Author: Max Tomlin

SoftBank strengthens with Fortress acquisition

Posted on by Max Tomlin

On February 15, Japanese tech giant SoftBank announced an agreement to acquire Fortress; marking a drastic shift away from the company’s traditional focus on technology and communications holdings.

Fortress is a prominent private equity firm managing a highly diversified range of assets including private equity, credit and real estate. The acquisition will cost SoftBank approximately $3.3bn, a mark above the private equity firm’s $2.3bn stock market valuation.

The SoftBank Group boasts a global portfolio of companies spanning telecommunications, internet services, artificial intelligence, smart robotics and clean energy technology

The SoftBank Group, led by founder Masayoshi Son, boasts a global portfolio of companies spanning telecommunications, internet services, artificial intelligence, smart robotics and clean energy technology. Son, one of Japan’s richest men, has earned a reputation for his ambitious and unconventional business moves.

The group has a self-proclaimed aim of driving the information revolution, and last year announced the establishment of a $100bn technology investment fund. The vast SoftBank Vision Fund will work in partnership with Saudi Arabia’s sovereign wealth fund, and is expected to invest at least $25bn over the coming five years. The decision to buy Fortress can thus be seen as part of a wider pivot towards asset management.

Son said: “This opportunity will immediately help expand our group capabilities, and, alongside our soon-to-be-established SoftBank Vision Fund platform, will accelerate our SoftBank 2.0 transformation strategy of bold, disciplined investment and world class execution to drive sustainable long term growth.”

Under the agreement, each Fortress Class A shareholder will receive $8.08 per share and may still receive up to two regular quarterly dividends before the deal closes at the end of this year.

SoftBank has affirmed its commitment to maintaining the business model, personnel and culture of the firm. The current leadership of Fortress consists of three “Fortress principals” – Pete Briger, Wes Edens and Randy Nardone – who are set to retain their roles as the deal goes forward.

Son said: “Fortress’ excellent track record speaks for itself, and we look forward to benefitting from its leadership, broad-based expertise and world class investment platform.”

Kuwait’s Islamic banks thrive despite continued economic uncertainty

Posted on by Max Tomlin

Over the course of 2016, we witnessed a major upheaval of the global economic environment. With the UK’s shock decision to leave the EU, the equally unforeseen outcome of the US presidential election, and Chinese growth at its lowest rate in more than two decades, the global economy is facing a challenging and uncertain future.

As the banking industry looks to effectively respond to this ongoing economic and geopolitical turbulence, the challenge of ensuring stability is perhaps most important for the oil-rich Arab states of the Arabian Gulf. The global drop in oil prices poses a significant threat to the Gulf Cooperation Council’s (GCC) crude-driven economies, and so GCC nations have seen a marked change in government spending, foreign investment and implementation of development plans.

Islamic banks are now exploring innovative solutions to enhance their position and deliver the best possible service to a growing pool
of customers

In light of this ongoing oil-related instability, the IMF has dramatically cut its annual economic forecast for the region, reporting GDP growth in the Gulf states slowed to just 1.8 percent in 2016.

Despite such challenges facing the region, one vital element of the Gulf states’ banking industry has continued to thrive: Islamic finance, a system of banking based exclusively on the principles of Sharia law, has been expanding rapidly in recent years. According to the consultancy and accounting firm EY, Sharia-compliant banking grew at an annual rate of 17.6 percent between 2009 and 2013, and is now projected to grow by an estimated 19.7 percent annually by 2018.

This rate of growth far outpaces that of conventional banks, putting pressure on traditional financial institutions to diversify their operations by including Sharia-compliant services. With the Islamic financial market becoming evermore competitive, leading Islamic banks are now exploring innovative solutions to enhance their position and deliver the best possible service to a growing pool of customers.

Staying competitive
As new competitors flood the Islamic finance market, established Islamic banks must reassess their strategies in order to remain at the top of the industry. At Kuwait International Bank (KIB), which became an exclusively Islamic bank in 2007, maintaining a competitive edge has become a major priority, and is set to shape the future direction of the bank.

“The Islamic banking sector is in a constant state of growth and development, and competition is only getting fiercer”, Sheikh Mohammed Al-Jarrah Al-Sabah, Chairman of KIB, told World Finance. “Not only are we seeing an increase in the number of Islamic banking institutions, but there is a definite push among conventional banks to diversify their offerings and enhance their competitiveness by entering the Islamic banking market, with some of them establishing an Islamic banking arm to their business.”

kuwait-bank-fig-1Over the course of its 45-year history in Kuwait, KIB has developed a strong presence in the nation, firstly as the only real estate dedicated bank in the country and more recently as a full-service Islamic bank. Since converting to exclusively Sharia-compliant services in 2007, the bank has paved the way for Islamic finance in Kuwait, establishing a strong presence for the industry in the nation’s financial landscape.

According to EY’s calculations, Islamic banking assets now account for 45.2 percent of Kuwait’s total banking assets (see Fig 1), and this figure is only expected to rise as the industry continues to grow. Yet despite this increasingly competitive market, KIB is confident it can be the Islamic bank of choice in Kuwait for both customers and employees.

In order to reach this ambitious goal, KIB has recently been implementing a comprehensive transformation strategy, designed to revolutionise operations at every level of the bank.

“The changing economic climate and the evolving state of the Islamic banking sector have prompted KIB to adopt a more aggressive approach”, said Al-Jarrah. “With a new, focused strategic outlook, we hope to elevate our presence within the industry and augment our competitiveness.”

This innovative transformation plan is currently being rolled out throughout the bank in three distinct phases. Launched in 2015, the first stage of the new strategy focused specifically on enhancing the bank’s organisational structure. This brought about a significant change in both KIB’s franchise operations and its day-to-day activities. The second phase of the transformation, which was implemented during 2016, aims to develop and enhance the bank’s product and service offerings.

In addition to reviewing the services currently on offer to customers and boosting the KIB product portfolio, this vital stage of the strategy also looks to reinvigorate all internal operations at the bank, in order to maximise effectiveness and efficiency. The final stage of the plan, which is scheduled to take place during 2017, will focus on boosting KIB’s competitive edge within the Islamic banking sector and the wider banking industry as a whole.

By dividing this ambitious transformation plan into three manageable phases, the bank has successfully adapted to the changes to its organisational structure and has, in turn, enjoyed a boost in performance.

“The cornerstone of our strategic plan is our vision of becoming the fastest growing bank in Kuwait”, said Al-Jarrah. “Now, thanks to our transformation strategy, we are well on our way to achieving this goal.”

Strategic success
Since launching its transformation plan in 2015, KIB has gone from strength to strength, reporting impressive growth in a range of key areas. In addition to restructuring its core departments, establishing new business units and divisions, and bringing fresh talent to the executive management team, the bank has also focused on developing its digital banking experience. Recognising the growing importance of an efficient, on-demand banking service, KIB has invested heavily in upgrading its IT infrastructure and its portfolio of Sharia-compliant digital services. This is an investment that appears to be paying off, with the bank reporting a strong overall performance for 2016.

KIB has invested heavily in upgrading its IT infrastructure and its portfolio of Sharia-compliant digital services

“Since the launch of our transformation strategy, we have seen significant growth across a number of crucial areas”, Al-Jarrah explained. “Overall in 2016, we achieved a net profit of KWD 13.5m ($44.3m) at the end of the third quarter, up 15 percent from the same period last year, when profits totalled KWD 11.8m ($38.7m).” The bank also reported strong growth in specific areas such as financing revenues, which rose by 21 percent compared to the same quarter in 2015.

Similarly, KIB’s total assets rose by five percent, to reach a total of KWD 1.83bn ($6bn), compared with KWD 1.74bn ($5.71bn) by the end of the same period the previous year. This impressive performance is also reflected in the bank’s asset quality, with its non-performing loans remarkably decreasing to reach a low of 1.39 percent – down from 4.39 percent for the same period in 2015.

“In addition to our strong and stable financial core, our growth strategy has played a key role in boosting our performance across all sectors”, said Al-Jarrah. “Furthermore, our new, experienced and focused management team has significantly bolstered our continued growth and success.”

Weathering the storm
While the Gulf states have been rocked by a period of economic instability, KIB has enjoyed success against the odds. Indeed, the Kuwaiti bank has fared so well the international credit agency Fitch Ratings recently upgraded KIB’s viability rating, while also reaffirming a stable outlook for its long-term issuer default rating of A+.

By maintaining prudent policies and implementing strategies that minimise risk and promote stability, the bank has managed to achieve strong results despite an uncertain economic climate. With KIB looking towards a promising future, the bank’s continued success reflects the strong overall performance of Kuwait’s thriving baking sector. “Despite the challenging economic circumstances affecting the region, the Kuwaiti banking sector continues to be one of the most important pillars of the country’s economy”, explained Al-Jarrah.

