The nature of the risks that could impact a business vary widely; potential issues or crises are unfolding second by second. These could be anything from trade wars, weather-related disruption, or political unrest. Whatever the cause, such potential risks can have significant implications on business operations and the future direction of companies in the finance sector.

Growth pains of financial institutions

Constantly, executives are faced with challenging decisions, such as which markets to move into or where to locate offices and public-facing outlets. Many of these decisions can see organisations venture outside the confines of their established markets. Therefore, before such decisions are finalised, business leaders must gain insight into both short and long term threats that might impact their business in a given location and the businesses’ ability to operate effectively and keep employees safe.

For example, a natural disaster such as the forest fires in California or the political relationship between relevant countries, as is the case for the US and China at the moment. Macroeconomic issues are critical here, but so too are smaller incidents; both could derail an organisation’s expansion plans, so situational awareness must be comprehensive and holistic.

Changing world, changing data

When it comes to issues such as those outlined above, the theory is easy. Businesses need to know what is happening where they currently, or plan to operate. The practicalities are more difficult. In a world where indicators of unrest can come from anywhere, businesses need to think differently to ensure they are ahead of the curve in identifying and managing risk. Knowing first so they can act faster provides a material advantage.

If we look back twenty years, key risk stakeholders would have relied on scheduled reports and ongoing news bulletins to stay abreast of the global news agenda, and the impact it has on their business. In the digital age, the world spins much faster. In the past five years, the increase and diversity of platforms that global citizens turn to means that social media has been one of the largest – and most powerful – contributors of real-time information that businesses can now include in their awareness arsenal. However, the digital fingerprint of risk now extends far beyond social media.

Event signalling can now come from ship data, aircraft data, and weather sensors as well as social media, and a myriad of other places. The sheer number of publicly available datasets is rising exponentially, and increasingly the difficulty for organisations is to make sense of patterns and exceptions in those data streams. To gain a deeper and more comprehensive understanding of the geopolitical landscape, many business professionals are now turning to artificial intelligence (AI) to help spot the patterns and highlight the issues that matter, without necessarily having to be in the region, the city or the street where an event is happening.

Moreover, by spotting previous patterns and identifying the potential risks within new geographies, finance professionals are increasingly supported by AI in their critical business decision making. While the core function of a real-time alerting platform is to provide situational awareness, data analysis can also help financial institutions spot opportunities for growth.

AI-based risk analysis central to FI growth strategies

Risk departments across financial services companies already understand that geopolitical awareness is vital to both survival and growth in today’s complex world. Armed with the right data, these teams have more security in their decision making. By having real-time insights, powered by AI, financial institutions can benefit from a central core of information on which to make effective and clear decisions, regardless of the geopolitical scenario. Only by embracing these tools will banks and financial institutions be able to mitigate risk, and drive growth and innovation.

The post Keeping global financial institutions ahead of geopolitical risks appeared first on International Finance.

Chinese policy makers are currently focused on cutting risky debt, and are also seeking to protect economic growth as the trade war with US intensifies. The Authorities have taken several steps to free up credit, which include ordering the nation’s lenders to boost support for infrastructure projects and small businesses. Meanwhile, bad debt ratios at the big banks are improving as they reduce exposure to industries suffering from overcapacity and boost recovery efforts.

A group of Goldman Sachs Group Inc. analysts, including Tian Lu wrote: “We think broad-based results are improving with strong pre-provision operating profit growth on the back of faster loan origination and net interest margin expansion,” in a note published Wednesday.

Shares of Agricultural Bank of China Ltd. rose as much as 1.6 % in Hong Kong on Wednesday, while Bank of China Ltd. and China Construction Bank Corp. stock dropped as much as 1.7 %. The three banks reported their earnings on Tuesday. Bank of Communications Co. has seen its shares gain 3.6% since reporting on Thursday.

The government crackdown on risk saw the banking sector’s bad debt surge by a record in the second quarter– 80% of which came from small rural lenders. This can possibly force authorities to further pull back their deleveraging campaign, which had eased in recent weeks. Policy makers are also committed to injecting cash in order to help sustain the economy.

While easing the campaign may relieve some of the pressure on smaller banks– not everyone is in favor of such an approach, stated Alex Wong, director of asset management at Ample Capital Ltd.

