“Our analysis indicates that uncertainty will remain high in the next 18 months, regardless of what happens in the wake of the election, and we are maintaining our risk rating of DB2d and our ‘deteriorating’ risk outlook for the UK economy. We predict that, in the long run, the election result could make a ‘hard’ Brexit – which we believe would be harmful for the British economy – impossible. The best advice for businesses is to monitor the progress of negotiations, and use the latest data and analytics to assess risk and identify potential opportunities. Once a government is firmly in place and negotiations progress, organisations may have a clearer picture of the business partnerships between the UK and the rest of the world. Until then, a careful and measured approach to managing relationships with suppliers, customers, prospects and partners will be key to navigating through these uncertain times.”

Markus Kuger is Senior Economist at Dun & Bradstreet  

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A new study by Dun & Bradstreet shows compliance professionals anticipate a more complex and uncertain future, which will increase data governance challenges and cause difficulties in the customer journey.

This quantitative research was carried out in November 2016 by independent research company Censuswide. Responses were gathered from 100 compliance, legal and operations professionals within UK banks and financial institutions.

The research found that almost half (49%) believe that it will become harder for their organisation to comply with financial regulation over the next 12 months. Reflecting this, two-fifths (40%) of compliance professionals also expect customer onboarding times to increase over the next five years.

42% of respondents say it currently takes them three to four working days to onboard a new customer, with 12% saying it takes up to six working days. Three-quarters (75%) of respondents believe that CDD (Customer Due Diligence)-related delays have a negative effect on the customer experience, with increased regulation resulting in significant business impact such as taking on less business and a third (32%) of respondents saying they have had to build larger teams to manage the process.

About half of respondents (45%) say that monitoring the compliance status of customers on an ongoing basis is “fairly” or “very” difficult. Moreover, over a quarter (28%) say that increased time – between 3 and 4 working days – to identify and compile a report on a client that posed a regulatory risk could strain sales and compliance teams, with the potential for revenue loss.

“By valuing the positive impact of a healthy compliance function on the rest of the business, banks and financial institutions can create CDD processes that will meet current and future demands,” said Thomas Cosgrove, Strategy Leader, Global Compliance Solutions, Dun & Bradstreet. “Through intelligent compliance practices, teams can not only manage risk effectively, but actually improve the onboarding process, thus enhancing the customer experience and creating a competitive advantage over rival firms. An effective compliance team not only protects the bank from risks (financial, regulatory, reputational), but also serves as a showcase of the institution’s commitment to responsible business and its ability to protect the interests of customers.”

Compliance professionals believe that using technology is the way to respond to the changing regulatory landscape, with 50% saying they will need to invest in solutions within the next five years. Currently, few organisations are proactively enhancing their level of sophistication around CDD, as only 7% have taken steps to centrally manage and automate procedures. Compliance professionals recognise the advantages that automation would bring to the onboarding process, in particular, including faster times to revenue (60%) and improved customer experience (56%).

“In an age where the regulatory landscape is becoming more challenging and evasion techniques are growing in sophistication, businesses should look to arm their compliance teams with the best tools available,” continued Cosgrove. “Intelligent application of robust data can automate parts of the compliance process, enabling knowledge workers to focus on exceptional cases, improving onboarding speeds and focusing scarce resources on higher value activities. The latest technology is important, but systems are only as powerful as the information that flows into them. Ultimately, teams must ensure the quality and timeliness of the data they use is as robust as possible.”

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Jaspreet Sehmi

August 2, 2016: In its first set of projections published since the UK voted to leave the EU, the IMF has downgraded its forecasts for global, eurozone and UK growth. In addition, the Fund says that the UK will be the worst affected of all the advanced economies – a view that Dun & Bradstreet shares given that Britain faces the largest amount of uncertainty and change. The financial markets were largely unfazed by the release of the IMF report, given widespread expectations for more substantial downward revisions.

In the event, the IMF reduced its UK growth estimate for 2016 by only 0.2 percentage points to 1.7%, and even though it cut back its 2017 estimate more sharply, it nevertheless remains firmly in positive territory at 1.3%. These forecasts are based on the rather optimistic assumption that the UK and EU will broadly maintain their existing trade and financial relationship. However, the UK government is loath to accept a deal that preserves the free movement of labour, unfettered access to the single market and the continuation of full ‘passporting’ rights for the City are far from guaranteed.

