundamental and technical front. The broker also offers forex directions on major crosses along with a weekly and monthly snapshot on opportunities in the markets. The latter should certainly help investors seize profits while being exposed to the smallest risk possible.

Educational programmes are also available from market professionals to develop new traders’ skills: training sessions include an understanding of forex trading as well as a snapshot on both fundamental and technical analysis, including studies on market behaviour and types of currency in respect to their dynamics and profitability.

The forex market is the most popular and most liquid financial market in the world – with the right account support and comprehensive training, it’s no wonder more people are switching to trading currencies.

Taking the LATAM lead

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For Celfin Capital, 2010 was a year of consolidation and looking to new horizons. In the Chilean market, Celfin strengthened its leadership position across all its business areas; while in the Peruvian market, the company’s brokerage, wealth management and corporate finance operations achieved significant positions and broke even in their second year of operation.

At the same time Celfin has started to expand into new markets. It received authorisation for brokerage in Colombia and began the process of application to US regulators, which will enable further expansion of Celfin’s operations and complement their geographical presence in the Andean region by the end of 2011.

Pole position
The past year has proven very successful for Celfin’s specific business areas. In Chile, brokerage was placed first in equity trading – by a measure that includes proprietary trading (by its corporate definition Celfin does not engage in proprietary trading, making this leadership position all the more impressive).

The fixed income team maintained the company’s liquidity position and created a distribution desk to serve Latin American clients with fixed income, foreign exchange and structured products. In corporate finance the team was once again a significant player in transactions and issues by non-Chilean entities in Chile, and by Chilean entities abroad; it also managed the first local transaction in Peru, and launched an infrastructure business.

In asset management, Celfin AUM grew by 34 percent and completed an important restructuring process that resulted in the adoption of the industry’s highest standards. The institutional distribution division maintained its lead as the principal distributor of funds to institutional clients in Chile, Peru and Colombia.

Wealth management assets grew by 73 percent, in part due to the strength of the private clients unit. The research team also expanded its coverage to Peru and Colombia, and now covers more than 45 companies in the region.

Industry recognition
In acknowledgement for its impressive results, Celfin has been recognised by a range of leading industry groups. Both Latin Finance and Diario Financiero/Deloitte voted for Celfin Capital as Best Financial Institution in Chile; Bolsa de Comercio ranked Celfin as the Number One Broker in Chile; and the company was named Advisory Broker of the Year in Latin America by World Finance.

“We know that our leadership position is difficult to maintain – and that we will only be able to do so if we go on making the same effort, day after day, to deliver excellent service through innovative products that satisfy our clients’ financial needs,” says Alejandro Montero, CEO of Celfin.

“To achieve this, we have embarked on a five-year plan, charting a course that will position us as one of the principal financial players in the Latin American market,” he says. “Our aim is to maintain a solid position of leadership in the Andean region and a significant presence in the rest of Latin America, delivering the best service and financial advice, so as to be the preferred choice of clients seeking to operate in those markets.”
Among other aims in Celfin’s five year plan is the goal to more than double the size of the company. To achieve this, it has the commitment of every single member of the organisation. “It is our people who make Celfin a company with a unique, innovative, meritocratic, daring culture, focused on results, working as a team that will continue to be the best,” says Juan Andres Camus, President of Celfin Capital.

“We have a great challenge ahead,” he says, “but we are confident that we can meet it, knowing that what has brought us to our present point of achievement is the same thing that will enable us to continue to grow: attention to detail in service to our clients, our close and personal relationship with them, impeccable execution of each transaction and the support and commitment of each one of the members of our team.”

Celfin Capital in figures
– Celfin Capital was created in 1988 as a financial institution with an entrepreneurial spirit
– Leader in third party equity trading volume in Chile (December 2010 market share: 23.21 percent); significant player in Peru (December 2010 market share: 7.1 percent)
– Corporate finance transactions of more than $5bn in Equity, $3bn in debt business and M&A transaction in excess of $3bn (total volume 2006-10)
– Largest distributor of international mutual funds, closed-end investment funds and private equity funds, to institutional clients in Chile, Peru and Colombia, with total volume in excess of $12bn (as of December 2010)
– More than $5.5bn under asset management as of December 2010
– Leading Research department in the Andean region, with coverage in Chile, Peru and Colombia. Operational processes have SAS700 certification
– More than 5.4bn AUM in Wealth Management

Clients demand new technology

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Just a few decades ago, Mifel was a small company servicing small and medium size businesses on their financial strategies. Later on, it began to grow a small fund to operate with and eventually obtained the first private concession for an exchange house in Mexico back in the tumultuous 1980s.