“People don’t like this policy giving new liquidity and delaying the deleveraging process,” stated Wong. “We have seen this in China over the past 10 years. Time to time they loosen and then they tighten again, so I think people are a little bit sick of it.”

AgBank, the country’s third-largest lender by assets, posted a 7.9% rise in second-quarter profit to $8.4 bn, while fourth-largest Bank of China’s profit rose 5.3% to $8.8 bn.

Bank of China’s overdue loans, a leading indicator for potential bad loans, rose 35% from the beginning of the year to $40 bn, or 2.41 % of total credit. China International Capital Corp. analysts cut their price target for the stock to $0.81(HK$6.37) each, citing the rising economic volatility and lower risk appetite from investors.

CCB said it saw a 7.2% increase in profit to $10bn. BoCom, China’s fifth-largest lender by assets, reported a 5.2% profit increase to $3bn last week.

The average nonperforming loan coverage ratio for banks including CCB and BOC reached 202%, which was above the 150% regulatory requirement, while the 90-day overdue loan ratio continued to decrease, according to the Goldman Sachs note.

“This suggests to us that improving asset quality may help bring lower credit cost from this point on, given the likely healthier and cleaner balance sheets,” the analysts wrote.

The post China’s big banks benefit from better margins as slowdown looms appeared first on International Finance.

March 7, 2017: As part of its plans to grow its business in the Netherlands, risk and due diligence expert Clayton Euro Risk has announced a strategic alliance with The Dutch Mortgage Consultants (TDMC). The move will support Clayton Euro Risk’s strategic focus on the residential mortgage market in the Netherlands.

Clayton Euro Risk is Europe’s leading provider of risk analysis on mortgage and asset finance. The firm believes that its expertise and reach will be enhanced by TDMC’s substantial knowledge of the Dutch mortgage market, credit, regulations and conditions to provide value and solutions which will be market-leading.

From the start of January 2017, Clayton Euro Risk’s and TDMC’s teams have worked together closely to establish the relationship. The first project for a Dutch client has already started.

Simon Collingridge, strategic delivery director, Clayton Euro Risk, said, “It is important for our clients that we have local presence in the Dutch mortgage market. We believe that by combining our capabilities, expertise and resources with those of TDMC, we’ll gain an even deeper understanding of the risks and opportunities faced by mortgage players and funders in the Netherlands. We can then deliver solutions tailored to those needs whether in support of origination, servicing, portfolio sale, acquisition or securitisation. Working with TDMC will ensure that we have people with real, practical experience of all aspects of Dutch mortgages supporting our delivery of those solutions. This, we believe, will bring a unique and invaluable offering to what is a dynamic mortgage market.”

In a press release, Jaap van Raak and Michel van der Sluis, partners of TDMC, said: “Working with Clayton Euro Risk will give us a unique opportunity to be their local presence in the Netherlands mortgage market and to add real value to their Dutch clients.”

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February 15, 2017: When faced with the need to invest safely and capitalise our savings we often ask ourselves if this is possible. Our first and immediate answer will be no, as every investment involves some level of risk, with the possibility that it can lose value. But let us explore further and not be carried away by this first assumption.

While it is a fact that in most countries the pension fund is legally ‘untouchable’, there have been constants episodes where companies or governments supported by the sparse or better said ‘bad regulation’ of supervisory agencies, much often motivated by greed, easy money and, let’s be honest, low levels of financial literacy among consumers, make decisions that do not contribute to our goals. Consumers are simply not involved with the decision making, and they are rarely made aware of the funding status or investments held by the managers.

The relative risk of investments varies widely. Indeed, some investments are inherently more risky than others, but a good start to investing safely is improving our financial literacy and educate ourselves on which types of investments are available on the market, theirs returns and, of course, what are the associated risks.

In order to reduce our investment risk, we must understand it first, as the more we get to know, the more comfortable we get to making good and financially responsible decisions.

Looking at investment offers in the market, we have on one end the spectrum of super-safe investments with low returns and on the other end, riskier but higher-yielding alternatives. It is a mistake, however, to think that this is a general rule. Alternative investment options exist — like the forex market where each trader choses how much risk he wants to assume and not the broker. This is just another example of our lack of financial knowledge. Indeed, the fact that banks aren’t capable of delivering decent returns, doesn’t mean that it isn’t possible.

