Month: March 2020

Financial Conduct Authority Updates Action on Coronavirus - Waymark Tech Blog

Financial Conduct Authority Updates Action on Coronavirus

As the UK goes into lockdown the FCA continues to update its guidance and work out how it can support the financial sector and those who rely on it through what is now undeniably, an unprecedented crisis. With questions about trading practices, vulnerable customers and reporting, the FCA has issued a series of statements over the past few weeks outlining its expectations.

Short selling

The FCA has not followed the examples of other countries such as Italy and Spain in banning short selling. Both countries have banned the practice in order to counter market volatility as the virus spreads across the world. Experts in the US have also argued strongly against short selling. However, the FCA claimed there was no evidence that it was behind the recent turmoil in the market. Indeed, they said short selling remains a useful tool in investment strategy, allowing companies to manage risks by taking long and short positions.

Vulnerable clients

Its work on vulnerable clients has been shelved as it postpones all non-essential work in the face of the pandemic. Publication of its guidance on vulnerable customers will be placed on the back burner for the time being.

However, the FCA has stepped up pressure to prevent repossessions in the fallout of the crisis. The regulator’s guidance says lenders should offer a three-month payment holiday in the face of the spreading pandemic. It should be granted where homeowners are experiencing payment difficulties because of COVID-19. This can apply where a customer first asks for leniency or if a lender feels they qualify for a break. The Government has said there is no expectation under its guidance for a lender to fully investigate the circumstances surrounding a request for a payment holiday.

“We are making it clear that no responsible lender should be considering repossession as an appropriate measure at this time.”

Christopher woolard, interim chief executive of the fca

Delayed disclosure

The FCA has urged companies to delay publication of their preliminary results for at least two weeks.

“The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly.”

Financial conduct authority

Companies, it said, should give due consideration to the impact of the virus and that the events of the last couple of weeks meant that time tables set before the virus would mean there would be little time to achieve this.

It says it is in talks with the audit regulator, the Financial Reporting Council (FRC) and the Bank of England’s Prudential Regulation Authority (PRA) about a package of measures to ensure companies take time to prepare appropriate disclosures. The FRC, for its part, has also asked companies to delay disclosing financial reports rather than produce substandard audits.

This is uncharted territory for the entire sector. The FCA’s role in this is to reduce turmoil as much as possible and put pressure on companies to maintain sustainable and responsible policies which do not cause additional stress and anxiety to their customers.

What Will Coronavirus Do to the Economy? - Waymark Tech Blog

What Will Coronavirus Do to the Economy?

The world has never seen anything like it, at least not in living memory. Millions of people in quarantine, businesses shut and economic activity brought to a standstill. In the short term, the impact is enormous, but once the crisis abates and the world has recovered, what will it mean for the economy, working practices and climate targets?

Short term

The stock markets have crashed. The FTSE 100 Index is down by 34%, Dow Jones by 31% and the Nikkei by 27% (at the time of writing). Both the Dow and the FTSE have witnessed their worst days since 1987. Investors agree that the virus could have a catastrophic impact on the economy.

To compare it, let’s look at the impact of another outbreak, SARS, in 2013. It impacted thousands of people around the world and shaved two percentage points off China’s GDP, according to various estimates. However, the COVID-19 coronavirus is already ten times as wide-spread as SARS.

Most estimates compare it to the financial crisis of 2008. According to IMF, the fallout will be at least as severe as 2008. Even so, it says it still expects a recovery in 2021. So far, 80 countries have asked the IMF for emergency finance and governments around the world are taking extraordinary measures to stabilise the economy. The UK has injected more than £300bn, into the economy to stabilise businesses and worker pay, and have effectively nationalised the entire private sector by agreeing to guarantee 80% of people’s pay. Germany is preparing a €500bn package and the US has announced their $2 trillion stimulus bill. Central Banks have slashed interest rates with the UK reaching a record low of 0.1%.

The measures are extraordinary and it is remarkable how quickly economic orthodoxy has been abandoned. Ideas such as basic income or quantitative easing for the people which, until a short time ago, were on the fringes are now moving into the mainstream.