The IMF has pointed to financial market resilience in the weeks following the referendum as a key factor supporting its relatively sanguine baseline projections. Indeed, global markets have stabilised and risk assets have recovered relatively quickly from their post-Brexit sell-off. However, it is important to remember that market reactions tend to be volatile and short-termist while the economic facts on the ground take more time to filter through. Indeed, we believe that the current market respite will prove temporary, with the UK economy now passing through the eye of the storm. In contrast to what the IMF forecasts appear to imply, we continue to expect the UK to enter a technical recession at some point between the second half of this year and the first half of 2017.

While post-Brexit official statistics on the economy will not be released for some time, anecdotal and survey evidence suggests that firms are already scaling back investment and hiring plans while the housing market has started to show signs of cooling. The UK’s Composite Purchasing Managers’ Index (PMI) – which is based on a survey of manufacturing and services firms – fell substantially in July to hit its lowest level since early 2009, indicating a sharp contraction in business activity following the Brexit vote.

Despite unexpectedly holding fire in July (a decision probably taken to convey a sense of calm to the global financial markets), we expect the Bank of England to cut the benchmark interest rate by at least 25 basis points from the already-record low of 0.5% at its forthcoming August monetary policy meeting. It is also very possible that policymakers could announce a new round of quantitative easing stimulus measures within the coming few months.

Our full-year growth forecasts for 2016 and 2017 currently stand at 1.3% and 0.4% respectively and our UK risk rating remains at DB2c (downgraded from DB2a immediately after the vote). While this rating still falls within our ‘low-risk’ category, it remains subject to further downgrades ahead given the many headwinds now facing the UK economy, including tighter credit conditions, higher inflation, elevated business and consumer uncertainty and limited room for monetary policy manoeuvre. As such, we expect unemployment to begin to edge higher, inflation to accelerate, real wage growth to tail off and the government deficit to widen in the coming months.

Looking ahead, we believe that while the UK will emerge from its short-term economic woes, it will not escape unscathed. The vote to leave the EU will have a long-term impact on the trajectory of the economy – whatever the eventual outcome. And with prime minister Theresa May having recently announced that Article 50 will not be triggered this year, the ongoing lack of clarity will continue to hamper business activity and could trigger further periods of Brexit-related market volatility. Indeed, with a new government at the helm, trying to navigate the UK economy through previously unexplored territory to a yet-undetermined destination, the journey ahead remains long, fraught with uncertainty, and full of hazards.

Companies and investors with business interests/operations in the UK and EU are advised to continue to monitor developments closely and should brace themselves for an open-ended period of uncertainty and turbulence. As such, it is important to maintain a flexible approach to business planning. However, it should be remembered that the UK will remain a full member of the EU until at least early 2019, in which time the legal framework governing the UK’s relations with the Union will remain unchanged.

Nevertheless, we advise firms to expect the pound to remain weak against the dollar for at least the coming one to two years and to anticipate a reduction in demand from UK-based consumers and businesses as heightened uncertainty weighs on purchasing and investment plans. Moreover, international firms should be prepared for a deterioration in the payments performance of small and medium sized UK-based counterparts as they face a squeeze in margins owing to lower domestic demand and higher costs for imported inputs. Finally, we advise companies to explore trade and investment opportunities in non-EU markets (where possible) in order to diversify their risk exposure.

Jaspreet Sehmi is a Senior Economist at Dun & Bradstreet

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Suparna Goswami Bhattacharya

July 28, 2016: Almost a month after the UK decided to exit the European Union, economists around the globe have come out with data suggesting that the referendum has had a mixed impact on the global economy with certain areas getting affected more than the others.

IHS Markit, a global insight company, in its report stated that Brexit will cut global economic growth by 0.1 per cent in 2016 and 0.4 per cent in 2017. Further, it will reduce growth in some of the world’s largest economies — UK growth to drop from 2.4 per cent to 0.2 per cent and Eurozone to drop to 1.1 per cent in 2017.