Finally, and getting back to my question, the secret to investing safely as you climb up the risk/reward scale is knowledge. The more you know, the better you can discern which risks to take and which to avoid. Never let an opinion decide for your own investments — no one needs a bachelor in finance to take his finances into his own hands.

And, of course, don’t invest money that you do not have. Investments will always involve some level of risk and you don’t want to owe money that you cannot afford to pay. Last but not least, remember that the financial market is ever changing — never stop learning.

The post Investing safely starts with improving financial literacy appeared first on International Finance.

January 31, 2017: Chargebacks911™, a global risk technologies company and an internationally-renowned leader for risk mitigation, announces the appointment of Tracy Cray as Director of Card Scheme Compliance at Chargebacks911’s new Essex location.

Tracy Cray, former Chargebacks & Disputes Manager for The Royal Bank of Scotland, has led Europe’s most successful chargeback processing division for the majority of her 34-year tenure in the payments industry. She also chaired a number of chargeback and scheme forums, including the European Experts Chargebacks Group.

As an unrivalled expert in the field of chargeback management and risk mitigation, Tracy’s in-depth understanding of card schemes and influential relationships within the industry will serve as the cornerstone of Chargebacks911’s latest venture — services tailored to assist issuers, acquirers and enterprise-level merchants. The service will launch in Q1 in Europe and will be offered to qualified clients, backed by a performance and ROI guarantee.

Tracy says, “When it comes to chargeback management, financial institutions are burdened in many ways — it’s impossible to stay current on constantly-evolving regulations, there is little transparency regarding the processes of other entities, and an inability to maintain compliance becomes a major liability. These hidden issues have continued to accumulate without reprieve.”

According to some reports, internal chargeback-related expenses have climbed by 21% since 2015 and are expected to double in 2017.

“For this reason,” Tracy continues, “the services Chargebacks911 is offering will be a godsend to many, taking the guesswork out of the equation completely with effective results that last. I couldn’t be more pleased to lead this unprecedented industry initiative.”

Monica Eaton-Cardone, co-founder of Chargebacks911, says, “Tracy is undoubtedly the most astute chargeback expert I have met, with an undeniable and persistent approach to positively address the core source of any problem she takes on. Her in-depth understanding of the inner-workings of chargeback management is unmatched, and we’re thrilled to have her join our growing leadership team in the UK.”

Chargebacks911’s new services will include, among other things, personalised consulting and results-oriented strategies to assess current policies and procedures. By identifying oversight, errors, and unrealised opportunities, clients will experience an immediate improvement to their bottom line.

The post Payments industry expert leaves RBS to Join Chargebacks911 appeared first on International Finance.

The governor also told members of the Treasury Select Committee that a period of transition was ‘highly advisable’. “If such a transition is not put in place, in our view it will have consequences. We will work to mitigate those consequences as much as possible,” he said.

Carney said the UK should concentrate on stable access to financial markets after Brexit.

Last week, the Bank of England’s chief economist, Andrew Haldane, admitted that some criticism of economic forecasts about the immediate impact of a Brexit vote were justified.

Carney told the committee that economic forecasting had improved since the financial crisis, by being more pessimistic. “As you’d expect a bunch of dour central bankers to be, we’re focused on the downside and less focused on how everything could turn out well, but what could go really wrong… and where can we potentially mitigate that. We do have to ask ourselves continually what could go wrong. We don’t have to see a ghost behind every corner, but we do have to ask ourselves what could go wrong.”

The post ‘Immediate risk posed by Brexit has declined’ appeared first on International Finance.

January 2, 2017: This year looks set to bring positive news for investors, but Donald Trump’s policies and the Federal Reserve’s reaction to their impact will be the biggest risk. Other key risks facing investors are the French and German elections, and further impact of lower oil prices.

It is likely that 2017 will bring good news for investors – but they mustn’t be complacent. They must remain alert. We’re now in a very different landscape to where we have been for the last six or seven years and this shift could impact investor returns.

As the world changes, investors will need to change with it to capitalise on the many opportunities that will be presented and mitigate any potential risks.

The biggest threat to investors is the changing expectations for growth, inflation and interest rates in the US, which remains the world’s largest economy.