In 1993 Mifel set up a leasing company, and in that same year Grupo Financiero Mifel was born, a step that paved the way for the concession of one of the first new private banking licences to be granted since the Mexican banking industry was nationalised back in 1982.

Mifel’s name was formed from the first letters in the given and family names of its founder: Mike Feldman, a well-known entrepreneur and philanthropist. Three generations later, the companies he set to build are solidly growing and still run by the family (although they are now fully institutionalised).

Since its beginnings Mifel has been a customer service oriented company. Today of course this is the talk of all the service industries; but back in those days when it was practised at Mifel it was a rather odd gospel to preach.
Today the group is led by CEO Daniel Becker and several very talented members of a new generation. The institution has been in a period of change to keep it at the forefront of Mexico’s financial sector in terms of the quality of its products, services and standards of excellence. “It is a privilege for us at Mifel that our clientele are Mexico’s most demanding by far,” says  Mr Becker: “Something very much appreciated by the team since it keeps us persevering at what we do best, so as to constantly improve it.”

Organic growth
Mifel is a full service bank with a complete array of products and services. It consists of a bank, a factoring company, a leasing company and a Mutual Fund company.

Mifel’s factoring company was created to provide liquidity to the suppliers of retail chains through any bank, which together with its strategy of innovation and service quality has allowed it to become a leader in the field.
On the leasing side Mifel has been steadily growing, thanks to its widely diversified portfolio of customers. Its investment manager role is supported by 20 proprietary funds and 32 funds that Mifel co-distributes from eight other financial firms. This allows Mifel to offer satisfactory returns to its clients and help them pursue their investment objectives.

On the banking side, Mifel has a strong and innovative physical presence in 38 banking outlets in the country, many of them in Mexico City, the country’s economic and financial centre. It also operates 18 bank modules distributed across the country, focused on specifically serving the agro-business sector – an area of great success and even greater potential. Today Mifel is the seventh largest distributor of federal farm funding in the country, after steadily rising through the ranks of its competition over the last few years.

A loyal customer base
Overall, Mifel Financial Group’s assets for the end of 2010 stood at $3.2bn, of which the majority is supported by deposits provided by its demanding but stable and loyal customer base from its private banking area and well-located and efficient branches throughout the country – they all have an average deposit base well above the level of Mifel’s competitors.

The group’s portfolio, meanwhile, has been growing steadily in the areas where Mifel has been concentrating its placement efforts. A very efficient distribution across several sectors diminishes risk substantially: states and municipalities, construction developers, mortgage, factoring, corporative, small and medium size companies, agro-business and leasing are just some of the key sectors where Mifel works intensively to diversify its assets.
This portfolio represents roughly 80 percent of Mifel’s banking activities; 15 percent is in factoring and five percent is in the leasing businesses, well guarded by a capital base that as of the end of last year stood at 15 percent. This is well above the regulatory minimum required by the authorities, giving the bank a good base from which to grow in the future.

Investing in people
An enthusiastic and positive working atmosphere is vital to good service and succesful change. “At Grupo Financiero Mifel we are distinguished by an energetic team, able to differentiate and provide our customers with everything they expect from a first rate financial institution,” says Mr Becker: “An unwavering commitment to service and quality.”

Mifel’s team always strives to communicate to its customers the concept of the value it provides them with, which stems from a five pillar design: human capital, first rate service, banking wisdom, best available technology, and always updated infrastructure. “This has allowed Mifel not only to grow in a healthy manner over the last few years but also to weather the storms that the global financial sector has faced,” says Mr Becker. “Further, our business model allows us to look into the future with the confidence that we have the tools to continue that success.”

To maintain the commitment to provide customers with quality financial products and services that offer security and confidence, in 2011 Mifel made an alliance with RSA, one of the world’s leading insurance groups. The main objective: to continue having the best banking products and services in Mexico, including the best insurance scheme to cover the security, safety and welfare needs of Mifel’s customers.