Kuwait’s banks are fortunate to receive ample support and regulatory insight from the government, and in particular from the Central Bank of Kuwait. The country’s central bank has long been a vocal champion of the country’s banking sector at large, providing banks with the support they need to prosper and remain strong in the face of testing economic conditions.

Furthermore, while the slump in crude prices has seen many oil-dependent Arab nations tighten their fiscal policies and resort to debt capital markets to address their budget deficits, the Kuwaiti Government has responded somewhat positively to the sharp fall in prices. Remarkably, decreased oil revenues appear to have motivated the government to diversify its GDP and boost the nation’s market performance by launching a number of innovative development projects.

“This approach to the sharp fall in oil prices not only reflects the government’s commitment to moving ahead with its development plans, but it also signals that capital spending – the main driver of the Kuwaiti economy – will not be affected by the drop in oil revenues”, said Al-Jarrah.

Bolstered by an evolving economy, along with generous government support, Kuwait’s Islamic banks are well positioned to weather the economic storm currently facing the oil-rich Gulf states. With a successful transformation plan now in place, KIB is adapting to this rapidly changing market, forging a competitive edge and solidifying its commitment to become a global leader in Islamic finance.

Political uncertainty sparks 21st century gold rush

Posted on by Max Tomlin

It’s a trend we’ve seen throughout the last decade; political restlessness and financial turmoil has consistently sent investors scurrying for cover under a gold pile. The sub-prime crash in the US housing market in 2008 – and the subsequent financial crises across Europe and Asia – pushed demand for low-risk investments, and the price of gold soared from $850 per ounce in 2008 to a whopping $1,850 in 2011.

By 2013, the EU sovereign debt crisis was in full swing, and investors opted for gold over bonds; pushing the metal over $1600 for the first two quarters of 2013. As the euro continued to plummet against its rivals, the Swiss National Bank reacted by halting the subsidisation of the CHF currency peg to the euro. Again, investors put their faith in gold, driving the price up by $90 in just one day. Scepticism around China’s GDP growth added to market jitters, and the Federal Reserve’s delay in raising interest rates in the US was the icing on the cake. Gold prices stayed high through the end of 2016, as the asset remained a popular choice for traders.

The golden age of trading
Investors looking to mitigate risk over the past few years have created a 21st century gold rush, and as 2017 gains traction, traders are still panning for the precious metal. Uncertainties over President Trump’s fiscal policies and concerns surrounding his protectionist stance have made charting the greenback as much of an art as a science of late, and prudent traders have driven the demand for gold even higher. The Trump inauguration saw the spot metal trading bullish, with the price topping $1220 before falling slightly once Trump had a few days in the Oval under his belt.

With further political uncertainty on the
horizon], markets are likely
to become even more
volatile as the stability of
the eurozone wavers

America isn’t the only economy to experience a change of power this year; France, Holland and Germany all have elections on the horizon. With nationalist parties gaining momentum in France and Holland in particular – and the risk of further referendums on EU membership dawning – the markets are likely to become even more volatile as faith in the stability of the eurozone wavers.

Brexit too, will kick off properly in 2017. Despite the Supreme Court ruling MPs and peers must give their consent before the government can formally roll out Brexit, it is anticipated that the Article 50 deadline will be met at the end of March. While the outcome is not expected to be any different from the referendum, the uncertainty and delay will further unsettle the markets.

Striking gold with forex
It might be measured in dollars, but gold is intrinsically linked to the money supply of countries all over the world. It is the benchmark of the market; deficit spending at a national level will inevitably harm the value of a currency, but gold is a finite resource and it will hold its value regardless. As such, our favourite yellow metal is a permanent fixture of the forex markets.

Many forex investors view gold as the answer to tumultuous trading environments: a reliable asset protected from political and economic uncertainty, and widely accepted as collateral. This safe haven investment is a welcome solution to 2017’s potentially volatile currency markets.

It makes sense, then, that award-winning forex broker FXTM would be among the first to offer its traders the opportunity to invest and store funds in physical gold. The broker is now using London-based BullionVault to deliver a market-leading service to investors throughout the world. This expansion of its services – partnered with the world’s largest online gold investment service – will not only allow traders to buy gold quickly and easily from their MyFXTM account, but will also enable them to utilise that gold as collateral to trade.

This timely addition to an award-winning platform has been well received by FXTM traders. The opportunity to confidently hedge against 2017’s potentially volatile market risks gives them a distinct advantage over competing traders.

European growth forecast cautiously optimistic despite uncertainty

Posted on by Max Tomlin

In the first set of forecasts since Donald Trump’s election victory, the European Commission has upgraded its growth expectations for the European economy. The region’s recovery is set to pick up pace owing to positive momentum in the global economy, a predicted uptick in investment and sustained employment gains.

GDP growth in the EU is predicted to reach 1.8 percent both this year and next, while the eurozone is expected to grow 1.6 percent in 2017 and 1.8 percent the following year. This is slightly up from the autumn forecast for the euro area, which foresaw growth of just 1.5 percent and 1.7 percent, respectively.

A key consideration in the forecasts was the heating up of the global economy, with many emerging markets – as well as advanced economies – likely to see a boost as a result of Trump’s proposed fiscal stimulus. Taken together, this is set to have a positive impact on European exports, which were generally weak in 2016.

Though growth estimates
are broadly positive, the European Commission emphasised uncertainty is much higher than usual

The ongoing burden of public debt is also predicted to improve, with the aggregate public deficit expected to fall through 2017 and 2018. While public finances are projected to remain in deficit, the debt-to-GDP ratio is expected to shrink from 91.5 percent in 2016 to 89.2 percent in 2018.

This said, there will be substantial variation among EU member states, with debt crises far from over in certain economies. While Greece faces the possibility of spiralling debt for years to come, France has been warned it must implement austerity measures immediately if it is to avoid breaching EU deficit rules.

Valdis Dombrovskis, Vice President for the Euro and Social Dialogue, commented: “We also need to focus on inclusive growth, ensuring that the recovery is felt by all. With inflation picking up from low levels, we cannot expect current monetary stimulus to last forever. Therefore countries with high deficit and debt levels should continue bringing them down to become more resilient to economic shocks.”

Though growth estimates are broadly positive, the commission emphasised uncertainty is much higher than usual, and that risks are “exceptionally large”. A number of potentially disruptive elections – set to take place in the coming months – continue to cast doubt over growth and stability in the EU. This, coupled with the UK’s proposed withdrawal from the union, presents a key source of uncertainty in the market.

Trump’s yet-to-be-clarified policies also pose substantial risks, with proposed disruptions to global trade holding the potential to dampen global demand.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “The European economy has proven resilient to the numerous shocks it has experienced over the past year. Growth is holding up and unemployment and deficits are heading lower. Yet with uncertainty at such high levels, it’s more important than ever that we use all policy tools to support growth.”

Low-risk banking in high-risk countries

Posted on by Max Tomlin

According to Cabaret, money makes the world go round. With only a few exceptions, the lives of everyone on the planet involve processing transactions and the movement of money; it is as important to multinational commerce as it is to a market trader in Malawi.

But our access to finance and efficient financial services is anything but equal. In the West, we take banks, cashpoints, loans and other financial products for granted. In many developing and crisis-hit regions, however, an open and well-functioning financial system is a distant dream.

Technology and financial inclusion
In recent years, technological innovation has helped millions of people who have not previously had access to reliable financial services. Mobile phone payments in particular have reached millions of the ‘unbanked’ across the globe. In at least eight countries, more people now have mobile money accounts than traditional bank accounts. According to The Economist, within six years of the introduction of Kenya’s first mobile phone payment system, the value of transactions made by mobile phone in the country reached $24bn – half the value of its GDP.

This is excellent news for those offering the services, for companies hoping to reach new markets, and for developing countries themselves. The more people who have access to a safe, reliable financial system, the better off we all are. To misquote Cabaret: financial inclusion makes the world go round.

Unintended consequences
In the past few years, though, the momentum has slowed. Since the financial crisis, many regulatory and compliance initiatives have been introduced with the intention of improving trust and confidence in financial markets. Unfortunately, the cost of this additional compliance work has impacted banks’ profitability, with the unintended consequence of moving banks and other institutions towards de-risking.

Faced with stringent requirements to combat money laundering and the financing of terrorism, as well as the prospect of personal liability for management should something slip through the net, institutions have stripped products and services from high-risk regions and from entire financial services sectors, such as correspondent banks and money services bureaus (MSBs). According to Accuity’s research, while the number of banks worldwide continues to increase, there has been a 39 percent drop in the number of correspondent banking relationships since 2013.

Firms have already shown they can develop products that are needed and widely used in high-risk countries

The broad-brush approach to de-risking taken by banks has served its immediate purpose in protecting institutions from the threat of reputational and financial damage. However, in the long term it is simply not sustainable or helpful to people and countries who really need access to fast and efficient financial services.