But the real question is: what happens next. When the economy finally picks itself up, what will it look like?

Financial regulation

The immediate impact for regulators is to abandon so called non-essential work to focus on the more pressing matters in hand. Both in the US and in the UK, regulators have been urging relief for borrowers with payment holidays.

They are considering loosening some of the tighter rules on banking lending. EU regulators are likely to relax their attitudes towards non-performing loans and US regulators are considering relaxing liquidity rules on banks to ease the financial pressures on them during the COVID-19 outbreak. The aim is to encourage banks to make loans to companies who will currently be seen as an economic risk.

Environment

Another question will be what happens to targets for climate change. In the immediate term, COVID-19 may be an unexpected boost in countries’ attempts to hit their Paris targets. The virus has shut down industrial production, temporarily bringing about a dramatic reduction in pollution levels. Images from the European space agency show a dramatic drop in pollution levels over China compared with 2019.

Paul Monks, Professor of Air Pollution at the University of Leicester, has predicted that there will be some crucial lessons to learn.

“We are now, inadvertently, conducting the largest-scale experiment ever seen,” he said.

Paul Monks

“Are we looking at what we might see in the future if we can move to a low-carbon economy? Not to denigrate the loss of life, but this might give us some hope from something terrible. To see what can be achieved.”

Paul Monks

The reduction in air pollution could be beneficial for asthma sufferers and may reduce the spread of some diseases. Already, reports suggest water sources are cleaner and the canals in Venice are clearer than they have been in living memory.

The question will be:

Is this a temporary slow down and will things return to normal after the outbreak?

The slowdown has been remarkable. The airline industry, one of the heaviest producers of emissions is in freefall. Oil use is dramatically down. It may take years to recover to pre-crisis levels.

On the other hand, during past economic crises, emissions have been quick to rebound. However, with prudent management of stimulus funds and permanent changes in behaviour this crisis could be the disruption the economy needs. Companies are working virtually, travel is being reduced. The world is about to discover that it can work much more effectively remotely than it imagined.

Coronavirus has already had an incredibly disruptive influence on markets, behaviours and attitudes. It will change the way businesses operate and has given a timely boost towards climate targets. Whether those changes will prove to be permanent, time will tell.

Coronavirus: Regulators Scramble to Prop Up Financial Sector - Waymark Tech Blog

Coronavirus: Regulators Scramble to Prop Up Financial Sector

Financial regulators are formulating plans to cushion the blow of coronavirus including assessing contingency plans, fiscal stimulus and easing the pressure on borrowers.

The arrival of coronavirus has sent tremors through the stock market. Wall Street experienced its worst day since 2008 and the ECB has warned of a collapse on a scale of the financial crisis. It is both a global health and economic crisis and regulators around the world are scrambling to mitigate its impact.

China

In China, which has had more than 80,000 cases and over 3,000 deaths, the virus is already having a major impact on the financial system and regulatory strategy. Until now, the China Banking and Insurance Regulatory Commission, would scale back its war on bad loans.

Under the leadership of Guo Shuqing, the regulator has worked hard to tackle problems caused by bad loans and excessive leverage. He has been extremely successful but that war will have to wait. The regulator has said that new bad loans created during this crisis should not be considered non-performing loans.

Italy

In the second worst hit country, Italy, the focus is also on reducing the pressure on loans. Regulators are planning to introduce a widespread moratorium on debt repayments for consumers and businesses.

The announcement which was made by Italy’s Deputy Economy Minister, Laura Castelli, comes after the entire country was placed under lock down. The Government has also promised to inject €10bn into the economy.

UK

“Keep calm and drink tea” has been the message from the Government who seem happy to “take the virus on the chin”. However, the FCA is taking more proactive action. Earlier in the month, staff worked from home as the city watchdog ran a drill to test its readiness.

The regulator is also focusing on firms’ contingency plans. In an update on its website, the FCA said it was working with the financial services sector, HM Treasury and the Bank of England to review their responses to the virus.

This will include a review of the operational readiness of firms to assess any operational risks to day-to-day operations.