In the UK, it is expected to cause major economic and political uncertainty and will weigh down on business and household confidence and behaviour, thus dampening corporate investment, employment, and consumer spending.

Jaspreet Sehmi, senior economist, Dun & Bradstreet, feels that the UK economy is passing through the eye of a storm. With a new government at the helm trying to navigate the UK economy through previously unexplored territory, the journey ahead remains long and uncertain. “We expect the UK to enter a technical recession at some point between the second half of this year and the first half of 2017. Businesses are facing increased uncertainty, and anecdotal evidence suggests that firms are already scaling back investment and hiring plans,” says Sehmi.

In the Eurozone, the overall impact is likely to be negative, as any reduction in size of a single market makes it less valuable for those remaining in it. According to IHS Markit, the UK’s decision to leave will increase political instability and economic uncertainty in the Eurozone, weighing down on business and consumer confidence and activity. Additionally, Brexit has given momentum to other euro-sceptic political parties across the EU, some of whom also want a referendum on EU membership.

Tom Elliot, international investment strategist, deVere Group, says, “This makes it harder for governments to agree to a closer fiscal and political union which many economists believe is the call of the hour. This is illustrated by the difficulty in establishing a euro zone banking union.” Brexit is also likely to distract EU decision makers from core focus areas. The European Union should now be focusing on issues like the banking crisis (with Italian banks the current problem), migration, structural impediments to economic growth such as two-tier labour markets. These problems hinder EU’s ability to exert influence on the global stage, whether economically or politically, adds Elliot.

The Eurozone will also face a loss in competitiveness in manufacturing on the back of weaker GBP and increased uncertainty, potentially delaying investment decisions. “While sterling has remained weak, the swift formation of a new UK government has reduced volatility in financial markets, which should contain the negative impact on confidence going forward,” says Peter Vanden Hout, chief economist, Eurozone, ING.

The extent of the impact on Asia will largely depend on the outcome of the negotiations between EU and the UK. The principal transmission mechanisms of the Brexit shock to the region will come from trade, the financial sector and business confidence. Given the relatively small ties between the region and the UK, the shockwaves will reach Asia mainly via secondary channels.

Ricard Torne, head of economic research, FocusEconomics, says, “While shipments to the UK from Asia ex-Japan are relatively small (around 2.5%), those from the region to the Euro area are much larger and represent around 11% of the total exports. Therefore, the expected slowdowns in the Euro area following the Brexit vote, particularly in core countries such as Germany, will likely hurt Asia’s already-battered external sector.” Nevertheless, the impact on the region will be uneven. The countries which are more reliant on domestic demand, such as India, Indonesia and The Philippines, will weather the storm better than open economies like Korea and Taiwan. Financial hubs Hong Kong and Singapore will also feel the brunt due to heightened volatility in the financial markets, adds Torne.

Brexit will not impact US real GDP growth much in 2016, which is still forecast to be 1.9 per cent. “A relatively small proportion of US GDP growth comes from overseas trade, and the relative strength of the euro against the dollar year-to-date will offer American exporters some protection from any post-Brexit reduction in European investment spending and tourism,” says Elliot.

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July 26, 2016: Dun & Bradstreet has launched D&B Credit, the next generation risk management platform for trade credit in the UK and Ireland. The cloud-based platform gives finance teams dynamic, intuitive access to the world’s largest commercial database, with over 250 million business records updated 5 million times a day. D&B Credit also provides in-product access to non-traditional data sources, such as social media and Google Maps. The platform delivers a global, unified view of customer relationships supported by analytics and insights, enabling CFOs and their teams to easily manage risk and identify new opportunities for growth.

The offering has been designed to match the needs of a new generation of financial decision maker: one which is no longer purely a risk manager but also focused on driving growth. This means they are under increasing pressure to mine big data to understand and mitigate risks, improve operational efficiency and identify opportunity.

“The sheer amount of data available to financial decision makers has grown exponentially as the digital age has taken hold,” said Andy Craven – European Product Leader, Trade Credit Risk. “Across the world, 2.5 quintillion bytes of data are created each day – 90% of this data has been created since 2013 – but data is pointless without the tools to turn it into intelligence. D&B Credit enables finance teams to turn information into the insights that will drive business growth – quickly and effectively.”

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