Transforming infrastructure
Mifel is now in the middle of developing its new technological coordinates: ones that represent quite an institutional revolution, as it is vital, says Mr Becker, that growth does not adversely affect the bank’s distinguished service. On the contrary: “Service ought to be a more tangible asset for Mifel’s customer base as the institution grows,” he says. In this regard, technological changes might not be perceived by customers from day one of their inception, but they are nevertheless key going forward.

Mifel’s new information system will transform its banking core from scratch, a type of decision which is often shyed away from by larger, more consolidated institutions. “This, however, was not something that we could refrain from pursuing,” says Mr Becker.

All processes that in one way or another directly affect Mifel’s client exposure have been readily analysed with the objective of ‘making life easier for the customer.’

 Mifel is now in the 15th month of development of its new platform, which should be delivered by the fourth quarter of 2011. “Our coordinates in working with our clients will be forever changed [upon launch],” says Mr Becker, “placing us in the lead in terms of quality, innovation and flexible services.”

It is in the light of this major breakthrough that Mifel receives, for the third year in a row, World Finance’s prestigious award for Best Private Bank, Mexico, 2011.

“The results speak for themselves,” says Mr Becker. “Mifel has its mission well in focus: to be recognised by our capability to understand and care for our unique and irreplaceable base of customers, for generations to come.”
When the new platform is delivered, Mifel will be well positioned to deliver its quality service for another three generations.

For more information: Francisco López Jiménez, Chief Operative Officer, Banca Mifel; 0052 55 5282 7800; www.mifel.com.mx

Water technology advances

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Puncak Niaga is the leading provider of integrated water, wastewater and environmental solutions in Malaysia. The company was founded in 1997 and that year became the first of its kind to be fully listed on the Malaysian stock exchange, the Main Board of Bursa Malaysia Securities Berhad. At the end of December 2010 its market capitalisation stood at RM945m ($319.2m).

The company has been operating for 15 years, but business is about to go into overdrive. In the next 12-18 months, Malaysia is expected to see a growth in industry as well as an increase in population from 28 to 29 million – these combined forces have led the company to adopt a strategy focused on innovation.

“Malaysia needs a vibrant water industry that is anchored on technological development and R&D activities to help grow the local industry cluster and create a competitive edge for Malaysian-based companies in the global market,” says Tan Sri Rozali Ismail, founder and Executive Chairman of Puncak Niaga. “To meet these challenges we will need innovations in water resource management, development and governance, as well as financing models to encourage investments. Innovation is a much broader notion than R&D and is therefore influenced by a wide range of factors. Innovation can only happen if we have a good foundation for research.”
For Puncak Niaga, continuous investment in R&D is the foundation of this innovation, with specific focus on improving the quality of urban infrastructure and resource management. Sustainability, cost effectiveness, broad-spectrum water treatment, public health protection and meeting the water needs for urban growth are particular areas of focus.

To drive this forward, Tan Sri Rozali strongly believes in the need for co-operation between the public and private sectors, as well as academia. This “innovative partnership approach,” as he calls it, is in line with initiatives put in place by the Malaysian Prime Minister under the Economic Transformation Programme (ETP). Additionally, the pursuance of a private sector-led economy has led to greater consultation with consumers and the growth of public-private partnerships in the water industry.

Transforming a nation
While the ETP has an influence on the economy as a whole, the 2006 Water Services Industry Act governs the restructuring of that specific sector. Despite making good progress and achieving several milestones, the industry still faces a range of challenges, particularly in supplying water to rural areas. “Malaysia is still battling with issues of escalating costs in meeting [these needs],” explains Tan Sri Rozali. “To manage increasing costs to meet social obligations with equally stubborn tariff rate increases can pose serious business issues for water operators and the government alike.”

The restructuring of the water services industry, however, is only one part of a government-led reform of the whole Malaysian socioeconomic structure. Two strategies have been put in place to achieve this – the Government Transformation Programme (GTP) and the aforementioned ETP. The GTP includes six National Key Results Areas dedicated to effecting social change: enhancing the quality of education, upgrading public transportation, reducing corruption, reducing crime, upgrading rural infrastructure and uplifting low income households. The ETP aims to effect economic change through its 12 National Key Economic Areas. This programme is projected to raise Malaysia’s per capita GNI from $6,700 in 2009 to over $15,000 in 2020, closer to the level of other high-income nations.

