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BUILDING BETTER COMPLIANCE AND DATA PROTECTION IN FINANCE THROUGH TECHNOLOGY

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Data Protection

Alex Bransome, CISO at Doherty Associates, shares his insight on how to build better compliance and data protection in finance, in a way that meets the demands of regulators and investors. Alex is a highly experienced cyber security expert who consults on governance, risk and compliance related projects.

 

Doherty Associates are experts in securing cloud services for the finance and PE industry.

The financial services sector is continuingly evolving, and private equity funds, in particular, are undergoing substantial regulatory and operational changes. In the US, the Securities and Exchange Commission’s (SEC) compliance office named digital assets a 2020 priority, while Germany’s BaFin recently published new guidance on crypto token regulation. In the UK, the PE market remains steady, but continued concerns and uncertainty over the outcome of Brexit remain. Transparency is still top of the agenda, while the UK private investment community prepares for the change from LIBOR to SONIA in 2022.

At the core of these changes are two key drivers: regulators and investors. Since 2007, regulators have been demanding greater transparency and security across operations, and investors are demanding greater transparency in third party risk assessments and due diligence tasks. So far, funds have been meeting these evolving demands through a patchwork of systems, spreadsheets and ‘sheer manpower’, with many firms still operating on a manual level. These processes are a huge drain on resource and require multiple data source gathering, which in turn has the potential for errors and inaccuracies in reporting.

This raises the question: how can finance organisations and private equity funds build compliance, resilience and data protection into their businesses more efficiently, to meet the needs of regulators and investors? It’s also critical funds recognise that it’s possible to be compliant, but this does not inherently mean the fund is secure. The answer is a balance of people, process and technology, through digitalisation.  In its Capital Markets Vision 2022 report, Accenture notes that “technology-led innovation and new technologies will be the principal drivers of change, with artificial intelligence first and then distributed ledgers set to bring far-reaching disruption and radical new opportunities to the industry.”

Yet, still, much of the PE industry is slow to implement, even though the benefits are multiple and proven. Many firms cite that lack of integration as a barrier to adoption and some simply don’t have the technology.

Technology and ‘big data’ have been disrupting financial services for some time now. But though data has become a key factor in decision-making many investment strategies firms have yet to find an efficient way to use it, structured and unstructured, internal and external. The result is information overload.

 

Technology: a foundation for better data

Using smart technology can solve key problems, such as data management and reporting, and build compliance, resilience and data protection into operations across the finance and Private Equity portfolio. The cloud now makes it easier for firms to manage and access their data and importantly, shifts its’ ownership and management from the IT department to the people who use it: the business units.

 

Key cloud technologies to harness data

Some cloud technologies that can be leveraged for better sourcing, management and processing of data include:

  • Advanced analytics enable the secure storage of infinite amounts of data from diverse datasets and draws upon it in real time to deliver actionable insights. It integrates with the existing IT environment for a better way to manage, access and use data.
  • Data warehouses allow firms to ingest large structured and unstructured datasets and run thousands of analytics queries over all their records. The system gathers data from a wide range of sources within a company and uses the data to support management decision-making. This could be used, for example, to monitor price history or explore changing market dynamics.
  • Machine learning services are a good option for advanced firms with data science capabilities who want to build and use their own predictive analytics solutions. As more and more firms embrace digital transformation this will be key to future deal sourcing, rather than traditional networking.

Migrating to the cloud also means better security as PE firms become increasing targets for cybercriminals, keen to exploit their weak spots. These modern cloud services are built on a secure foundation of security by design and default. Firms should ensure that they have best in class collaboration and productivity tools, a secure IT environment, 24/ 7 assistance and a security detection and response service proactively monitoring their systems. Having access to this kind of support and technology can make a world of difference when managing the security risks.

The use of technology is critical to staying competitive and harnessing valuable data will improve the firm’s efficiency and provide valuable market insight. Good data management is essential for building resilience, security and compliance in finance firms, in an increasingly competitive and regulated industry, and importantly differentiate the firm as a technology leader and become a source of competitive advantage.

 

Finance

HOW TO TELL IF YOU’RE OVERPAYING TAXES

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HOW TO TELL IF YOU’RE OVERPAYING TAXES

Paying taxes is a necessary act in our world, and with good reason. Our governments use taxes to build the infrastructure we use, improve our children’s education, and fund the societal safety nets we all end up needing at least once in our lives, like Social Security, unemployment insurance, and welfare.

There’s a difference between paying your fair share and paying too much because that money could be used to better your situation instead of sitting in a government account. But how do you know whether you’re paying too much and what can you do about it? We’ve got a few tips below.

 

The easiest way to tell if you’re overpaying: Do you get a refund every year?

Does your yearly tax filing fill you with a sense of excitement because of the refund you’ll receive? Unfortunately, that excitement is a clear sign you’re paying too much in taxes.

Try to see your taxes like a loan you give to the IRS. If you pay too much, then you’ve given them above and beyond your fair share, interest-free. Yes, you get it back by April (if you file on time and there’s not an extension for a global pandemic) of the following year, but you’ve lost the opportunity to make that money work for you by either accruing interest, getting rid of debt, or improving your lifestyle. This is known as “opportunity cost” and removing as much of it as possible is a critical part of having a solid financial plan.

Balancing how much you pay in taxes works both ways. Underpaying taxes amounts to an interest-free loan from the IRS to you that will need to be paid in full by Tax Day on April 15. If you can land into a sweet spot where you owe $0 and are refunded a trivial amount, then you’ve adjusted your withholdings correctly. It’s a tricky situation to get just right, though, so let’s cover a few adjustments you can make.