A striking illustration that was noted in an article by IPTMA is the case of Ram Karuppiah, a money transfer agent who opened an outlet in Darwin, Australia in 2010. At the time, the region was rife with cheap, unregulated and illegal international money transfer activity. Karuppiah spent years convincing local people to use reasonably priced and regulated alternatives, building up a successful business that helped to achieve the Australian Government’s objective of encouraging people away from black market money transfers. He even became ACAM-certified so he could put in place compliance controls.

But over a five-year period, Karuppiah steadily found himself ‘de-banked’, as a succession of institutions refused his business on the basis that remittance providers were too risky on anti-money laundering and sanctions compliance grounds. Without a relationship with a large bank or the connection with correspondent banks that allowed the transfer of funds abroad, his business eventually folded.

De-risking may have been the logical approach, but there was a very human impact. Whether it is a money transfer agent in Darwin or a large bank in Dubai that cannot transact with the rest of the world, the ultimate effect is that millions of people are being excluded from the financial system. But that is not the end of the story – if they are excluded from mainstream finance, they will look for alternatives on the unregulated and black market. We are in danger of promoting the very problems we are trying to solve.

Not all institutions are equal
Many people could benefit if banks were more willing to work in higher-risk regions. Yes, some countries are riskier than others, but not all individual institutions are equal. Within high-risk regions there are many excellent, well-managed institutions and potential clients. Established banks are, in effect, avoiding what is a rich potential source of revenue. There is always low-risk business to be done in high-risk countries.

We have seen this first hand at Accuity. We have recently worked in the Republic of Congo with a newly established bank to put in place systems that meet the compliance expectations of correspondent banks in the main trading and clearing hubs – effectively allowing this bank to act as a local correspondent institution and open up the region for business.

Similarly, we have worked with banks in Myanmar, including CB Bank, to help them improve their compliance systems in response to the EU lifting its sanctions against the country in 2013. As other sanctions against Myanmar continue to be lifted, we see it emerging as a great destination in which to do business.

The building blocks for financial inclusion are in place. Firms have already shown they can develop products that are needed and widely used in high-risk countries. The second stage is the method of delivery in countries that lack financial infrastructure – banks and fintechs innovate well in this area by focusing on the technology that is readily available, such as mobile phones.

That leaves the final piece of the jigsaw: demonstrable confidence. Banks need to be confident they are effectively managing the risks of doing profitable business with entities, even if in high-risk regions. Correspondent banks and other service providers within those regions need to be able to demonstrate they have high standards of compliance and risk management processes, systems and culture in place.

Granular risk assessment
This means looking beyond the broad-brush approach of assessing risk at a country or sector level. If we are to improve financial inclusion, banks and other institutions need to take a more granular-level approach to identifying and managing risk, looking beyond the geographical red flags of high-risk regions and sectors.

8

Number of countries in which more people have mobile bank accounts than traditional ones

$24bn

The value of Kenya’s mobile phone transactions

We have the data and the analytical power to examine individual entities – and automation of compliance and risk assessment processes allows us to make those assessments in a cost-effective way. Typically a bank’s ‘know your customer’ (KYC) processes will address the following three questions: can I verify who my client is? Can I do business with them? And should I do business with them?

The first question is the most straightforward and sets the framework for assessing the risk to the business as it focuses on who ultimately owns and controls an entity. Who are its ultimate beneficial owners (UBO) and to whom are they linked? Who are they doing business on behalf of? A risk assessment has to be conducted across this network of linked entities and individuals to get a true picture of the real risk of doing business with that particular client or counterparty.

The second question looks for any known reason the bank cannot do business – because of sanctions, for example, or a control order. In some cases the answer will be clear but in others, such as in the case of a narrative sanction, further analysis will be required. Are you confident, for example, that no sanctioned individuals have a controlling stake in the institution and its subsidiaries?

The third question is far broader, wider reaching and, in some cases, more subjective because it is based on a company’s own risk assessment and policies. This question seeks to identify if there are any other known risks that would prevent a company from doing business with another. Within certain high-risk jurisdictions, this question might be harder to answer to gain the level of comfort required to be able to conduct business with that entity.

In less high-risk countries, this process is still challenging, as there is a huge amount of structured and unstructured data available. Dealing with high-risk developing regions poses a different challenge, and in certain sectors this challenge is exacerbated: MSBs, for example, are far harder to know than a bank. Similarly, it means finding and accessing data in regions that might not have a huge wealth of easily accessible information. But it is by no means impossible.

The quality of data is essential: the best compliance and risk assessment processes are only as good as the data they rely upon. At Accuity, our financial counterparty KYC and UBO data offers a single source of truth for global intelligence on financial institutions, supplemented with additional information to create a ‘risk picture’.

Manage risk and stay competitive
The challenge for institutions operating in high-risk regions is to make sure risks are properly managed, while the business remains competitive and agile. Doing business in high-risk regions is potentially more expensive, but the right tools keep costs at a manageable level, and confidence high.

Ensuring good business is conducted through trusted financial services is paramount to a well-functioning global financial marketplace. The consequence of blanket de-risking – pushing activity outside legitimate financial services, creating even greater systematic risk, and reducing the flow of foreign investment and business in certain regions – is against everyone’s interest, and is something intelligent risk management can help us avoid.

Swiss referendum rejects corporate tax plan

Posted on by Max Tomlin

On February 12, a Swiss referendum resolutely rejected a proposed tax plan that would have put an end to international disputes over its current system. Currently, multinational companies are allowed to pay ultra-low taxes relative to their domestic counterparts, making Switzerland particularly attractive to foreign investors.

The special status granted to multinationals has given rise to international criticism, with some foreign companies paying little more than the 7.8 percent federal tax. The system has been deemed unacceptable by the OECD, which has prompted the Swiss government to commit to reforming it by 2019.

Switzerland’s current tax system has been deemed unacceptable by the OECD

The privileged status enjoyed by multinationals has long been a perk for foreign investors in Switzerland. As such, the reform aimed to strike a careful balance: reducing the gulf between the tax status of foreign and domestic firms while preventing a mass exodus of multinationals.

The plan aimed to reduce this disparity by abolishing the tax differential between foreign and domestic firms; slashing taxes for domestic firms in order to limit the tax hike faced by multinationals.

However, this special status would still have remained to some extent, with potential tax breaks set aside for research and development. While the business community broadly supported the proposal, some criticised its potential to create budget shortfalls.

According to the Financial Times, the Swiss Social Democratic party argued: “Instead of simply abolishing existing tax loopholes, new ones will be introduced and corporate taxes cut massively.”

The business community in Switzerland now faces considerable uncertainty as the government pieces together a new tax plan with greater appeal to the electorate. According to Switzerland’s Finance Minister, Ueli Maurer, “it will not be possible to find a solution overnight”, and the country risks losing foreign investment as a result of the referendum outcome.

Revolutionising cross-border payments with distributed ledger technology

Posted on by Max Tomlin

In August, a World Economic Forum report declared blockchain would become the “beating heart” of the global financial system. Among the most popular uses cited for the recently popular technology were cross-border payments and correspondent banking. Both have been portrayed as slow, complex and inefficient.

Distributed ledger technologies (DLTs) like blockchain have shown great promise in cutting costs, simplifying processes and providing transparency in data sharing throughout the payment system.

Competing visions
The hype surrounding blockchain in the last few years has led to the implementation of a number of new platform initiatives. While these platforms vary in many regards, the most notable differences relate to their distributed economic consensus methods and the way in which they achieve trust. As a result, there are huge gulfs between permissionless and permissioned distributed ledger systems. For instance, there is a difference between Bitcoin’s pseudonymous ‘proof of work’-based decentralised system and Ripple’s more centralised system, which operates on a ‘validator’ basis. Consequently, there are also trade-offs regarding their speed, the costs involved, irrevocability and finality of payments.

These new types of ‘consensus as a service’ platforms have yet to prove they can deliver on the promise of creating efficiencies in the international payment space, by making payments faster, more secure and transparent. However, the question still remains: what are the key issues that will need to be addressed moving forward?

Lessons learned
Having studied the history and development of SWIFT (Society for Worldwide Interbank Financial Telecommunications) in my book SWIFT: Cooperative Governance for Network Innovation, Standards and Community with Susan V Scott, our research has led us to some valuable findings regarding what it takes for a cross-border payments platform to be successful – and, in turn, how it can hope to find itself at the core of the global financial system. We have also worked on ascertaining the drawbacks that newer platforms must try to avoid as they compete in the international payments market.

Distributed ledger technologies have shown great promise in cutting costs, simplifying processes and providing transparency

SWIFT was initially founded to replace out-dated technologies, such as the telegram and telex, so its technological capabilities were undisputable. Furthermore, efficiencies in the payments lifecycle were largely anticipated. However, the key issue SWIFT struggled with in its first few years was interfacing with existing technologies.

