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POST-COVID TRENDS IN DIGITAL TRANSFORMATION: HOW FINANCIAL INSTITUTIONS CAN FACE THE CHALLENGES OF AN EVER-CHANGING CLIMATE.

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By Jennifer Geary, General Manager, EMEA at nCino

“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger: the other for opportunity. In a crisis, be aware of the danger–but recognise the opportunity.” ― John F. Kennedy

Jennifer Geary

JFK observed that in Chinese the word “crisis” is made up of two brush strokes representing danger and opportunity; this has proven particularly pertinent for the financial industry through COVID-19. The COVID-19 pandemic has upended nearly every aspect of our personal and professional lives. It’s also no secret that there’s been a fundamental shift in how customers choose and purchase products and services. For years, traditional banks’ technology systems were a huge obstacle hindering digital transformation. Many still run parts of their technology on antiquated programming languages, and years of patching have created complex estates that consume huge portions of IT spend. Executives at these institutions are aware that this isn’t sustainable, and the pandemic has served as a catalyst for the acceleration of digital transformation across the industry.

While the pandemic continues to evolve, clear trends have emerged, showing the dangers that are in front of FIs who hesitate to transform and the opportunities that exist for those who are willing to embrace change.

 

A personalised view of the customer

The reduction of physical bank branches continues its momentum with just last month Virgin Money announcing the shuttering of 12 branches in Scotland. Combined with an ever more sophisticated range of digital banking services, consumer attitudes and expectations of what a bank should provide continue to evolve. Customers have come to expect the same experience of their financial services providers that they have elsewhere in their lives, and as result, financial institutions are increasingly looking for ways to improve customer service and deepen engagement. For many financial institutions (FIs), being able to offer a personalised digital experience for customers is a priority. Many FIs have struggled to implement personalisation due to siloed legacy systems. However, these organisations need to break down these silos and ensure that information is free flowing to gain a better understanding of their customers and serve them more proactively. Platforms built for the world we live in now harness the power of artificial intelligence and machine learning to give FIs the ability to create the much-sought-after ‘single view’ of each customer, and create micro-segments allowing them to make decisions based on real-time data and intelligence.

 

Transforming one change at a time

Large-scale digital transformation is a marathon, but you don’t have to do it all at once. FIs can meet their goals and create value through a series of shorter sprints. Micro-transformation is about taking those first steps. It’s understandable that in the current environment, overhauling your entire infrastructure at once may be a challenge. Even in times of economic uncertainty, implementing small but mighty micro-transformations is a strategy that allows FIs to drive optimisation, embrace continuous innovation and stay one step ahead of the competition. With large digital transformation projects, users can feel overwhelmed by all the changes. However, with micro-transformations, this can be minimised as users will be introduced to the changes gradually, allowing them time to adapt and form new habits. Another benefit is that staff are given the time and incentive to learn new processes and systems and benefit from direct and immediate value in terms of time savings, increased efficiency, a better user experience or improved customer engagement and satisfaction. It’s all about getting some “quick wins” under the belt, by implementing smaller, bite-size technology projects that can have a focused but measurable impact on the organisation.

 

Using technology to support ESG

Environmental, social and governance (ESG) issues are emerging as some of the most important considerations for the financial industry. In January 2021, Larry Fink, CEO of BlackRock, issued specific directives calling on firms to align with global efforts to reach net-zero greenhouse gas emissions by 2050. Details include “the need for better data to improve disclosures of emissions and set rigorous short, medium and long-term targets to reduce them”. As Fink addresses, data is critical to ESG efforts. In order for FIs to succeed they need to be able to digest this data effectively; however, legacy systems struggle to keep up with new demands.

Digital transformation is seen as the key to unlocking further potential in ESG initiatives, with 33% of executives in financial services stating that they are looking to increase spend on digital transformation to enhance their organisation’s ESG efforts. Meeting ESG reporting requirements is becoming increasingly important as customers, investors and other stakeholders are seeking to learn more about a company’s ESG track record. And companies themselves are looking to dig deeper on their own strengths and weaknesses in order to take meaningful action. Having the right technology to help is critical.

To be successful, FIs need to assess their whole portfolio with regard to ESG risks and facilitate collaboration between compliance and credit teams. It will be an increasing challenge to stay ahead of the regulatory curve, requiring organisations to bolster their data capabilities with intelligent tools. With newer technology, platforms can be configured to add covenants and fields to help collect, validate, and analyse ESG data and turn it into actionable insights.