Of the 12 key economic areas – which range from education, to tourism, to agriculture – the one that will have the biggest impact on the water industry and Puncak Niaga is ‘Greater KL/KV.’ This key area, which is broken down further into 10 Entry Point Projects, deals with the development of the Greater Kuala Lumpur/Klang Valley region. Greater KL is already the largest contributor to Malaysia’s GNI, but this programme aims to increase that contribution to more than seven times that of the next urban centre, Johor Bahru. Additionally, this area of the ETP will contribute 2.5 times more to GNI than the next largest area: oil, gas and energy.

Robust water and wastewater services for public and environmental health are key to bringing about this growth. Two of the Entry Point Projects deal with this area specifically: “Developing an efficient solid waste management ecosystem,” and “Sewerage – Non River.” To deal with this, Tan Sri Rozali says, “We can expect sector specific reform to enhance stocks of renewable resources, reducing environmental risk and rebuilding our capacity to generate future prosperity.”

Innovating partnerships
Forming the foundations of this drive forward in the water sector are public-private partnerships. The efficacy of private sector participation in the delivery of public service has already been proven in the energy, transport and health sectors. Public-private partnerships have – when implemented correctly – reduced costs, increased investment and let the state reallocate savings to other areas, such as infrastructure.

“Both the public and private sectors have a unique and yet symbolic role [to play in] the betterment of the water sector,” explains Tan Sri Rozali. “Water runs across state boundaries and regions: we need a proactive private sector and government agencies to tactically manage regional issues and to innovate towards more productivity-led services.” To achieve this, he says, government and companies must both be redesigned for growth, with new business strategies and greater organisational relevance.

One of the major areas Tan Sri Rozali picks out that could best benefit from public-private partnership schemes is research and development. For him, universities are the roots of the R&D tree, providing new product ideas or new methods of overcoming existing technical issues. As universities receive grants and funding from the government for research, public sector funding and private sector innovation are brought together at this stage.

“At Puncak Niaga, we are constrained by limited returns on R&D,” he says. “The most pragmatic approach is for both the public and the private sector to work together to gear up strategic R&D in the water industry. This can be both for developmental purposes as well as increasing the capacity of the water players for outward investment, leaving them market ready for strategic alliances.”

Of course, privatisation of utilities is not a new concept. The privatisation of the Malaysian water industry – which Puncak Niaga was involved with – took place in the 1990s. Since then it has had great success replacing the existing dilapidated water system with a new, modern one – particularly in Selangor, Putrajaya and Kuala Lumpur. “There are important challenges facing the water sector in both developed and developing countries,” says Tan Sri Rozali. “The maintenance of existing infrastructure and expanding the existing network needs financial autonomy plus sustainable and equitable tariffs, along with efficient revenue collection. But I believe that privatisation is one of the more effective ways to secure effective and efficient service for the people.

“With a private sector-led economy, the private sector will play a major role in the water sector,” he says. “Of course privatisation also reduces the burden of government subsidies.” He admits that the Malaysian privatisation model is not perfect and still has challenges to overcome. However he believes that once the ongoing restructuring exercise has been completed and the gradual tariff rate implemented, these obstacles will be greatly reduced.

Striking a balance between public interest and private interest is also crucial. “A private sector like ours needs to maintain the bottom line and the government also needs to maintain the distribution of wealth in an equitable manner,” says Tan Sri Rozali. “But I am quite confident that with the current pragmatic government and forward looking administration, we will overcome these challenges soon enough.”

Expansion and diversification
As far as the future is concerned, the world is Puncak Niaga’s oyster. Trade liberalisation permitting the free flow of goods, services and people in Malaysia brings numerous opportunities for the company. Its future plans can be split into three areas – expansion within Malaysia, international expansion and diversification.