Meanwhile, at his confirmatory hearing for the Bank of England position, outgoing Chief Executive of the FCA, Andrew Bailey, said Coronavirus was the “first most pressing issue we face” and that it was evolving in “unprecedented and unexpected fashions.”

The severity of the situation, he said, suggested that at some point the bank may have to “focus on providing supply chain finance to ensure the shock effects of the virus are not damaging to too many forms of activity and we will have to move quickly to do that.”

That stimulus wasn’t long in coming. Announcing his budget, the Chancellor, Rishi Sunak, announced a stimulus package totalling £30bn including £7bn for businesses and families and £5bn for the NHS. There will also be changes to sick pay regulations with statutory pay available from day one of self-isolation.

USA

Regulators in the States have called on banks to ensure customers and members who are affected by the virus get the funding they need. In a joint statement, multiple agencies including the FDIC, Consumer Financial Protection Bureau, the Conference of State Bank Supervisors, the Federal Reserve, National Credit Union Administration and Office of the Comptroller of the Currency, said they would provide regulatory assistance to financial institutions, under their supervision, in meeting their financial needs.

EU

The ECB’s Christine Lagarde has called for more coordinated action between European states on the crisis. Speaking by video to European leaders, she warned that without urgent action the virus could cause an economic collapse on the scale of 2008.

The EU is also considering using flexibilities in its state aid rules which are allowed in exceptional circumstances. Officials are drafting a list of targeted options which members could support those states hardest hit by the coronavirus.

Among the schemes which may require state aid clearance from the commission are discounted government loans, tax credits, or deferral of tax payments.

RPA Set to Transform Banking - Waymark Tech Blog

RPA Set to Transform Banking

Robotic process automation is coming and it has enormous implications for the financial sector. Here’s what it means for compliance…

We’ve all got used to stories of how the robots are coming to take all our jobs. But in finance, the arrival of robotic process automation could be something for everyone to welcome, from frontline staff to senior executives. Indeed, at a time when compliance is becoming more complicated, it can’t come fast enough.

Back in 2016, Accenture produced a survey which found that 73% of the people surveyed agreed that process automation, including increased use of robots, would become more common in finance. However, the truth is that so far, financial institutions have only really dipped a toe in the water. There has been plenty of talk about RPA, but all it’s really done is move money around a little bit more quickly up until now. If companies really get to grips with it, they could embed it into their fabric and unlock all sorts of exciting potential.

In simple terms, RPA uses robotic software to automate many of the tasks which would otherwise have to be performed manually. It works faster than humans, makes fewer errors and can analyse much larger quantities of data than mere mortals can ever hope to manage.

Key processes such as auditing, making transactions, managing records, managing employee compliance, and know your customer systems, can all be automated and processed much more quickly.

In the main, this has been sold as a labour-saving device, but that’s only part of the story. It increases productivity by accelerating processes and allowing you to deploy your human staff more effectively. It aids employee satisfaction by freeing staff from the more mundane and repetitive aspects of their jobs and it ensures higher quality of data by eliminating the inevitable mistakes humans make when they get tired or bored.

For the compliance team, though, RPA can be a massive bonus for auditability. It provides much greater data visibility making it easier to keep all the required data in place and to produce a clear data train to demonstrate compliance.

Automated processes are being used for know your customer, due diligence and transaction surveillance, as well as authentication and fraud prevention. For example, robotic software can identify threats or suspicious behaviour which humans might miss and it can ensure companies comply with their regulatory obligations to inform customers within a timely manner.

However, implementation is held back partly because companies are intimidated by the prospect, and also by their own lack of knowledge. This is a new and emerging sector and there are plenty of horror stories about RPA projects gone wrong.

The technology is also often misunderstood. The most common mistake is to view it as an issue of compliance. In truth though, it is something which can be embedded into the fabric of an organisation. It makes everything faster and more transparent and in the world of financial regulation, in which regulators want to see the steps companies have taken to fulfil their obligations, this is an enormous bonus.

Powered by WordPress & Theme by Anders Norén