FIs cannot afford to simply cannot operate as they have in the past. While the rise of digital has been mounting similar pressures for more than a decade, the pandemic has significantly exacerbated and accelerated its disruptive force.

 

 

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Four ways traders can manage risk

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By Dáire Ferguson, CEO at AvaTrade

 

Understanding the markets in which you are trading is incredibly important to optimising profit, as well as manging risk and loss. While trading can be incredibly lucrative, it can often be difficult to judge which way the market will move – especially when executing shorter-term traders, where unknown factors can cause unexpected movements. Being aware of the risks is vital to avoid unnecessary losses and to optimise the trading experience.

Dáire Ferguson

There are several techniques that can be employed to make sure the risks associated with trading are controlled, rendering the trading experience smoother and more enjoyable. From beginners to experts, having these tactics in your arsenal will enable traders to be savvier, and more confident.

 

Understanding the risks

To really be able to manage risk, it is imperative to understand the two types of trading risks.

 

Leverage

Leverage is where traders stake only a percentage of the value of the underlying asset they wish to trade on but accept exposure to the full value of the profit and loss that comes with the asset’s price changes. This enables traders to take sizeable positions for comparatively less trading capital, thus providing an opening for big wins and substantial rewards.

However, with this comes the risk of similarly significant losses. As an example, if a trader opens a £100 trade on an asset worth £1,000, using leverage of 10:1, this means that if the assets value increase by 10 per cent, the trader’s money will be doubled. But if it drops by just 10 per cent, the trader will lose all their stake. This balance of high risk and high reward necessitates careful management. Leveraging typically applies to purchasing and trading contracts for difference (CFDs).

Volatility

Volatility is characterised by unexpected fluctuations in the prices of assets and is defined as the rate at which pricing rises or falls given a particular set of returns. Volatility applies to all assets, but the regularity and size of price changes differs hugely across different asset groups. In fact, in some markets, volatility is actually predictable. The cryptocurrency market is well known for its fluctuations, characterised by frequent and, often, significant changes in price.

There are scenarios in which volatility can be desirable for some traders as it fosters greater profit margins. However, it also sharply increases the potential for large losses. Nevertheless, there are a number of ways to spot incoming market fluctuations. These include economic volatility, geopolitical tensions, and changing policies.

 

Managing the risks

 

Choose the right broker

So, what can traders to do manage these risks? The first step is to choose the right broker. Having the right broker can go a long way to limiting the risks that come with trading, including managing counterparty risk. For example, when you purchase CFDs, you are purchasing a contract with a broker – not the asset itself. Therefore, traders must be 100 per cent certain in the knowledge that the broker they’ve chosen to operate with is capable of making good on the value of that contract.

Traders who are just starting out on their trading journey should look to open a trading account with an established name that is well regulated in a variety of jurisdictions. Higher-quality brokers will generally have a wider range of risk management tools and offer better features, which will allow traders to manage the buying and selling of assets in a better, more sophisticated manner.

 

Take out protection on riskier trades

For new traders, or those who are looking for extra support, it is worth considering taking out protection against losses for a set period of time. Certain brokers offer risk management tools that provide thorough protection against such losses. These tools generally require just a small fee, not unlike the premium on an insurance policy. These risk management tools allow users to stay in the trade, riding out any short-term drops in value and benefitting from a positive overall momentum of the position. Therefore, if the market moves in a different direction to what was originally expected, users only lose the cost of purchasing the protection and can recover their losses.

 

Set-up stop-loss orders

Another form of protection against losses is through a stop-loss order. This is an instruction that is executed automatically when certain conditions are met. Therefore, stopping losses from falling below a certain point, and setting a limit on how much an investor can lose on a trade. In the case of a stop-loss order, the position is sold at a predetermined rate – below the current market price for a long position, or above the current market price for a short position.

Stop-loss orders remove the user from the trade at a set price drop. In comparison, risk management tools allow the user to ride out any short-term drops in value, with the potential to benefit from a positive overall momentum of the position.

 

Manage the capital-to-trade ratio

One simple way traders can reduce the risk of accumulating excessive losses is to keep their capital-to-trade ratio under control. This is the amount of capital left exposed to losses in trades compared to the total amount of capital traders have available to themselves.

A sensible rule for traders to follow is to not exceed a capital-to-trade ratio of 10 per cent, and not to risk more than two per cent of the overall capital on a single trade. This doesn’t mean always taking very small positions – it means traders should hedge their risks on whatever positions they choose to take.