“We want to build a successful brand of trust, based on good service and reputation. We are after all in the business of treatment of a very vital natural resource,” says Tan Sri Rozali. “Additionally, while Malaysia, with a population of 28 million, is big, we need to look beyond our shores for business. So we are now exporting our core expertise to China and India, and exploring opportunities in Bangladesh, Kazakhstan, Laos, Cambodia, Mongolia, and other Asian Countries.”

In terms of diversification, the company has set its sites on the oil and gas sector. “Upstream oil and gas production contributes RM 87bn to the economy, while downstream activities contribute RM 24bn. Separately, the energy sector contributes an additional RM 16bn to this sector. We view this as a huge opportunity to diversify into the oil and gas sector.”

This is an exciting time for Puncak Niaga, with a plethora of opportunities arising across many areas. With its knowledge, experience and enthusiasm for innovation and collaboration, there is little doubt that these ambitions will soon be bearing fruit.

For further information www.puncakniaga.com.my

$2trn restructure over next 10 years

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There is a consensus among analysts who observe the Brazilian economy that it should grow four to five percent a year for the next decade. As with most major developing countries, macroeconomic fundamentals tend to enable this growth pace for many years – although in the short term, the emerging economies are being urged to restrain demand expansion so as to control a still worrisome inflationary pressure.

In the long run, each of these economies will face considerable challenges. In Brazil, the relevant challenges lie in the microeconomic field (competitiveness, with emphasis in technology and production scale) as well as in institutions (regulation, planning, governance), underscoring the need for infrastructure expansion, mainly in energy and logistics (roads, railways and ports).

According to official governmental and private company surveys, infrastructure expansion in Brazil will require investments amounting to $2trn in the next 10 years. A little more than half of this amount will be applied in energy – at least $600bn in pre-salt oil and gas and another $500bn to expand electric power generation and transmission capacity.

Funding distribution
The energy sector in Brazil, which has a new focus on renewable energy, has been one of the most promising and innovative in the world. The main reasons for this are: (i) the domestic demand’s steady growth and the existence of a vast external market for some products (mainly oil and ethanol); (ii) a sound planning structure and favourable regulatory environment; (iii) relevant actors and global companies with room and appetite to grow; (iv) a prodigious potential of exploring renewable energy, highlights being wind power and sugarcane biomass, both in full expansion; and (v) good supply of innovative financial resources and instruments to finance the supply expansion. In view of all these reasons, there is significant room for investment in equity, financing, and mergers and acquisitions.

For years, the necessary increase in the capacity of electric power generation in Brazil has averaged 5 GW a year (ranging from 10 GW to 12 GW of installed capacity, given an average load factor slightly below 50 percent by virtue of high seasonality, mainly in terms of hydrologic flows and wind regimes) – representing an average investment of BRL 30bn ($18.6bn) a year in new plants.

Added to the investments in lines and other equipment required for the transmission and distribution of this energy in a vast territory, the need of resources amounts to some BRL 65bn ($42bn) a year. Out of this total, we estimate (based on average values of projects under LCA advisory) that around $180bn are intended for renewable sources, substantially to hydric, wind and biomass sources. Finally, around $100bn will be devoted to the expansion of production capacity in sugarcane and ethanol through the current decade.

This is a considerable amount of resources for any economy, at any time. Either as equity or debt, there is room for new investors in energy in the country. Using an equity-debt ratio of 30-70 percent, we come to $350bn in equity; as for the financing resources, those shall be sought in the market, since the main long term financing agencies in Brazil (development banks such as BNDES and BNB) are not able to extend their portfolio at the same pace – they shall, moreover, support the other infrastructure sectors with equally relevant investment programmes in the same period.

Investment incentives
In order to prompt new long term funding instruments for infrastructure, the Brazilian government recently granted tax incentives for application in debentures: foreign, as well as domestic personal investments, will not pay income tax on capital gains on these securities, which should yield six to nine percent per year after CPI inflation, depending on the risk analysis of each project.

These rates are attractive to many investors around the world as well as to the borrower, inasmuch as the projects have displayed sufficiently high rates of return.

Clearly this is a key moment for the Brazilian economy and the country’s infrastructure. And of all the sectors, energy – having a tradition in planning and standing as the focus of recent governments – is the best prepared to grow.

