Commentary

Financial Institutions should take note of the changing environment in payments. The payments ecosystem is transforming itself into something many have not yet fully grasped. It is the industry that many have yet to look at within their strategic radar.

Providing banking and other financial services to the poor has always presented particular challenges. By definition, people with little or no money lack all but the most basic financial resources and economic influence. Their exclusion from the financial system means they have no credit history and no basis for participating in modern financial transactions. Poverty means they have little if any collateral to underpin lending. In large areas of the world, poor people also live in remote rural regions without access to the infrastructure of modern commerce and communications. This inability to benefit from financial services plays a large part in preventing the poor from making even modest improvements in their lives, and helps to trap them in poverty. More than 1 billion of the world’s population subsist on less than US$1a day. Finance for the poor The microfinance movement challenges the view that poor people are also poor credit risks, and that they cannot benefit from financial services. The origins of microfinance go back to at least the 1700’s. Since then the principle has grown with a number of organisations specialising in this including ACCION, SEWA Bank and Grameen Bank to name a few. The China context Despite rapid and continuous economic growth over the last 25 years, China is still home to tens of millions of the world’s poorest people. Many of these live in impoverished rural areas with few prospects of economic improvement aside from migration to the rapidly industrialising cities. Large-scale displacement of the rural poor is creating massive social disruption and further deepening income inequalities and the rural-urban divide. The Chinese government has been attempting to tackle this complex set of problems by promoting economic development in rural areas, the creation of small and medium-sized enterprises and the provision of a financial services infrastructure to support these objectives. Microfinance is beginning to play an important role. Potential and challenges Over the last decade, the People’s Bank of China (PBOC) and the China Banking Regulatory Commission (CBRC) have encouraged the creation of rural credit cooperatives and village banks. More recently, trials have been taking place to establish dedicated Micro-Credit Companies (MCCs). To begin with, the Chinese government was very cautious, granting only 20 licences initially. ACCION, a not-for-profit organisation which has been active in microfinance for over 40 years, originally in South America, was invited to apply for one of the pilot MCC licences by the provincial government of Inner Mongolia. In December 2009, the company made history by becoming the first wholly foreign-owned organisation to receive an MCC licence in Inner Mongolia, making its first loans shortly afterwards.

There has been a general buzz in the Hong Kong market recently mainly due to the strong equities and real estate markets. With most firms’ profit beating forecasts, profit announcements by the bulge bracket investment banks have been better than expected. Quarter-on-quarter hiring has also improved, although on an adjusted basis. Quarter two and three traditionally experienced stronger hiring irrespective of a bull or bear market. Hence, increased hiring activity should also be viewed conservatively as a seasonal trend rather than be attributed wholly to market growth.

Accountancy & Finance, Banking, and Finance Technology are the skills in demand across Asia.

Several Asian countries, including Singapore, Malaysia, Korea, India and Japan, are currently going through the final stages of adopting International Financial Reporting Standards (IFRS). These are important steps towards achieving the vision of establishing a global set of high-quality accounting standards, as requested by the Group of 20 leaders.

The banking industry has been talking for years about what comes after Basel II, even as banks remain focused on ongoing Basel II implementation. Prior to the global financial crisis, the Basel Committee (“the Committee”) and national regulators were already looking at what would come next, particularly in the area of liquidity risk. The crisis clearly highlighted a number of vulnerabilities in capital and liquidity risk management in many banks, and on a systemic basis, which regulators around the world are now busy addressing. 

The financial crisis has generated demands for greater transparency in international taxation, pushing tax avoidance up the political agenda.

Over the last five years we have seen four key trends which have dramatically reshaped IT’s role within organisations.

Having just come back from meeting with banks in Asia, the case for dynamic charging as a driver of customer profitability is clear.

PricewaterhouseCoopers LLP Asia Financial Services Leader Dominic Nixon talks about the Banking Banana Skin Survey 2010 and what bankers in Asia fear the most.

The recession may be key to much needed change - Ernst & Young explains why.

The last two years have been extraordinary by any standards. Established financial institutions have been swept away, amalgamated or nationalised in many countries across the world. Property bubbles have burst. Governments have been forced to step in to save entire industry sectors at a vast cost to the public. Government spending has also ended up in the limelight.