It is important that before traders even begin to trade, they make sure that they understand the risks they face. Once they have taken the time to do that, they can begin to contemplate these four ways to manage those risks and then start trading. This is an exciting time to be entering the world of trading, and these considerations should ensure that the trading experience is as enjoyable and profitable as possible.

 

 

 

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Out of office, home and away, moving up, moving on; when security goes AWOL

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By

Steve Bradford, Senior Vice President EMEA, SailPoint 

 

The financial services industry has one of the highest rates of insider data breaches, costing on average $21.25 million in the past year alone. Whether it’s an employee acting with malicious intent, or through accidental data mishandling, staff have access to sensitive information and systems that make them a constant vulnerability. And this threat only escalates when staff go on the move.

With the summer holiday season upon us, thoughts will be turning to well-deserved time off, travel and downtime. However, for many, especially in the financial industry, the notion of waiting until the summer months to sample a new life was not feasible. In the period following Covid, the industry has suffered at the hands of the Great Resignation as burnt-out employees left for new roles. As a result, research from PwC suggests that financial services leaders have had to prioritise employee retention amid the swathes of staff exiting.

This exodus is not just a threat to the workforce itself. It also results in greater threats to resilience, security and compliance. Ensuring that the doors to the organisation’s data are appropriately locked behind them is vital whenever employees are on the move. When a staff member leaves a bank or financial institution, security leaders must ensure they have not inadvertently handed over the keys to the safe as a leaving present. Revoking any and all access and privileges to company data must be a priority.

 

Don’t leave the door ajar 

Disorganised, ill-managed and manually-processed access requirements and identity management protocols are an open invite for security breaches.

However, it is not just those leaving for good that pose a threat. Recently promoted your long-serving payroll manager to a longed-for role in financial oversight? That positive move could result in entitlement creep, where the permissions to data, apps, information and systems she enjoyed in payroll follow her to her new home.

Permission creepers are those staff who collect permissions and access rights as they go through their career, picking up credentials to systems and data as they go. Of course, to restrict the opportunities for hacking, insider threat or illegal or incompliant activity, permissions should only be granted when relevant and required for an individual’s job. However, too many companies allow permissions to creep by not taking a proactive approach to access. This can result in toxic permissions combinations, where employees are granted inappropriate access to the systems, making fraud and error far more likely.

Even a simple summer holiday can provide an open-door opportunity. We are all conscious about signaling to would-be home burglars that we are going away on holiday, and we will take steps to protect our property in our absence. The same principle applies to businesses with staff out of the office on vacation – potentially logging in from insecure locations or signaling to cybercriminals that their attention is elsewhere.

The results of leaving the door ajar are costly. According to the IBM Cost of a Data Breach Report 2021, the average cost of a data breach in the financial sector is $5.72 million.

Permissions creep, unrevoked access and unmanaged identity provide the perfect conditions for the insider threat to propagate. As Gaurav Deep Singh Johar, of the Information Systems Audit and Control Association explained, “While these challenges are present in any institution, insider threats pose a greater risk for banks. There is a big reputational impact, thanks in part to increasing regulatory oversight.”

 

Don’t let permissions security set sail into the sunset

Financial organisations are complex landscapes, with labyrinthine corporate structures and siloes that cast a dark shadow over access and identity visibility. However, identity security technology is moving fast. Now, automated systems powered by AI and machine learning mean that permissions can be automated and access granted on a need-to-know basis, based on individuals’ employment status, roles, and responsibilities.

An automated system will quickly track down and disable ex-employees’ accounts and automatically halt permissions creep as employees move about the organisation.

The same technology can now also be even more diligent than that, monitoring access requirements based on any change in the workforce, like people being out of the office.

The evolving variety and fluctuating workforce mean that the insider threat can only be met with automated, streamlined identity security that moves as quickly as employees themselves. Without intelligent, streamlined identity governance, banks cannot ensure they are in a state of compliance, nor ensure cybersecurity in real-time. They also miss out on opportunities to improve operational efficiency and reduce the risk of fraud and error. Automation also ensures the accuracy and completeness of data sets so critical for keeping on top of compliance and delivering critical services.

As financial workforces are on the move, home and away and to pastures new, now is the time for banks to give identity security its time in the sun. Do not let shifting sands collapse the walls around you. Wherever your employees are coming from and going to, robust security and sustained compliance start with automated identity management.

 

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