Fernando Camargo is Director of Investment, Corporate Finance and Energy at LCA; fernando.camargo@lcaconsultores.com.br; www.lcaconsultores.com.br

Technology ‘vital’, says banking group

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The financial meltdown that occurred in September 2008 revealed an economic crisis that had been latent for several years. Crédit Mutuel, a mutual banking organisation, has shown great resilience during this very difficult period and has been protected by the services it provides to its members. It is the only French bank not to have had its credit ratings downgraded by the international ratings agencies during the last three years.
The group achieved total net earnings of over €3bn in the last financial year, an increase of 61 percent.

According to the bank’s chairman, Michel Lucas, “These results reflect the work performed by our elected officers and employees over more than a century. The challenge of our founders was to ‘help and serve.’ We set out to rise to this challenge year after year by focusing our efforts on client-members.

“Our cooperative business model and devotion to the mutualist values of responsibility and solidarity have established the Crédit Mutuel’s reputation over time,” he says. “The group once again reaped the benefits in 2010 of its commitment to providing a service to people and the economy. It has pursued a controlled growth strategy in France and on international markets, adding to its product offering and expanding its lines of business.”

With a group share of capital and reserves of €32.3bn, the group has a floor Tier 1 solvency ratio of 11.5 percent (an improvement of 0.5 percentage points). According to Standard & Poor’s most recent report on risk adjusted capital ratios (the Basel criteria approach), Crédit Mutuel is the best capitalised bank in France.

This financial robustness is a key factor in providing a measure of the bank’s lasting success and security for client-members.

It is accompanied by a dynamic sales momentum related to the quality, motivation and permanent training of its staff; a proactive organisation and the use of efficient tools; and a strategy based on proximity and trust.

Dominating the market
In 2010 the group focused its efforts on injecting dynamism into an increasingly diversified offering, and has seen strong growth in its lending and savings activities, as well as its insurance, online banking, video surveillance and telephony businesses.

Individuals, associations, professionals and companies (in France, one in every three companies banks with Crédit Mutuel-CIC) have benefited from customised advice on their projects. This service is strongly enhanced by the expertise and skills of the bank’s 76,000 employees and 24,000 elected officers.

The performance of the insurance business has once again illustrated the strength of the bancassurance historical business model created by Crédit Mutuel 40 years ago, which now benefits more than 11 million customers.

The group boasts 5,875 points of sale (85 more than in 2009) including 5,369 in France and 506 outside Metropolitan France. Total current savings held stand at €575.5bn – a year-on-year increase of 7.2 percent.
Loans come to a total of €323.1bn – an increase of 6.1 percent – providing the economy with a greater proportion of active support than that shown by banks in other European countries. The market share of the networks in France stands at 14.2 percent for deposits and 17 percent for loans.

Over the past three years the group has developed its interests in neighbouring countries:in Germany with Targobank, and in Spain via an agreement with the Royal Automobile Club of Catalonia and stakes taken in Banco Popular, Cofidis and Monabanq. As a result of this geographic expansion, the group is now the fourth largest provider of consumer credit in Europe.

Banking on the move
Since technological expertise is a key component of its strategy, Crédit Mutuel-CIC is continually strengthening its position in the fields of electronic payment services, flow management and mobile telephony.
The group is now the second most popular provider of electronic payments in France, with almost 20 percent of the global market; and the leading provider of payments made with affiliated merchants, with 2,350 million operations handled for a total of €106bn – 33 percent of the market. It is second in France in terms of issuing interbank cards, with 8.8 million active cards.

Crédit Mutuel was the first French bank to offer merchants secure payment services over the internet, as well as the first to test contactless payments via mobile phones and bank cards. Now, thanks to its NRJ Mobile, Crédit Mutuel Mobile and CIC Mobile brands, the bank plans to offer further innovative approaches to mobile payment.

The priority given to personalised customer services can also be seen in the bank’s residential and professional video surveillance packages, where it is the dominant player in France with a market share of 30 percent.
This positioning has helped to form the identity of a bank that stands out from the rest: Crédit Mutuel-CIC won first prize for the banking sector at the BearingPoint-TNS Sofres Customer Relations Podium and was found to be France’s favourite bank in the Posternak-Ipsos image barometer.

The group has a firm focus on serving its client-members, supporting companies that create regional employment and playing an active role in financing the economy as and where needed.