While it took time to respond to these challenges – which then delayed their adoption – commoditised products, such as the SWIFT Interface Device or subsequent terminal devices, proved to be a stepping stone to achieving critical mass, as they allowed a seamless and cheaper connectivity to the network.

Creating a common language that would provide the basis for the automation of transaction processes was also at the top of the SWIFT agenda from the beginning. Having said that, messaging standards were not created in a vacuum. Throughout SWIFT’s history, we traced a number of disputes and conflicts, which made it clear voluntary consensus was the only way forward in order for the sector to attain process innovation and business transformation.

As expected, this came with time and only after establishing co-operative principles and a sense of community across the industry. Finally, SWIFT made a great effort that lasted more than two decades to not only internalise and influence regulation in cross-border payments, but to also level the playing field when it comes to different jurisdictions.

Blocks in the road
At the moment, the different DLT platforms have showed little appetite to cooperate and discuss standards. In addition, lack of platform integration can lead to a fragmented payments landscape. This could prove more expensive for both large and small firms to maintain.

While competitive pressures can push for quality of services, it is still unclear how the benefits of DLT are going to be realised in the mid-term for the sector in its entirety if there is little cooperation among institutions globally on key issues such as standards, platform protocols, regulation and technology adoption.

Le Pen plans eurozone exit

Posted on by Max Tomlin

Marine Le Pen, leader of French populist party the National Front, has launched her campaign with a plan to tear up the eurozone; creating a new French currency in its place. The plan would repay national debt by breaking contractual obligations and denominating national debt into the new currency.

In a departure from decades of consensus regarding central bank independence, Le Pen also proposes to ditch the 1973 law preventing the central bank from printing money for the Treasury.

The currency would be used to target the country’s public debt, with the party
proposing the debt would be redenominated into French francs

Le Pen’s advisor, Bernard Monot, detailed the party’s unconventional economic strategy at a campaign rally on February 4, revealing the new currency would likely be called the “new French franc”. The currency would be used to target the country’s €2.1trn ($2.24trn) public debt, with the party proposing the debt would be redenominated into French francs.

David Rachline, the head of strategy for the National Front, clarified this further, telling the Financial Times that approximately 20 percent of the €2.1trn ($2.24trn) would remain in euros in order to conform with international law. However, he claimed the government would have the “right to change the remaining 80 percent into a newly issued currency”.

In a statement reported in The Economist, S&P’s head of sovereign ratings Moritz Kraemer said this would unambiguously be perceived as a default: “If an issuer does not adhere to the contractual obligations to its creditors, including payment in the currency stipulated, [we] would declare a default.”

According to Monot, the value of the new French franc would not be allowed to fluctuate by more than 20 percent against an EU currency basket. This opens up extensive scope for devaluation, which would lessen the size of the debt in euro terms. Monot also said the central bank would launch a new quantitative easing programme, generating in the region of 100 billion francs per year for the government – with part of this new revenue being put towards repaying government debt.

The plan has been steeply criticised by Bank of France Governor François Villeroy, who said: “The French spread may also temporarily react to political uncertainties, but remaining in the euro over the long term continues to be our best protection.”

Standard Chartered: the digital bank with a human touch

Posted on by Max Tomlin

At Standard Chartered Bank, our aspiration is to be the digital bank with a human touch. That said, becoming a truly digital business is not just about being forward looking: it is about pushing towards a strategic transformation that will allow us to create new and exciting services for our customers, thus enabling them to interact with us seamlessly.

Our digital transformation has been fortified by our drive to deliver superior value, as well as a user-friendly experience for clients, equipping our frontline agents with digital insights and incorporating cutting-edge technology into our processes.

Banking is fast approaching a bright new digital world, and technology will be at the forefront of our customer-centred vision for the future.

In this digital journey, we are guided by the following core pillars: simplicity, personalisation, mobility and agility. But above all else, our driving motivation has always been our clients and how to improve their banking experience. To deliver on our promises, we believe that harnessing the power of technology will complement our clients’ active and fast-paced lifestyles, remove obstacles and provide freedom and access to our services on our customers’ own terms. We also believe that our enhanced services will empower our customers and give them the choice and opportunity to bank in a way that’s both fresh and innovative.

Collaboration is key
There is no denying digital banking is already part of our clients’ lifestyles; more than one third of our retail banking clients in Singapore use digital banking platforms as their preferred mode of banking, and complete the bulk of their transactions in this way. In fact, our customers are increasingly choosing to make online transactions over physical transactions.

Striking the balance between a personal service and technologically optimised banking is a difficult task

We also think it is important to collaborate with like-minded partners to deliver practical solutions and high-quality products that are unique in the market. In 2016, we became the first – and only – international bank in Singapore to offer a complete suite of mobile-based and scheme-based wallets to our clients.

We are collaborating with wallet providers such as Apple, Samsung and Google, as well as Visa and MasterCard, to deliver convenient and seamless payment methods for our clients, affording them with more options and greater flexibility. Since striking these partnerships, we have witnessed a high adoption rate among our cardholders for the recently launched digital wallets, a testament to the popularity of such schemes.

The bank also believes that, in order to meet our clients’ needs in the digital ecosystem of today and tomorrow, collaboration between the financial and technology sectors will lead the way forward. There is no better example of this than our recent collaboration with Uber, the world’s most popular ridesharing app. We are now offering credit cardholders in six markets (Singapore, Indonesia, Malaysia, Vietnam, India and the UAE) up to 25 percent cashback for all global Uber rides. This collaboration is part of Standard Chartered’s digital agenda to deliver simple and convenient banking through digital channels for increasingly tech-savvy clients.

Providing the human element
Banking is, after all, a service, and Standard Chartered Bank understands that, even in the digital age, it is important to incorporate a human element into our digital channels. While clients often speak fondly of the warm service they experience when transacting at our branches, at the same time many have migrated to self-service banking or digital banking.

Striking the balance between a personal service and technologically optimised banking is often a difficult task, but maintaining client relationships and points of reference between our bank and our customers is of paramount importance to us. And this means bringing a human touch to the digital landscape.

Standard Chartered is the first bank in Singapore to offer video banking to clients directly from our website. This is another milestone in our retail banking digital journey, as video banking offers clients all the features and benefits of a face-to-face interaction at a branch, but with the flexibility and convenience of banking from just about anywhere. Clients can choose to connect securely with us via video call, audio call or text chat. Since its launch in June 2016, we have had more than 6,000 interactions with our clients through these new channels.

Standard Chartered is investing in technology in order to streamline the application and processing of financial products

We are also focusing on achieving end-to-end digitalisation for the entire process in order to enhance the experience of tech-savvy clients when they access banking services. This involves harnessing technology to help our staff to serve clients more efficiently.

In 2016, we started using the Retail Workbench, a digital tablet-based sales and service tool that brings the bank to clients. Seamlessly integrated with the bank’s back-end infrastructure, it allows sales staff to open accounts for clients digitally and makes banking services much faster, simpler and completely paperless. Through incorporating such tools, we are able to use digital technology to deliver a better banking experience for all of our clients.

Our customers have increasingly mobile lifestyles, and we think it is important to provide them with instant services on the go. With deposits and other banking products on a single mobile platform – along with a suite of product information and digital marketing brochures – our staff will be able to respond to a client’s needs instantly and in person.

This is a clear demonstration of how Standard Chartered is investing in technology in order to streamline the application and processing of financial products, while generating higher productivity, greater cost efficiency and stronger risk controls for the bank.

DSC_9230F2_inline
Dwaipayan Sadhu, Head, Retail Products, Standard Chartered Bank (Singapore)

The digital journey
Developing unique offerings, such as video banking and the most extensive mobile payment solutions in Singapore, has been part of the bank’s culture for years. Standard Chartered has been the first to move in many areas, and we pride ourselves on staying ahead of the game.

We were the first to launch a two-in-one internet banking security token credit/debit card in Singapore, which is still unmatched by the calculator-like, clunky, standalone internet banking security tokens issued by other banks. We were also the first (and only) bank in Singapore to provide clients with online equity trading access to more than 10,000 shares listed on 13 major stock exchanges in 10 global markets on our digital platform.

Many of our early investments in digital technology have already reaped positive results. Digital adoption and transactions have grown exponentially, and we have consistently been rated best in class by Global Finance, winning the World’s Best Internet Banking award for six years running. This year, World Finance awarded Standard Chartered the titles of Best Digital Bank and Best Mobile Banking Application in Singapore, making 2016 our seventh consecutive year to win prestigious industry accolades in Singapore.

But we are not stopping there. Over the next 12 to 18 months, we plan to further digitalise our business and add to the capabilities that we are already offering. We will continue to introduce new products and services on our digital platforms and we will remain responsive to the ever-evolving expectations of digital consumers. This includes developing and enhancing cross-border real time foreign exchange payments, biometrics and our mobility platform for frontline agents.