Even before he takes office, the data and anecdotal evidence suggests that the US economy has been given an initial boost from the forthcoming Trump presidency. Considering the likelihood of a stimulus package when he takes office, and given the already near full employment rate, inflation could go higher than the Fed’s goal of 2 per cent.

Should this happen, the Fed could perceive the inflationary pressures as leading to an overheating of the economy and raise interest rates quicker than markets anticipate to cool it down.

The second major issue of which investors should be conscious are the forthcoming elections in France and Germany. Nationalist and far right are seeking to establish themselves in government in these countries. Should this happen, there could be an existential crisis in the EU as borders could be re-established and trade flows impeded in the world’s biggest single trading bloc.

The third risk is that the decline of the oil price from the highs of a few years ago will continue to have a significant impact on the finances of oil exporters.

The outlook for 2017 is strong, but investors should avoid complacency to make the most of an evolving investment landscape and build wealth.

Nigel Green is the founder and CEO of deVere Group

The post ‘The top three risks for investors in 2017 are…’ appeared first on International Finance.

November 29, 2016: Ireland has indicated to a number of large investment banks that it would be hesitant to host large trading operations. The Irish central bank has signalled in talks with banks that they would encounter serious hurdles to gain regulatory approval for these operations, which would involve large sums of money compared to the small size of Ireland’s economy.

The reasoning behind the stance

“A lack of specialised supervisors and the risk of sophisticated investment banking to the state make Irish regulators reluctant to host such banks in Dublin,” said a source who understands the line of thinking of the Irish central bank.

“Our sense is that the appetite in Ireland is not that high for balance sheet banks,” said a source at a global investment bank.

The reluctance is said to stem largely from the unfortunate experience of having gone through a severe banking crash in 2008, which was followed by an international bailout.

Speaking anonymously, a source at a large investment bank with a global presence commented, “Ireland is being very realistic about what it can and what it wants to do. If you’ve come from all the troubles Ireland has, you want to be very careful about taking on risks.”

Meanwhile, yet another banking source said, “Yes, Ireland wants insurers, asset managers, back office functions; but they don’t want big balance sheet risk. They just don’t want to take on that kind of risk and feel that they don’t have the regulatory bandwidth to do that.”

The news comes in spite of the country’s need to attract jobs in the financial sector from London after Brexit.

Likely fallout

What will most likely result from this stand is that Ireland will fail to become a destination of choice for what is considered to be some of the banking industry’s riskiest affairs. The investment banks involved are mostly American, Swiss and British, which are now figuring out how to gain access to the EU after Britain leaves.

The principal concern of these banks is where they can carry out trade which brings many risks and involves large balance sheets, such as the trading and clearance of European securities, euros and other market activities, which come under the purview of EU regulation. Carrying out such trade means the trading models employed must be carefully supervised. Coupled with the scale of such business, this has led to the cautious response from Dublin, say sources.

No blanket policy

However, a spokeswoman for the Irish central bank said that there is no blanket policy in place intended to turn away certain types of business. “The central bank is open to engagement with any firm wishing to obtain an authorisation,” she said.

The post Ireland not keen to host high-risk trading post-Brexit appeared first on International Finance.

Sophie Brackenbury

September 19, 2016: Our commercial dispute resolution team was recently instructed to advise on the enforcement of a debt owed to a German business (our client) by a UK company, as part of our debt recovery service.  The outcome was that we were able to enforce the debt effectively in the UK courts on behalf of our German client.

The process involved obtaining a European Order for Payment (EOP) in the creditor’s domestic court (in this case Germany), which could then be enforced in other European courts (in this case the English courts). This is possible owing to Regulation (EC) No 1896/2006 (‘the Regulation’), which provides a streamlined process for enforcing debts against parties in other EU member states where the amount is not disputed. In such circumstances, a creditor can file a standardised form with the courts in the relevant member state, wait for the courts to approve the application and issue the EOP, and then pursue enforcement of the debt. This means that the UK currently has favourable terms for enforcing debts compared with countries outside of the EU.