 

How to adjust the amount of taxes withheld from your paycheck

Taxes in the U.S. are complicated, so don’t feel bad if you’re just now realizing you’ve been overpaying.

If you have an employer, the first step is to figure out which department handles your payroll and taxes. Typically this will be HR, though it can fall on the accounting department, too. You can update your withholdings at any time, though it’s better to adjust it when new life circumstances come up. These include:

  • Getting married or divorced
  • Having a child, either from birth or adoption
  • Changes in income

To adjust withholdings, you’ll submit a new W-4 that includes your updated tax situation. You shouldn’t need to send any additional verification, but check with the payroll department to see what the latest requirements from the IRS look like.

 

What to do after you’ve adjusted your withholdings

If you’re able to adjust your withholdings, you should see a bigger paycheck after your next pay period. While it can be exciting to have more money coming in, it’s important you use this opportunity to get into a better financial situation. Consider putting that “extra” money toward paying down your debt or putting it into a retirement account. Using that new infusion of cash responsibly will not only help your financial situation now but ensure you have a stable source of income in retirement, too.

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WHY THE EXPLOSION IN LOCAL RETAIL DEMANDS NEW PAYMENT METHODS

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Kasper Enggaard Krog, CEO at mobile payment and business technology firm, Vibrant, explains why micro businesses are being badly let down by contactless payment providers while local retail has boomed.

 

Before the pandemic, between 40[i] and 47[ii] per cent of micro businesses didn’t accept card payments, depending which statistics you prefer. This includes everything from corner shops to cafes and builders to barbers. They relied on cash, cheque, or where suitable, perhaps the laborious process of an invoice and bank transfer.

This is despite there being 6 billion contactless cards in the world and 47 per cent of people preferring to pay with one when at a physical point of sale[iii]. At first glance, it might seem that these small traders were cutting their noses off to spite their faces. Customers wanted to pay them with cards, why wouldn’t they just allow them to do so?

 

What was stopping merchants?

The answer is simple. Because for the smallest of merchants, accepting a card payment has always led to expensive ongoing fees, results in slow settlements, requires admin and calls for an up-front investment in cumbersome and basic technology.

It won’t be news to anyone in the industry that the recurring costs all add up. Transaction fees are typically between 1 per cent and 3 per cent, not to mention authorisation fees and merchant service charges[iv]. A credit card reader might be about £20 and the same for a receipt printer. This all eats into profit, not to mention time.

 

Kasper Enggaard Krog

The pandemic changed it all

Yet the pandemic has forced micro businesses to reassess their reticence to take card payments. Two reasons are behind this. Firstly, there has been an explosion in people shopping where they live. When lockdowns swept across Europe, it became hard to get to larger retailers. Local merchants of all sorts became a lifeline[v].

Not only that, but many people were forced to reconnect to their communities and realised they enjoyed shopping on their street and wanted to support independent businesses. The data proves this. According to research, the convenience store sector grew by 6 per cent in 2020[vi].

This led to the second factor, contactless payments were considered safer than handling cards or cash. The overall impact of more shoppers and the threat of infection led to a boom in contactless payments. In fact, the number of purchases made in May 2021 via contactless technology doubled compared with the same month a year earlier and was up 50 per cent on May 2019[vii].

 

Woefully underserved

This shift to accepting card payments among the smallest of businesses should be applauded. There are currently £2.25 trillion in cash and cheque payments made in Europe[viii]. They’re now opening themselves up to this huge market.

This is undoubtedly good for consumers and merchants alike. But it does beg the question, why did it take a pandemic to cause the change? Why did they have to face the prospect of potential infection or financial ruin to make the move?

Simple, the existing model is broken. The barriers to accepting card payments remain – high cost, poor tech and slow settlements – but they’ve been overcome through necessity rather than benefit. These businesses remain woefully underserved yet have been forced to accept what is on offer. There must be another way.

And there is. For the first time, the technology now exists for market traders, stall holders, car washes – any number of micro businesses – to take contactless payments using only their phone. No additional tech. No annoying dongles or readers that take up space and will ultimately add to the vast rubbish bin of obsolete, single-function peripheries. These will soon join calculators, MP3 players and digital cameras.

Furthermore, this tech not only takes payments, but within months is expected to allow merchants to run their whole business on their phone. They will be able to add product lists, inventory details, accounting tools and much more. It’s like a mini enterprise resource management system for the tiniest of firms. And the fees are transparent, predictable, lower than the market rate and don’t have binding contracts. Importantly, it also has the backing of Visa – and Vibrant is leading the roll-out.

The business is proud to do so and sees a huge opportunity. Micro businesses are now worth £1.85 trillion to the European economy[ix]. Their importance will grow, and they need the payments sector to take note of their needs and do better. It’s no longer acceptable to foist poor products and services upon them and allow the pandemic to drive change rather than innovation.

The explosion in local retail demands new payment methods – and they must be made available. In many ways, it’s a scandal that it took a pandemic to force change.

 

[i] 40% of the UK’s micro businesses do not accept card payments
[ii] Visa data
[iii] 40% of the UK’s micro businesses do not accept card payments
[iv] Credit card processing fees
[v] Local heroes: The retailers benefiting from the rise of localism
[vi] Lumina Intelligence UK Grocery Data Index for 2020
[vii] Contactless payments dominated as lockdowns eased
[viii] Visa data
[ix] Visa data

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