As part of the bank’s long-term strategy, we aim to strengthen our digital capabilities, reach out to our customers with digital technology, and further enhance our clients’ banking experience through innovation. Our clients have always been at the heart of our efforts to innovate and digitalise banking, and will continue to be the focus of our digital evolution in the years to come.

Alibaba payment provider ups ante in global investment strategy

Posted on by Max Tomlin

China’s largest online payments provider, Ant Financial, is seeking to raise nearly $3bn in debt financing in order to fund a range of ambitious overseas acquisitions. The group, which is an affiliate company of ecommerce giant Alibaba, is in the early stages of talks with banks to raise funds, a confidential source told Reuters.

In January, the fintech group confirmed it would acquire the US money transfer company MoneyGram for a substantial $880m, marking a significant step forward for Ant Financial’s overseas ambitions. Boasting over 350,000 outlets in nearly 200 countries, MoneyGram’s globalised business model will allow the Chinese company to expand its presence outside of Asia, and will give the group a crucial foothold in the lucrative US market – where international money transfers total over $50bn annually.

Ant Financial’s spree of international mergers and acquisitions suggests the company is gearing up for a significant stock market debut

Back in its home nation of China, Ant Financial is the nation’s leading digital payments group. Its portfolio of services includes the online banking app MyBank and the digital payments platform Alipay, which has over 450 million users. In an effort to advance its international presence, the fintech group has recently snapped up a significant stake in India’s leading mobile payments service, Paytm, which has seen a 300 percent hike in downloads since the country’s demonetisation of its 500 and 1,000 rupee notes in November.

The Chinese company has also invested in Thailand’s e-payments service Ascend Money – the digital payments arm of the nation’s largest private company, Charoen Pokphand.

Ant Financial’s effort to raise $3bn in debt financing suggests the company is making overseas investment a priority. The company is raising the money in dollars rather than Chinese renminbi, in order to fund its acquisition of MoneyGram and facilitate other international purchases. According to a Reuters source, Ant Financial chose to raise the funds through debt financing due to favourable interest rates on bank loans.

Ant Financial is expected to go public within the next two years, and may make its IPO in China. Its parent company, Alibaba, achieved the largest global IPO in history when it debuted on the New York Stock Exchange in 2014, raising a record-breaking $25bn. While Ant Financial cannot expect an equally impressive valuation, its recent spree of international mergers and acquisitions suggests the company is gearing up for a significant stock market debut.

Anthem-Cigna merger blocked by Federal Judge

Posted on by Max Tomlin

On February 8, the proposed merger between rival insurance giants Anthem and Cigna was blocked due to competition concerns. Had the merger gone ahead, the company would have become the largest insurance company in the US by membership – boasting a total annual revenue of $115bn and providing coverage to approximately 53 members.

At the time of the agreement, Joseph Swedish, President and CEO of Anthem, claimed the merger would “deliver meaningful value to consumers and shareholders through expanded provider collaboration, enhanced affordability and cost of care management capabilities, and superior innovations that deliver a high quality healthcare experience for consumers”.

However, since the merger was announced in July 2015, the union has encountered several stumbling blocks.

The initial agreement came amid another pairing of the ‘big five’ American health insurers, with Aetna and Humana also proposing plans to merge. The announcements triggered a backlash against what would be a substantial consolidation of the US health insurance industry, with the Department of Justice (DOJ) suing to block both acquisitions.

Had the merger gone ahead, the company would have become the largest insurance company in the US

Attorney General Loretta E Lynch said in July: “If these mergers were to take place, the competition among these insurers that has pushed them to provide lower premiums, higher quality care and better benefits would be eliminated.”

The deal ran into further difficulties in September, when the DOJ disclosed court documents revealing a behind-the-scenes clash between the companies – with each side accusing the other of breaching their agreement. The dispute prompted concerns that the cost savings the companies had touted in defense of the merger were not realistic.

Judge Amy Berman Jackson of the Federal District Court for the District of Columbia provided the final judgement; supporting the arguments made by the DOJ and officially bringing the agreement to a halt.

“The evidence has also shown that the merger is likely to result in higher prices, and that it will have other anticompetitive effects”, the judge wrote, according to The New York Times. “It will eliminate the two firms’ vigorous competition against each other for national accounts, reduce the number of national carriers available to respond to solicitations in the future, and diminish the prospects for innovation in the market.”

Jackson also referenced the documents regarding the companies’ dispute, referring to them as “the elephant in the courtroom”. She dismissed the prospect that such differences between merging parties should be seen as a mere ‘side issue’, writing: “The court cannot properly ignore the remarkable circumstances that have unfolded both before and during the trial.”

The move to maintain the big five marks a huge win for the DOJ. “Today’s decision is a victory for American consumers”, said acting Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.

Myanmar’s changing fortunes

Posted on by Max Tomlin

Over the past five years, Myanmar has undergone a transformation. Separated from the rest of the world for almost five decades under economic sanctions and an authoritarian military leadership, the country lagged severely behind the rest of the world, including its regional neighbours. But a host of economic and political reforms since 2011 – not least following Aung San Suu Kyi’s historic electoral victory in November 2015 – have started to turn things around, and now the country’s financial sector is beginning to feel the benefits. Among those benefiting is KBZ, the biggest bank in Myanmar. Through a strategic, long-term approach, the company is paving the way for a sustainable economic future, implementing innovative corporate social responsibility programmes and setting out ambitious plans for both its people and operations.

World Finance spoke to U Nyo Myint, Senior Managing Director of KBZ Group of Companies, about how the bank has changed over the years, how it is helping the country’s economy to develop, and what lies in store for its future.

How did KBZ Bank start out?
Kanbawza Bank (KBZ) was established in Taunggyi in the Shan State in 1994. It started as a privately owned bank, and remains the largest one in Myanmar today. In 1999, the current management – led by U Aung Ko Win and his family – took over operations, and over the last two decades the company has established a firm position in the local market.

When Myanmar began liberalising its financial sector, KBZ led the way

KBZ prides itself on being an ethical institution committed to improving the lives of its employees, customers and communities, and has been instrumental in supporting growth in the local community. The company started out with just one branch and now has 420. It has also recently started to expand into regional markets, with representative offices in Bangkok, Singapore and Kuala Lumpur.

The bank is the most profitable organisation in Myanmar and has been acknowledged as the highest tax contributor in the country for the past four years, occupying a market share of more than 40 percent in the banking sector (in both the commercial and retail segments). The bank outperforms its peers in several areas, including customer experience, product delivery, financial performance, innovation and resilience, with its key pillars – investing in technology, human capital, career opportunities and social responsibility – helping to drive its success.

What forces have shaped KBZ into the bank it is today?
The strategic approach taken by KBZ’s chairman, U Aung Ko Win, has played an important role in the bank’s success. Prior to 2012, Myanmar’s financial sector was significantly behind that of its neighbours, with the country having been under military control for more than five decades. In late 2012, when Myanmar began liberalising its economic and financial sector, KBZ led the way, adapting to the new challenges and demands facing the sector and undergoing several changes.

The bank’s transformation helped distinguish it from others in the sector. It recognised the need to introduce a forward-thinking approach in order to ensure long-term, sustainable growth and remain competitive, both among local and foreign institutions.

In 2013, KBZ implemented a ‘four diamond arrowhead’ strategy, which centred on building human capacity, leveraging technology, realigning the business and strengthening corporate governance and risk management functions. The transformative strategy has allowed the bank to adapt effectively to the changes brought about by regional and national reforms, the success of which has been demonstrated by its consistently strong financial performance and sustained leading position.

What have been KBZ’s most notable achievements over the years?
KBZ has invested significantly in helping to improve the living standards of local communities. The bank has also contributed to Myanmar’s overall economic growth, creating jobs and providing career opportunities to people of all backgrounds through an open, positive working environment.

On the back of its financial performance over the past four years, KBZ has received recognition from international publications including World Finance, The Banker, Euromoney and Asian Finance, as well as Finance Asia, who named it the best domestic bank in Myanmar. KBZ also received the Highest Taxpayer Award (2012-2015) from the Myanmar Government, and was named the most transparent company in Myanmar by the Myanmar Centre For Responsible Business. The ASEAN Business Community, meanwhile, gave the company the title of Most ASEAN-Admired Enterprise in Myanmar.

How has Myanmar’s changing political and economic landscape affected KBZ?
Under the newly elected democratic government, Myanmar is undergoing another economic and political transformation. The new regulations for banking, investment, insurance, capital market and trade will result in further liberalisation of the industry, bringing new growth opportunities, as well as new challenges.

kbz-fig-1The US Government also recently lifted its economic sanctions against Myanmar; this is likely to fuel further interest for investment in the country (see Fig 1). As that happens, KBZ will need to work hard to ensure it retains its leading position in the market.

As an ASEAN member country, Myanmar is also subject to regional and international reforms that could affect its economy, such as the ASEAN Free Trade Agreement. KBZ is confident the strong foundations it has laid will ensure the bank is able to effectively reposition itself and meet the challenges while reaping the opportunities.