This process does, of course, now give rise to the question of whether – when Article 50 of the Lisbon Treaty has been triggered and the UK has left the EU at some point in a little over two years – it will still be possible – and if possible – whether it will be easy for (a) a business based in an EU member state to recover debts in the UK and (b) UK-based companies to recover debts in the EU.  The wider implications for UK businesses trading with European companies could be significant, including:

• A great deal more caution in terms of business dealings between UK and EU companies;
• The necessity to carry out more detailed and costly due diligence and credit risk assessment of new European customers;
• A fear – particularly among smaller organisations where significant unpaid levels of debt can affect cash flow to a catastrophic level – of doing business of any kind with European customers

Added to which, of course, is that this is just one example of what could be an incredibly nebulous set of circumstances and scenarios that UK businesses will be faced with once we trigger Article 50, and the myriad EU originating provisions that govern commercial life begin to unravel.

Perhaps, the most helpful parallel would be to look at the position in Denmark, which unlike other member states opted not to implement the Regulation and so falls outside of the EOP regime. If a party in Denmark wished to pursue recovery of a debt in another EU member state, it would need to pursue court proceedings in the relevant jurisdiction and rely on local enforcement laws in order to recover the debt. Likewise, parties in other EU member states will have to rely on Danish local enforcement laws, as would be the case if pursuing a debt in a non-EU member state. This includes EEA/EFTA member states, as the Regulation does not extend to these countries. As such, parties in the both the UK and the EU will likely have to follow the Danish example when pursuing debt recovery post-Brexit.

It’s not all doom and gloom, in that this is not necessarily a more difficult course of action, it’s just a different course of action to the one currently available. It does, however, require detailed consideration of the differences between each jurisdiction (which the current – ‘pre-Brexit’ – situation minimises by having a standardised application process). As such, while debt recovery proceedings in EU member states will still be possible following Brexit, it will be necessary for businesses to take different and often more complicated and costly processes into account when considering the risks of trading with European organisations.

So, where does this leave UK business?  Whilst the likely implications remain uncertain until we know what form Brexit will take, it will probably involve increased time and costs in pursuing debt recovery. Our advice is to plan your strategy carefully, not only in terms of debt recovery and enforcement, but also throughout your business, including your commercial agreements, relationship with employees etc.  This process should take into account the over-arching imperative to minimise risk to your business. Specifically, the following may be helpful as a starting point:

• As the UK has not yet triggered Article 50 and thereby the process to leave the EU (which itself will be a two-year process), there is still time to prepare.  The current position seems to be that the UK government will trigger Article 50 at some point early in 2017. However, you should start now, consult your professional advisers, and ensure you have a strategy in place.

• As a first step, businesses, particularly those that rely on trade with the EU or where loss of trade with EU would have a significant impact, should carry out analyses, including the extent to which their business relies on pan-EU trade and, therefore, the risk that Brexit presents. For example, what percentage of your income relies on trade with other European countries?  What do you need to do to ensure that this continues? How much of that income could you afford to lose before it has a significant effect on your business?

We have been part of the EU (and its predecessors) for more than 40 years. That’s a long time and in that time, we have built up a complex and binding set of trade rules and procedures. Extracting ourselves from these will be complicated and there will be some pain. The uncertainty (and therefore increased risk) means it is important for all businesses, who rely to any degree on EU trade, to minimise that pain by planning early and putting a risk strategy in place.

Sophie Brackenbury handles Dispute Resolution at Shulmans LLP

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August 22, 2016: Fraud prevention software company Risk Ident has announced the appointment of its CEO, Roberto Valerio, to the European Advisory Board of the Merchant Risk Council (MRC).

Valerio founded Risk Ident and leads the day-to-day management of the company, responsible for driving the development of the business to serve companies in need of a modern, intelligent approach to fraud prevention, supported by machine-learning technology.

As one of the European Advisory Board members, Valerio will contribute new ideas and help the MRC and its members thrive in a rapidly-evolving industry. “I’m very proud to join the European Board and I’m looking forward to working together with industry experts to ensure merchants are supported in dealing with the modern threats of online commerce,” said Valerio. “From my work at Risk Ident with some of Europe’s largest online businesses, I know how important industry information exchange is and the important role the MRC plays in promoting this across the globe.”

The MRC supports around 500 member companies in over 20 countries, including consumer brands who all share a mutual goal of improving ecommerce payments while supporting their organisations’ risk management efforts.

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