With retail banking at the heart of its activity, Crédit Mutuel marries the strengths of a cooperative mutual bank with deep local and regional roots with the power of CIC to gain national and international reach in all areas of the finance and insurance businesses.

Locking out micro-finance

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Bank Rakyat Indonesia (BRI) has been the most profitable Indonesian bank for six years thanks to its aggressive focus on low-income businesses. The higher profit margins available in servicing micro and small commercial businesses have been a powerful engine for growth for the bank, which recorded IDR 11.47trn ($1.33bn) of net profit in 2010. A huge programme of expansion means the bank now has the widest banking business coverage in the nation, giving it the best access to Indonesia’s captive market of 240m people.

BRI is also the second largest bank in Indonesia in terms of assets: helping it to tap the potential of unbanked entrepreneurs, developing them into bankable businessmen and so empowering the economic community.

This focus comes with expensive operating costs and high capital needs for infrastructure – but this has not discouraged the bank from increasing its national penetration. Now with more than 7,000 outlets, the bank has created strong entry barriers to its competitors in serving Indonesia’s huge microfinance potential.

Working so closely with entrepreneurs means the bank has a real focus on providing excellent services that are relevant to local businesses’ actual needs. “We have gone all out in improving our performance,” says Sofyan Basir, CEO of BRI. “We optimise our intermediary function by disbursing healthy loans to prospective businessmen, particularly into micro, small and medium segments. We keep improving our services, and keep innovating new banking products and features to increase our fee-based income.”

“We have put much effort into raising low-cost funds and effectively manage our funding as well as improving our efficiency,” he says. “We aim to reach at least a 60 percent current and savings account deposit ratio through our outlet expansion strategy across this nation – the strategy also aims to create economies of scale.”

Indonesia’s growth potential
As the world secures its recovery from the financial crisis, emerging Asian countries such as China, India, South Korea and Indonesia have an optimistic future thanks to their abundant resources and greater potential for growth. Of course, the crisis caused a significant decline in global demand for Indonesia’s exports – but the huge potential of the country’s domestic market has not yet been fully realised.

For the banking sector this is a huge opportunity, and BRI’s expanding infrastructure, solid capital base and skilled staff give it a competitive edge to reach Indonesians at every economic level. “Our target is to serve at least 80 percent of our loan portfolio to micro, small and medium (MSM) businesses, but there is huge untapped potential everywhere in this country,” says Mr Basir. “As long as we can grow faster to provide services to those potential customers, we believe that we can create much higher ROE – and also relatively higher net interest margin, due to the fact that MSM businesses create higher margin.”

“We have already proven to the world that our company is one of the most attractive companies to invest in, as we are able to give return on equity around 30 percent,” he says. “However, we are also aware that market competition and regulators will bring our net interest margin down in the long run. Therefore, we continually try to boost our fee-based income as a second line income source.”

Knowing the market
According to Indonesia’s central bank, 99.9 percent of Indonesian entrepreneurs are categorised as micro, small and medium businesses – and approximately 60-70 percent of them have no access to banking services. Furthermore, a World Bank survey conducted in 2009 found that 32 percent of Indonesian citizens are financially excluded, and poverty is still high in the country. Other studies have confirmed this – the ratio of loan to GDP in Indonesia was 27.8 percent in 2010, indicating lower bank penetration.

Businesses are underserviced because of their size. There are more than 12,000 traditional markets in Indonesia, driving what the west would call the high street economy – but because they are small or sole traders, they are normally considered unbankable. Furthermore, traditional banking services are not available to these businesses because owners cannot leave the marketplace during business hours.

BRI’s strategy, however, is to bring banking services to the traders.

The bank has operated its ‘Teras’ – sub-micro outlets – since May 2009. These Teras embrace feasible but not-yet-bankable people and entrepreneurs, expanding BRI’s penetration into Indonesia’s traditional markets. Officers equipped with electronic data capture devices visit traders in their place of business to offer banking services such as microloans, deposits, utility payments and transfers. This pro-active approach is of significant benefit both to the traders and BRI, which would not otherwise have enjoyed their business.