Given the size and influence of KBZ, how is the company helping to further develop Myanmar’s economy?
The banking and financial sector will prove vital in supporting Myanmar’s growth going forward. The country’s liberalisation – which began in 2013 and led to unprecedented growth in the sector – and the emergence of foreign banks, insurance companies and stock broking companies has contributed significantly to Myanmar’s overall economic growth. A new approach to banking is now needed given the entrance of multinational corporations, the growing demand for sophisticated products and new requirements for funding.

As the largest bank in Myanmar – with the highest number of touch points in terms of branches and electronic service terminals – KBZ has a key role to play in this development. The bank has focused on modernisation, and its ongoing investment in technology has helped bring about new products while improving service delivery and sustaining growth.

With the sector’s overall development in mind, KBZ has made its people a priority, investing in leadership programmes and talent management initiatives in order to enhance productivity. KBZ was the first local bank to pioneer an internship programme: working with the University of Yangon’s Institute of Economics, the programme is designed to give final year undergraduates a route into the banking industry. KBZ has also expanded its offering to staff more generally by adding another training institution.

The company is also working hard to improve penetration and make banking accessible to more people, with a channel strategy in line with the government’s aims of increasing inclusivity in the finance sector.

As in other developing countries, SMEs are one of the key pillars for growth in Myanmar, which is why KBZ has provided funding to help them develop. To this end, the company created a unique Business Banking Division, complementing the Retail and Wholesale Banking segment, which is designed to offer products with flexible repayment terms. KBZ also adopted the tag line ‘we grow with you’ to signify its commitment to the SME segment.

Outside SMEs, the company has collaborated with financial institutions, world organisations (including the World Bank, IMF, IFC and ADB), and the government to further develop Myanmar’s economy in terms of infrastructure, utilities, trade flows and imports.

How important is corporate social responsibility to KBZ?
Corporate social responsibility (CSR) is an integral part of KBZ’s DNA. The whole workforce is committed to the cause, and its corporate social responsibility programme is the biggest of its kind in Myanmar. The company’s approach to CSR is focused on providing value to customers, empowering and creating opportunities for employees, giving back to local communities and respecting the environment in terms of growth strategies and practices.

In the past five years, KBZ has set aside more than $100m to support its CSR programme. Through the KBZ Brighter Future Myanmar Foundation, the company has undertaken numerous social responsibility projects based around community development, disaster relief, education, religion, women’s health and beyond.

What does the future have in store for KBZ?
KBZ has set a tall order in attempting to retain its leading position in Myanmar’s financial sector, and is looking beyond its shores to further expand on a regional scale. In order to achieve this, a new five-year strategic plan has been laid out, which seeks to further develop the company’s people, enhance its technology offering, strengthen its balance sheets and improve overall governance and risk framework in order to meet international standards.

The future certainly looks bright, with projected economic growth of eight to 10 percent over the next five years, according to various bodies (including the IMF, ADB and McKinsey). The country has also been referred to as southeast Asia’s ‘last frontier’, and the recent lifting of the US sanctions should drive both foreign and domestic investment across its underdeveloped sectors. KBZ is optimistic about the economic changes predicted for the future, and as the country’s leading bank it is certainly in a strong position to benefit from the positive climate those changes will bring.

For more on KBZ Bank and Myanmar’s financial sector, have a look at World Finance‘s 2017 Guide to Banking in Myanmar 

Creating the future for private banking

Posted on by Max Tomlin

Technological advances are rapidly reshaping the global financial landscape. Clients in today’s market have unprecedented access to real time investment news and stock exchange data, with evolving smartphone technology allowing investors to remotely check trading prices at the touch of a button. This digital revolution has seen better informed wealth management clients move away from traditional investment approaches in favour of innovative services and highly personalised advice. Responding to these evolving expectations is therefore vital to the future growth of the wealth management industry; our financial services must adapt to what is a rapidly digitalising market.

The main responsibility of a private bank is to manage clients’ wealth. In order to establish a successful relationship with the customer, it is imperative wealth management providers recognise that each client’s wealth is unique. A person’s assets and finances are in many ways an expression of themselves, and thus deserve to reach their full potential. A private banker should strive to bring this potential to life for their client, going beyond simple financial planning to provide a comprehensive strategy that will help customers achieve their personal goals.

At BNL-BNP Paribas Private Banking, we understand our clients are demanding increasingly personalised services, and in response we have introduced a range of innovative context-based solutions across our global network of 150 business centres. With operations in 23 countries, our priority is to fit effectively with clients from numerous different backgrounds.

Our specialists are well versed in country-specific regulatory issues and local investment cultures, and this on-the-ground understanding of local markets provides clients with the personalised, well-informed advice they require.

Evolving expectations
While clients have grown to expect tailor-made, personalised services from their wealth management provider, they are also now demanding a more comprehensive approach from private banking. In order to suit their busy schedules, entrepreneurs across the globe are looking for convenient, timesaving banking services. At BNL-BNP Paribas, we hope to make banking as painless as possible for our clients by offering an integrated service that meets customers’ personal and professional needs. With this complete banking service, clients are supported in both their business endeavours and the management of their private assets and investments.

[In order to succeed] financial services must adapt to what is a rapidly digitalising market

A specialised private banker works closely with each customer to ensure an easy and satisfactory journey between private and investment banking. Whether a client is looking to manage their family’s wealth, sell their business or complete a leveraged buyout, our team is there every step of the way.

Our private bankers act as entry points for the client, drawing on their global expertise and deep understanding of specialised markets to help customers realise their financial ambitions. Through close collaboration with the client, each BNL-BNP Paribas private banker focuses on a wealth management strategy that addresses four key areas: business development, risk protection, assistance, and wealth and asset management following a sale or transfer. If a customer needs to meet with specific experts from within the BNL-BNP Paribas group, their private banker will be by their side to provide relevant advice and additional support.

This unique, personalised approach to client relationships is reflected in our ‘one bank for corporates in Europe and beyond’ initiative. Each BNL-BNP Paribas branch serves as a single point of entry for customers, allowing entrepreneurs to benefit from a global approach to their banking needs. In our 150 business centres, we offer a one-stop shop approach, where a complete banking service can be accessed from a single local contact. Every branch is staffed by a dedicated team of highly trained relationship managers, who work closely with clients to analyse their financial situation and develop customised asset allocation strategies. In addition to the diligent work of our customer relationship managers, we also offer on-demand access to presentations, workshops and interactive sessions through our ‘meet the experts’ video and conference series. Each BNL-BNP Paribas branch thus offers customers the unique opportunity to benefit from a range of tailor-made services and specialised European knowledge, conveniently all under one roof.

Expert insight
Over time, a customer’s needs and financial priorities can change. As evolving personal and professional circumstances often necessitate a change in wealth management strategy, our private bankers remain expertly proactive and responsive. Through clear communication with our customers, we are constantly adjusting clients’ wealth strategies to meet their ever-changing needs and financial aspirations.

Generally speaking, the world of wealth management has changed in recent years, with industry experts now tending to focus their analysis on clients’ risk profiles. At BNL-BNP Paribas, any financial advice we produce is largely based on a particular client’s risk profile, investment horizon, risk tolerance, knowledge and experience of financial markets, and the purpose of his or her investments. To complement our in-depth analysis of the client and their potential, our international team constantly assesses the global financial and socio-political landscape, and takes these evolving markets into careful consideration in every decision they make. If we can’t prevent a financial crisis in the future, we can at least optimise our clients’ wealth protection in those circumstances.

Entering the digital world
Thanks to rapid advances in technology, a wave of innovation has swept the banking industry in recent years. From blockchain technology to mobile payment services, the sector has undergone a significant digitalisation. As digital banking services prove increasingly popular among customers, banks are looking to diversify their operations and shift away from their traditional branch-based business.

At BNL-BNP Paribas, we have responded to this demand for innovative banking technology by developing a range of digital solutions that meet our customers’ daily needs, while maintaining our strict security standards. By using our latest mobile applications and online banking platforms, clients can consult their investment portfolios, receive up-to-date market data and complete online transactions, all from their mobile device.

From blockchain technology to mobile payment services, the banking sector has undergone a significant digitalisation

One of our most innovative digital features is the use of biometric identification in our new e-banking app. The application ensures complete security by evaluating the user’s distinguishing biological traits. In order to fully access the app and confirm transactions, the user must pass this evaluation, which scans for unique identifiers such as fingerprints and hand geometry, thus making identity fraud a near impossibility.

We have also used new technologies to simplify time-consuming tasks such as bill management and payment. For example, BNL-BNP Paribas customers can now securely pay a bill by simply taking a picture of the bill’s code with their mobile device.