Recent events in the global financial markets are a poignant reminder that financial institutions have exposures that extend beyond the assumed risks. The recent crisis has prompted a thorough re-examination of liquidity risk, and how financial institutions should manage it more comprehensively. Now, more than ever, liquidity risk is on par with market, credit and operational risks. In the past, markets were flushed with liquidity and easily available credit, encouraging complacent attitudes towards liquidity risk. However, the financial crisis changed all that. Suddenly, there was a realization that the lack of liquidity could cause the collapse of not only specific institutions but an entire system. The market looks at liquidity risk broadly at two levels: at the institutional level, in other words an issue with a bank, or on a regulatory level, in response to broader market or systemic risk. On an institutional level, financial institutions are reviewing the type of assets they hold, whether they need to be lowered in order to boost liquidity, the maturity of those assets, and the currencies in which they are denominated (for example, US dollars). They are also assessing their funding sources, particularly non-domestic institutions and the degree to which they are dependent on liquidity funding from headquarters. The latest thinking on liquidity management is that each location should have means to raise liquidity or have access to it by itself. Stress-testing Generally, institutions are evaluating their entire liquidity picture to see if and how they can efficiently strengthen liquidity. In doing that, institutions need to recognize the importance of a robust risk management framework, including stress-testing. Stress-testing allows an institution to identify the impact of liquidity events that it can encounter, thus providing insight into potential liquidity shortfalls and the strategies needed to maintain an appropriate liquidity position. Although institutions have used stress-testing in the past, lessons learnt from the crisis have highlighted the inadequacies and failure of its prior practice to thoroughly quantify potential liquidity risk. Institutions are now prompted to re-think the stress-testing scenarios of their liquidity positions. Rather than looking at liquidity for funding, they now incorporate impact on the entity's overall balance sheet that is likely to be brought about in a crisis situation. For example, the impact on asset value in an illiquid or severely stressed market, and the consequence on capital and confidence. Financial institutions now perform stress-tests on their liquidity profile on a regular basis to ensure that a strong credit stress-testing policy is not only in place, but continually enhanced. Stress-testing processes, approaches and methodologies also need to include an expanded number of stress-test scenarios to evaluate the accuracy of projections. Maintaining liquidity targets to ensure that funds are available even under adverse conditions to cover customer needs, maturing liabilities, and other funding requirements is essential in managing liquidity risk across all classes of assets and liabilities. Management must not only recognize the need for change but also quickly and effectively execute programs and reshape the business to make sure they are in a position to respond and adapt. Evolving regulations Previously, due to a lack of industry-standard key risk indexes, evolving regulatory guidance and possibly no integrated view of an institution’s global liquidity position, it has been a challenging task for boards of directors and the C-suite to provide investors and regulators with an efficient flow of liquidity risk information. However, there have been steps towards liquidity regulations, including Financial Services Authority (FSA) rules on liquidity for banks operating in the UK. Regulators now demand that stress-testing considers forward-looking information and qualitative insight in order to identify and consider liquidity events for which there are no precedents. They also expect institutions to be able to perform certain ad hoc analyses in a timely manner. Given the recent events of global financial markets, such external pressures and internal demands are not likely to let up in the years ahead. Global regulatory regimes are still evolving, and it remains to be seen the extent to which they will be reshaped in Asia. In Singapore, the Monetary Authority of Singapore has said that it will continue to work on strengthening the risk management systems and processes of financial institutions, to assess vulnerabilities and fine-tune measures for them to mitigate financial stresses. These include building up prudent capital buffers to absorb losses when necessary. Many financial institutions here have already begun to identify scenarios that pose the greatest risk to the long-term viability of their business and have started to develop contingency plans that will help manage their business through a crisis. They are also beginning to review their scenario analysis capabilities to ensure that they have the ability to model a variety of short-term and protracted institution-specific and market-wide stress scenarios and assess specific vulnerabilities and systemic effects. While it is clear that the global financial crisis has brought unprecedented turmoil to many financial institutions with a landscape that continues to evolve, positioning the organization to emerge stronger from the crisis is now vital, as opportunities still exist for efficient and agile companies. No longer just the purview of the asset and liability committee of a bank, liquidity risk should now be an integrated part of the overall risk management function that requires a coordinated management approach by all who oversee risk - from the board of directors, chief risk officers, senior management as well as risk committees and other lines of business. Coupled with a potent cocktail of proper processes and tools that are aligned with liquidity risk programs to gather liquidity information across the organization, financial institutions will be better equipped for any future crunches and be able to hold competitive advantage.  

The United Nations Principles for Responsible Investment now claims over 550 signatories with more than USD 18 trillion in assets. UNPRI provides a framework for institutional investors to integrate environmental, social and governance (ESG) factors into investment processes. Also, the International Finance Corporation has sponsored a study on the prevalence of RI in emerging markets. High profile pension funds and sovereign wealth funds are starting to integrate ESG into their investment process.