BRI offers a wide range of market-driven products and continues to develop its offering, enhancing features of existing products or creating new and innovative ideas to fulfil customers’ needs in every segment. However it is the micro, small commercial and consumer segments in which BRI excels, with its unique ‘loan for unbanked’ business model. This helps feasible but not-yet-bankable people to expand their businesses so they can take advantage of BRI’s full services in the future. The bank provides mentoring for the borrower as part of its intensive relationship management programme, in effect grooming the business until it grows to small or medium-size. Unlike other microfinance institutions which offer microloans as a grant or government channelling programme, BRI’s microloans are entirely commercial.

Competitive advantages
BRI maintains its lead in the micro-finance segment thanks to its network of outlets – the largest in the country. Currently it operates more than 7,000 outlets across the Indonesian archipelago, and plans to add another 500 branches this year. With branches in every sub-district of the country, the bank is never far away from its existing and prospective customers. Furthermore, since the end of 2009, all of the bank’s branches have been able to provide real-time, online banking services – a key technological advance putting BRI steps ahead of its competitors.

The bank employs more than 75,000 staff, recruiting graduates from top universities and local staff in its branches. BRI has also committed to continuous professional development: employees are kept up to date with training seminars and higher education opportunities, helping the bank in its mission to become the biggest and best commercial bank in Indonesia.

However, because the microfinance sector is so lucrative and reliable, other banks are trying to threaten BRI’s dominance. “The biggest challenge in microfinance is maintaining our pace of growth while we are also urged to push down the operating cost,” says Mr Basir. The bank’s strategy is to continue development of outlets such as Teras, to create new products and features, and to improve levels of service and price competitiveness – thereby creating entry barriers to competitors and improve retention of existing customers. This expansion should also create economies of scale, while a separate investment in developing e-channels and new technology based-services such as phone, SMS and internet banking will lower transaction costs.

Corporate business
BRI is also expanding its reach in the corporate business sector, despite its typical low return and potential to reduce the bank’s overall net interest margin. However interest income is not the only reason to serve corporate customers, says Mr Basir. “We are also taking into consideration the multiple benefits of its trickle-down businesses, such as cash management, payroll, low cost deposits and administration fees.”

By targeting state-owned enterprise projects with government guarantees, BRI has penetrated the corporate sector while minimising its risk exposure: saving capital usage, and building synergies by cross-selling other products and services. However, says Mr Basir, this expansion is more to optimise the return on excess funds, rather than shift the focus of the bank. “Our core business will stay in the MSM segment, and maintain corporate loans not more than 20 percent of our total loan portfolio.”

A bank for the people
Mr Basir’s vision is for the bank to become the ‘national payment agent’ within three years. “We already have the enablers and infrastructures,” he says: “the largest customer base, largest networks all connected real-time online, qualified human resources, robust supervision and control system, as well as strong brand awareness.”
This awareness is helped by partnerships and cooperatives with villages: BRI offers soft loans and mentoring for sub-micro businesses (home industries, agriculture and animal farming), with the aim of empowering local communities and overcoming poverty.

The bank also funds programmes dedicated to local communities, including natural disaster recovery, building public utilities and infrastructures, scholarships for children from unfortunate families, and renovating public health facilities and places of worship.

“For us, availability and accessibility are the key points for expanding financial inclusion,” concludes Mr Basir. “More people utilising banking services will improve the economy.”

JPMorgan pays $153.6m in SEC settlement

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JPMorgan Securities has agreed to pay $153.6m to settle civil fraud charges against it for misleading buyers of complex mortgage securities investments during the collapse of the housing market, it was announced late on Tuesday. 


The SEC found that JPMorgan did not correctly disclose to investors that the vehicle had been created on behalf of hedge fund, Magnetar, and the role it played, namely that it was involved in picking CDOs for the portfolio and “stood to benefit if the CDO defaulted”. 
Under the settlement with the SEC, JPMorgan agreed to improve the manner it reviews and approves transactions relating to mortgage securities.


Head of the SECs enforcement, Robert Khuzami, said: “The settlement ensures harmed investors receive a full return of the losses they suffered.”
A JPMorgan statement said, it was pleased “to put this matter concerning certain 2007 disclosures behind us,” and added the SEC has not charged the bank with “intentional or reckless misconduct”.