Electronic signatures are changing the way banks do business, and are speeding up everyday transactions at BNL-BNP Paribas. Now there’s no need to sign endless paper copies during appointments with private bankers: thanks to digital signatures and personal security tokens, contracts and documents can be signed automatically and stored in a secure wallet. Practical, everyday innovations such as these enable BNL-BNP Paribas to not only keep up with a rapidly digitalising industry, but also to establish itself as a leader in banking technology.

As part of our ongoing digital transformation, our wealth management division has developed the pioneering Voice of Wealth app, designed to educate and inform clients about emerging investment trends and market patterns. The ‘understanding’ section of the application explains basic investment products in simple terms, while the ‘decoding’ page contains our complete market analyses in accessible editorial articles. Finally, the ‘exploring’ section provides content and reports on diverse topics such as philanthropy, real estate and entrepreneurship.

Taking banking further
In recent years, the banking sector has seen a growing number of customers looking to diversify their investments in non-financial products and services. At BNL-BNP Paribas, we understand property and assets can be drivers of personal fulfilment, and so we have developed an innovative range of products that correspond to our clients’ interests and goals – whether it be art, philanthropy, real estate or even vineyards.

We offer customers a selection of socially responsible investments and specialised strategic planning to support them in their aims. Just like our philanthropically minded clients, we are passionate about giving back, and strive to raise awareness and promote dialogue around a range of ethical subjects. We believe banks have a duty to use their voices for good, and BNL-BNP Paribas is therefore dedicated to recognising extraordinary individual efforts through annual prize giving events.

Ultra-high net worth individuals (such as Bill Gates and Warren Buffett) play an important role in the development of modern forward thinking and raising public awareness of pressing global issues. For these powerful individuals, philanthropy is a means to make real, positive social change.

As high net worth industry leaders pour money into impact investing, philanthropy is creating new and exciting ways of doing business. By supporting such philanthropic endeavours, BNL-BNP Paribas hopes to not only ensure an economic return for investors, but also to achieve a positive and relevant social impact across the globe.

Afschrift Law Firm predicts taxing times ahead amid new measures

Posted on by Max Tomlin

When more than 11 million files from a Panamanian law firm were leaked in April 2016, they brought the sometimes shady world of offshore tax havens to light, sparking widespread public outcry. Just two years earlier, disclosures involving PricewaterhouseCoopers and its clients’ utilisation of certain tax rulings in Luxembourg – the so-called LuxLeaks – had already brought the thorny issue of tax avoidance to the forefront of Europe’s policy agenda.

Amid the ongoing crackdown on tax evasion across the EU, World Finance had the chance to speak with Professor Thierry Afschrift, Managing Partner at Afschrift Law Firm, about how policies designed to increase transparency and standardisation across member states will affect multinational corporations and European taxpayers alike.

Such revelations have certainly brought the term ‘tax planning’ into public disrepute. “Despite the fact that tax planning is a perfectly legal activity, it has been the target of many criticisms these last years”, Afschrift told World Finance. In addition to his role at Afschrift Law Firm – which has offices in Brussels, Antwerp, Geneva, Fribourg, Luxembourg, Madrid, Tel Aviv and Hong Kong, and so advises taxpayers in Europe and beyond – Afschrift is a lawyer, university professor and deputy judge at the Belgian Court of Appeal.

“Tax planning is a complex activity, which aims to enable a beneficiary – be it a company or an individual – to place itself in the most favourable position from a tax point of view. This law-abiding activity should not be confused with tax fraud, which involves the violation of the law, nor with tax evasion”, he said.

Underscoring the need to distinguish between legal and illegal activities, Afschrift warned against a potential “witch-hunt against tax planning”, adding: “Achieving higher profits is not the sole aim of tax planning, even if such an aim is neither legally or morally reprehensible, or punishable. On the one hand, certain companies would just not survive without tax optimisation, and on the other hand, avoiding taxes is not the only reason individuals decide to manage their fortune and plan their estate in a certain way.”

Whether fears over an attack against tax planning are founded or not, the general mood could affect tax policy in the EU, where efforts to increase transparency and the drive towards harmonisation of tax rulings between states are now starting to take shape. In turn, this shift could significantly impact how taxpayers and companies operate in the future.

Changing horizons
When it comes to international taxation laws, the OECD Common Reporting Standard is arguably the most sweeping directive that has been launched. Endorsed by more than 80 countries, it came into effect at the beginning of 2016 for early adopters, and provides a legal framework for the automatic exchange of tax information across the world. It is hoped the measure will facilitate the exchange of financial information between countries, while preventing companies and individuals slipping between different tax jurisdictions.

Making operations transparent should not restrain tax planning; monitoring is not the same thing as prohibiting it

Further directives issued by the EU aim to allow the exchange of information on advance cross-border tax rulings and transfer pricing arrangements, which are to be stored in a central directory. Afschrift noted the measures, designed to bolster transparency, should not interfere with the ability of individuals to effectively manage their tax affairs: “Making operations transparent should not restrain tax planning; monitoring tax planning is not the same thing as prohibiting it.”

EU policy makers have also become concerned with tax inversion, which sees the relocation of profits to lower tax jurisdictions while sometimes maintaining significant operations in higher tax countries. The issue of corporate taxation is being tackled with the launch of its action plan for fair and efficient corporate taxation in the EU, with a view to preventing aggressive tax planning and the erosion of the tax base through the shifting of profits.

“There are also rumours of a future obligation for large multinational companies to disclose their tax arrangements,” said Afschrift. “This surplus of information should enable states to control the existing schemes and operations. In parallel, they will eventually try to adapt their tax legislation in order to target more specifically revenue referred to in the directives, in order to enlarge the taxable base as much as possible. New measures will not prevent companies from shifting their taxable profits as long as the operations are realised accordingly to the applicable laws.”

A harmonised system
While transparency has become the watchword for policymakers keen to strengthen their respective tax regimes, such measures could lead to an erosion of privacy for individuals too. Afschrift warned: “The gradual elimination of bank secrecy and the increasing scope of the directives on automatic data exchange is an obvious attempt on the private life of the taxpayers.”

But transparency is only one aspect of the European Union’s current move towards tax standardisation. The introduction of the Common Consolidated Corporate Tax Base system is a prime example of an EU-wide push towards tax harmonisation across member states.

Full-throttle tax harmonisation would certainly prevent companies from shifting profits to different jurisdictions in Europe. However, Afschrift said: “Obviously, the ultimate target pursued of such a process is the implementation of a unitary tax, even if this is not likely to happen.” Describing such a move as “illogical, unnecessary and potentially dangerous for taxpayers”, he explained that “in a harmonised system, tax competition would almost disappear, giving to the member states no incentives to enhance their tax systems”.

Issues surrounding national sovereignty may also be raised if the roll-out of harmonisation between differing European tax regimes were to be taken to its logical conclusion.

“A tax regime is an expression of national sovereignty”, Afschrift said. “By standardising regimes across Europe, the ability of nation states to respond to their own changing economic fortunes through fiscal policy would be severely hampered.

“This could give way to a situation whereby taxpayers are forced to pay higher taxes just for the sake of harmonisation. International tax planning implies the use of the laws of different countries. If these differences should disappear, tax planning will certainly become more difficult.”

Responding to a crisis
Afschrift’s main concern is current trends towards increased harmonising in tax policy could backfire. “Pressure put on companies may lead them to modify their tax planning attitude, and in turn push them towards to them using structures established outside the EU – a process which would result in significant losses for the European economy”, he explained.

Such changes are not just a response to public outcry over tax evasion and a latent distrust of legal tax planning. Much of the EU’s current approach towards taxation policy is rooted in frequently conflicting responses to the troubled economic climate in which Europe finds itself. On the one hand, governments have moved to reduce taxation in a bid to sustain economic growth through financial crises and recessions, while simultaneously trying to manage troubling deficits.

“Different approaches have been adopted in order to deal with reduction of income without borrowing,” Afschrift said. “Certain states raised their taxes while others tried to cut public spending. In general though, most European governments have tried, for economic, social and political reasons, to avoid increasing the direct tax burden and have preferred instead to increase indirect taxes, such taxes on immovable property and fortune.”

The new directives have significantly enlarged the scope of previous international measures, such as the Fair and Accurate Credit Transactions Act. The trajectory of EU policy suggests a continuation of this trend. Afschrift, however, is keen to underscore the problems that both taxpayers and policymakers could face as a result. Yet while he warns that tax harmonisation in the EU could have disastrous effects, he believes policymakers may still wake up to its problems before it’s too late.

“It is more than probable that EU institutions and member states will realise that the European situation does not allow European states to be really competitive at an international level”, he said. As for weary companies and individuals who may feel squeezed by the pace of the new measures, he added: “For the medium to long term, tax planning is – and will remain – possible, but will ultimately happen in an environment that is less privacy-protected. Therefore, taxpayers should be carefully monitoring the evolution of the situation and, if necessary, enforce their rights.”