Very few people regardless of their title, level or role can say they have enjoyed the last 12 months. And even fewer could currently tell you that they love both their job and their employer. The once dynamic and lucrative banking and finance sector became ‘public enemy number 1’ at the start of the GFC which was further compounded by the global press seemingly apportioning total responsibility of the world’s economic demise on a sector that up until then afforded a relatively solid reputation after years of good economic news. It was September last year when the shockwaves of the GFC started reverberating around the globe. Swiftly, every business became affected, be it directly or indirectly, and as cost management became the ‘Management Mantra’ of 2009 the market witnessed widespread redundancies as the financial services sector fought for its very existence. Whether you lost your job or not in the last 12 months, nobody was spared from the considerable torment as futures and careers hung in the balance at the mercy of management, management which on many occasions presided overseas - making decisions even harder to swallow.  Engaging with your staff when you only have bad news to deliver is extremely tough, unfortunately the market saw evidence of many management teams avoiding communication based on the false assumption that people only want to hear good news. This misconception led to employees making widespread assumptions and as they became paralysed by fear, the very jobs they were desperately trying to retain came under more and more pressure. Lack of communication and all the problems that stem from it, is one of the primary reasons people are looking to move jobs now that the world is starting to show signs of recovery – workers are disengaged with their current employers… Is it too late for employers to re-engage their staff? Not necessarily, if employers are open and honest with staff it is likely they can win them back. The aim now is to re-build staff confidence and commitment to the company and create buy-in through reaffirming the company’s short and long-term goals, displaying corporate commitment to not only their people but also to achieving success.  As an employee, think seriously before you leave your current company, times may have been bad but rest assured they’ve been bad for almost everyone. It is unlikely that you’ll find many people in a comparative role that have had a dazzling career in the last 12 months and even less likely that their engagement with their employer has improved. Ask yourself how you felt before disaster struck… About Robert Walters Robert Walters is a leading global recruitment consultancy, specialising in placing high calibre professionals into permanent, contract and temporary positions at all management levels. The Group specialises in the accounting, finance, banking, information technology, human resources, legal & compliance, sales & marketing, secretarial & support, engineering & operations, general management and supply chain & procurement industries. Robert Walters’ client base ranges across both multi-national corporations and SMEs and covers all market sectors. Established in 1985, Robert Walters has built a global presence with 38 offices spanning five continents and employs over 1400 staff worldwide.

Sustainability should and will move further up the agenda of governments, regulators and businesses. It will as there are signs of the economic crisis easing in parts of the world. This move will be further fuelled by the high profile UN climate change conference in Copenhagen, where world leaders will seek to agree an effective climate change deal. This will follow on from the first phase of the UN’s Kyoto protocol, which expires in 2012. There are several aspects to sustainability. Environmental sustainability is one of them. However, sustainability is about more than carbon levels. The economic crisis has raised questions about the viability of global markets from other perspectives. It has become clear that we cannot continue in the same track as before; a different vision of the world and business’s role in it must be achieved that meets the imperative of sustainability. The argument is no longer about ‘environment’ or ‘wealth’ but how to achieve a prosperous and sustainable world. To achieve a market system that promotes sustainability economic activity and business models must operate within environmental limits. Trusted flows of reliable and accurate information are central to the success of any system and especially to one that is as information-intensive as this. Information flows and the processes that support them are the natural territory of accountants and they and the financial services sector have a key role to play in developing markets that drive a world that serves both people and planet. If there was ever any doubt, the crisis has made it absolutely clear that the world’s capital markets are interlinked. That means there is a need for a globally coordinated response to the crisis and also a globally coordinated effort to promote sustainable markets, business and behaviour. There will be increased pressure on businesses to demonstrate their sustainable and ethical behaviour in months and years to come. And there will be increased pressure on investors to show that they invest in sustainable companies. A key objective of the Copenhagen conference is to agree targets for greenhouse gas emission reductions. As climate change is probably the single most important issue we all face today, this is a critical step in the direction of securing a sustainable worldwide economy and society and it will require boldness and leadership to achieve. However, the global effort to reduce emissions must be properly measurable and comparable across country borders, not least to allow investors to make more informed decisions about the companies they invest in. The ICAEW therefore believes it is essential to agree universal standards for measuring, monitoring and reporting greenhouse gas emissions. It is also important that this information is integrated into mainstream business reporting and linked to business performance. There is a wider need for a more integrated approach to reporting financial and non-financial information in areas that might impact on the achievement of a sustainable global economy. For all this to happen, we believe the world leaders in Copenhagen should support a collaborative effort to agree a global standard for the reporting of a company’s impact on its environment. Currently, investors, other stakeholders and regulators need greenhouse gas emissions information. Many organisations all over the world already report such data, something which has come about as a result of, among other things, investor requests. However, the challenge – especially for investors and companies operating across country borders – is that there is a vast number of reporting frameworks and protocols out there, meaning the type of information and the way it is presented varies greatly from business to business and from country to country. The various frameworks have different ways of calculating emissions, setting targets and monitoring progress. Overall, this paints a rather confusing picture and might hamper rather than aid decision-making. The lack of one agreed global framework might also encourage companies to avoid disclosure. Benefits of a uniform and transparent global standard for emissions are well documented. They include reduced complexity and increased clarity, comparability across country borders and better information to meet all stakeholders’ needs. The ICAEW has been actively engaged in working with the Carbon Disclosure Standards Board (CDSB) on developing an effective reporting framework that can provide guidance to businesses on what information they should include in their annual reports. The framework was published for public consultation earlier this year and is currently being refined ahead of the Copenhagen conference. It is not about more reporting but about better reporting. Rather than creating something new, the framework builds on existing protocols and standards. It also links an organisation’s climate change data to its risk, strategy and financial performance. A key aim of this initiative is to make climate change data reporting as mainstream as financial reporting. A long-term aim is also to ensure that all sustainability issues, not only greenhouse gas emissions, should be reported in the future to further aid the decisions of investors. Fundamental to the development of a market system that promotes sustainability is reliable and accurate information – this is the domain of qualified accountants and an area to which the accountancy profession can contribute. There are many lessons to be learnt from the financial crisis. If it can help us make sustainability a true boardroom issue, something good might still come out of it.