Knowing the wealth management market

Posted on by Max Tomlin

Since 1983, Optimix Vermogensbeheer has worked closely with high net worth clients. The company recognises that capital preservation is sometimes the better option ahead of capital growth, and to this day continues to keep its clients’ best interests at heart.

Optimix was acquired by Handelsbanken Netherlands in 2016, and together the two firms have become a leading wealth management force within the country. World Finance spoke to Michel Alofs, Managing Director of Optimix Vermogensbeheer, and Ivan Moen, Head of Investment at Optimix Vermogensbeheer, to discuss the company’s origins, how the industry has changed, and the newly merged company’s future plans.

What are the biggest wealth management trends in the Netherlands?
At Optimix Vermogensbeheer, we see consolidation as one of the biggest trends in the wealth management industry. The regulatory environment has an enormous impact on the industry, and will remain a key driver for the foreseeable future.

Stricter compliance rules and regulations, along with looking ahead to the implementation of MiFID II and the payment service directive PSD2, will have a large impact on most financial organisations.

The same is true for investments in ICT and developments in financial technology that are driving innovation across the financial industry. To finance these investments and create a longer-term viable business model, scale is needed, and we are seeing a trend towards consolidation – a consolidation between banks and specialised wealth managers, and between wealth managers themselves.

Throughout 2016 there were clear examples of this, with the merger between the Belgian bank Delen and the Dutch wealth manager Oyens & van Eeghen. The two private banks Insinger de Beaufort and Theodoor Gilissen also merged, and Handelsbanken acquired Optimix to create a full service bank for high net worth individuals in the Netherlands.

Due to our expanding local presence, supported by state-of-the-art technology, we are able to create a profitable business centred on our clients’ needs

New technology is a major wealth management trend across the Netherlands due to the rise of online wealth management tools and robo-advisors. This will have a big impact on the industry and will define most of the technology investment calendars that are used. At first, this will quickly affect retail and those that are affluent within the wealth management market.

The standardisation of wealth management products will also be a major wealth management trend, as it is one we are seeing in the Dutch market right now, especially with the larger industry players. These products are easy to service and easily scalable. This will give smaller players operating with specific clients or niche investments, like Optimix, more possibilities to differentiate themselves.

The passive-active debate in asset management is also a core trend. Providers of passive investment strategies clearly win market share, which has gained traction recently due to regulatory changes including the ban on commissions, rules about cost transparency and the ban on fund rebates. Whether this trend will continue remains questionable.

Given the current extreme interest rate environment, it’s unclear whether this is the right moment in time to fully rely on these passive strategies. Optimix believes in mixing passive and active investment styles in its portfolios.

What have been the most significant changes to the industry recently?
Regulatory pressure has been a very important driver behind one change within the industry. The ban on commissions and rebates has created significant changes within private banks’ and wealth managers’ business models. It has changed the economics of the industry in an important way.

The rebate ban has also helped the providers of passive investment strategies to gain a market share within the Dutch market. The call for more cost transparency has caused a switch from the transaction-based fee models towards all-inclusive fee arrangements. Furthermore, the rebate ban on the sales of investment funds has led to margin pressure within the industry. Looking ahead, this pressure will not diminish.

MiFID II and PSD2 will have a lasting impact on the financial industry, and this will also lead toward more standardised products within the wealth management industry. It has also led to a reorganisation and restructuring within the industry, along with staff reductions and an increased focus on technology.

Standardised products accompanied by online service tools and help desks have replaced labour-intensive services like the personal private banker. This is a clear trend that is still underway, especially with large domestic Dutch banks.

Finally, greater cost transparency has resulted in more providers of index-based products and standardised solutions supported by web-based tools. It can be argued that costs are a more important driver for choosing a wealth manager for ‘softer’ services or investment returns. This has led to a one-size-fits-all product offering within large parts of the investment industry. Within this overall environment, we see enormous opportunities for Optimix and Handelsbanken to differentiate themselves.

How did Optimix bounce back from the global financial crisis of 2008?
Optimix did not suffer greatly from the financial crisis in terms of client losses and mandates. Of course, revenues came under pressure, but this did not lead to a reorganisation or change in our business model.

The stability and strength of our client relationships were a great help in weathering the storm, and from 2010 onwards we created the foundations for business growth. Our investment strategy played an important role, which was based on building a capital preservation portfolio with government bonds and strips, combined with a return portfolio comprising equities and other more risky assets.

Together these portfolios performed well and created a stable client environment. This approach laid the groundwork for our commercial successes years after, resulting in assets under management growth and healthy financials.

How has Optimix’s history in the Dutch wealth management market helped to secure its leading position?
Optimix was established in 1983 as a family office, open for a select group of external clients. As we have grown over the last three decades, the relationship with our clients has always been a key characteristic. Because of this, the company will not focus on the mass affluent or retail client segments, but on the high end of the
private banking market.

The wealth management industry is moving away from personal relationships – many companies are moving towards a service model solely focused on web-based services

This means that we focus on the client segment where we can offer wealth management expertise to all Handelsbanken customers, and tailor-made wealth management solutions for mandates valued at more than €1m ($1.06m). The Optimix brand is well known across the Dutch market due to the introduction of its first mix fund in 1983, known as the Optimix Mix Fund. The fund still represents our active allocation views, but of course the investment style and the instruments used within the portfolio have evolved over time.

How does Optimix’s investment approach differ from those of its rivals within the Dutch market?
Our investment team is less focused on benchmarks and relative thinking than most of our peers. The company’s mandates have wide asset allocation bandwidths, especially dedicated to de-risk portfolios. For instance, a neutral mandate where a 50 percent equity allocation is the standard benchmark allocation has the possibility to vary its equity exposure from 10 percent to 70 percent.

Over the last five years, the equity allocation has varied between 28 percent and 68 percent for such a mandate. The Optimix investment process and team is organised to act swiftly in today’s financial markets. Bond exposures hardly offer any value anymore, and the traditional buffer function of bonds is diminishing.

What is the main strength of the Handelsbanken/Optimix partnership?
Both organisations and the products offered complement each other. The same client base is targeted, of which most are high net worth individuals and entrepreneurs.
Neither Optimix nor Handelsbanken Netherlands offer services for the mass retail market. Local branches of Handelsbanken Netherlands will be able to offer the full suite of products to its local client base. Before the merger, both companies shared the same culture. This is based on client-led decision-making. Therefore, the stability of our relationship management team is very important.

Both companies want to create a strong and profitable business by focusing on higher client satisfaction than any competing companies. Each believes that satisfied clients create long-term relationships.

What makes Optimix’s approach to the Dutch market so distinctive?
The Handelsbanken/Optimix combination takes a new route in developing its business in the Netherlands. The industry in general is moving away from personal relationships – many companies are closing regional and local branches and are moving towards a service model solely focused on web-based services and applications.

In contrast, we are opening new offices across the Netherlands. We invest and add employees locally to drive our combined business forward. We believe that, due to our local presence, we are able to create a profitable business centred on our clients’ needs, and we aim to create a strong client community. We will support this expanding local strategy with state-of-the-art technology and web-based applications.

1983

The year in which Optimix Vermogensbeheer was founded

2016

The year Handelsbanken Netherlands acquired Optimix

How will Optimix cope with today’s financial market challenges of low and negative interest rates?
Years of intensive central bank intervention – ultimately via zero and negative interest rates – has resulted in diminished asset risks across the board. Markets have become a sideways affair with more frequent spikes in short-term volatility. Across such markets, relative returns have become more important and bigger in size, to generate performance.

We allow the weights of our portfolio assets to vary within large bandwidths. Our first objective for client portfolios is capital preservation and gradual growth. To deliver these results in today’s markets, we need to utilise large bandwidths and be able to hold large allocations in cash – and low allocations in equity – if we deem necessary. Benchmark-focused investments will not be able to fulfil the above objective. This, as far as we know, distinguishes us from other private wealth managers across the Netherlands.

What are the most important investment themes and strategies that Optimix is currently planning?
We believe that most investments can be identified by two to three major themes. It is our role to successfully find these themes and optimally position our clients, exposing them to a minimal amount of unavoidable risk, and still obtain as much of the returns from the investment themes as possible.

We believe that the interest cycle has turned and that bonds in general offer more risk than value. This will give us more challenges in relation to portfolio construction, but ultimately and in the longer term this will be a good thing. Emerging markets should deliver superior returns on equity and fixed income against their developed counterparts. A major driver behind this is our assessment that the commodity complex has bottomed, and crude oil prices should increase in the coming years. Emerging markets valuations are undemanding, and we expect a return of earnings growth after several years of declines.

In developed markets we explicitly play our commodity view via investments in natural resources equity, both in energy and metals mining companies. The recent multi-year bear market in commodity prices has led to severe underinvestment in both spaces, and has sown the seeds of new supply deficits over the coming years. Crude oil and metal prices need to rise and incentivise the development of new supply to meet future demand.