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Wealth Management

VALUE-ADDED ANALYTICS: THE RICHER POTENTIAL OF ACCURATE TRADE DATA

As banks strive for greater leanness and agility in their operations, the potential to untether themselves from cumbersome technology is enormously appealing. Simplification also means reduced cost, and reduced risk – because everything is flowing from a credible master data set.

As well as enabling Capital Markets operators to become substantially more agile in responding to changes in market structure and activity, this offers trading organisations a clear line of sight into their full business performance, driving smarter use of resources. This paves the way for essential cost reductions and revenue growth needed to optimise returns in a tough climate.

Mike Bagguley, former COO of Barclays International and now a board advisor to Inforalgo, glimpses the future of value-added trade data services.

 

Mike Bagguley

Up to now, wholesale banking institutions have viewed trade reporting largely as a necessary and costly burden which keeps them compliant and allows them to continue doing business. But, as regulators continue to push back and demand more of organisations – in terms of more proactive surveillance of trading conduct, for instance – the realisation is dawning that high-quality trade records underpin multiple outcomes, and are a rich business resource than has been under appreciated.

In retail banking and credit card provision, as indeed in many other consumer-facing industries, organisations already routinely combine transaction records with customer data for deeper analysis. This helps them to spot trends in customer activity, and determine where their most profitable business is coming from. Conversely, it can help them spot poorly performing sectors of the market and accounts which are much less profitable.

Armed with these insights, organisations are able to target their marketing and sales activities more precisely, to win more of the business they really want. They can also provide useful feedback to product development teams, to help inspire more attractive propositions for customers which the business has previously struggled to reach or convert. Such activity also aligns well with organisations’ commitment to better business conduct and improved customer outcomes.

In investment banking, this level of sophistication has been historically absent. For instance, an institution is unlikely to be able to see, at a glance, how they are performing with insurance companies in France, or whether they are performing poorly with car manufacturers in Germany, relative to the opportunity.

That’s because management teams lack a clear line of sight across all of their current and historic trading and client activity. This in turn is down to how they have procured their IT systems. Commonly, each outlay on a data technology or service has been a passive response to new regulatory demands, or a necessary preparation for expansion of investment activities. For every new requirement, financial institutions have tended to put in yet another new function-specific IT system, or sign up to yet another specialist third-party service, copying across a set of trade data for it to work with – in the process creating costly new silos.

Until now, that is.

The end of an era: trade data management moves to the cloud

It is widely accepted that a piecemeal approach to trade data treatment is unsustainable. Firstly, it is costing banks significant amounts to manage scores of different IT systems and/or third-party services, and to keep updating them each time regulatory requirements move on again – costs which they can ill afford, especially in this continued lull in investment markets’ performance.

Secondly, all of these unwieldy trade data management activities are adding very little, if any, value to the business. They may mitigate one risk – for instance, that of failing to meet regulatory reporting demands – but in the process introduce new risks related to resilience, cyber threats and so on.

Certainly, each time trade data is transposed to another departmental system or third-party service party, there is a rising threat of errors or out-of-date information creeping in. And the need for reconciliations – a complex activity, at best – grows exponentially.

Of more strategic significance, having disparate systems all managing trade data separately – without any central oversight or coordination – is preventing organisations from improving business performance and conduct.

The good news is that, now that cloud-based software services are accepted as being a secure and viable alternative to managing business applications internally, financial institutions have an opportunity to do things very differently. They can entertain the possibility of consolidating complete, clean, definitive trade records to a single source, accessible via a single central online hub, to serve multiple different use cases. And, in the process, they can address many of the challenges they currently face.

For instance, it becomes possible to streamline a whole range of critical business processes, including regulatory reporting to trading and market surveillance, around a credible, approved master data set – as captured at the time of transaction. The trade reporting record, being at the front of the process and definitive in that it is the reported version of the trade, is the leading candidate to anchor this process rationalisation.

As financial institutions entrust data management and processing activity to the cloud, they can start to divest themselves of their debilitatingly expensive sprawl of internal IT systems that has grown up across their operations. This immediately reduces risk and costs – direct and indirect – by the significant amounts needed to support improved business returns.

In so doing, Capital Markets operators can start to appreciate and exploit the bigger picture emerging from all of their trade activity. From surveillance of trading conduct, to optimising trade performance and profit, financial institutions now have an opportunity to be smarter about how they target their resources.

Joining the dots: overcoming data islands

Certainly, if they are intent on becoming better-run businesses, financial institutions need a more detailed picture across all of their activities. They need to be able to combine trade flows with other data sources–revenue and profit performance data, client relationship management records and even client electronic communications (important for comprehensive trade surveillance/detecting insider trading or market manipulation).

Although, increasingly, banks are using cloud-based software tools like Salesforce.com to collate and organise client information, there needs to be a link between this data and actual trade records. Without this, they will have a limited ability to distil business-oriented insights, such as where opportunities are being missed.

Data consolidation and inter-systems integration has to be the way forward, then. It is this that will deliver the joined-up information so that financial services organisations can provide 360-degree transparency and traceability – allowing them to properly manage the conduct of their business and fulfil regulatory requirements.

The key is to aim to achieve all of this as automatically as possible, without having to recreate or copy data for each different use case. Using a cloud-based trade data store maximises the options, enabling multiple outcomes to be derived from a single, integrated, credible, current master data source, which spans all asset classes, and is easy for all teams to access from wherever they are in the organisation, and across the world.

From this vantage point, everything including compliance, risk, business analysis, and even end-of-day financial reporting, can all be managed effortlessly using the same clean, certified and up-to-date data. And without the continued need for huge, unwieldy and costly IT estates – resulting in savings which could run into millions, annually.

Over time, we are likely to see more wholesale banking institutions realise the value of consolidating all of their trade data management and reporting via a single, optimised cloud-based service, so they can rationalise their out-of-control IT estates, and use their data in new, high-impact ways.

The future for trade data management will be simpler, leaner, smarter. And from that, improved performance will surely flow.

The author is financial technology expert Mike Bagguley, former COO of Barclays International and now a board advisor to the management team of capital markets data automation specialist Inforalgo

 

 

About the Author

Mike Bagguley, a respected financial markets industry leader, is a board advisor to Inforalgo and also an investor in the business.

Formerly COO at Barclays International, Mike brings a wealth of experience to Inforalgo, gained across a range of senior market roles and leadership positions at Barclays Investment Bank, where he was head of the Bank’s FI, FX and Commodities business. As COO of Barclays Investment Bank, Mike focused on executing a strong IT and data strategy, focused on platform rationalisation – experience that enables him to fully appreciate Inforalgo’s proposition.

His role at Inforalgo involves capitalising on growing momentum around our smart data solutions for Capital Markets which allow financial market participants to significantly reduce risk and costs in their trading businesses: rationalising their technology and operating platforms while allowing them to efficiently pursue the full spectrum of market opportunities.

 

 

 

 

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Wealth Management

HOW WILL COVID-19 IMPACT ESG INVESTING LONG-TERM?

By Kerstin Engler, Senior Wealth Manager, Geneva Management Group. 

 

Sustainability is a trend on the rise in every sector of the business world. From consumers to corporates, there has been a global shift bringing environmental and social consciousness to the fore.

The investment world is no exception. In recent years, there has been a rise in investors looking to the future ‒ opting to choose their investments on the basis of social and environmental impact rather than exclusively financial gain.

This is not just about making money back on an investment, but about making a bigger impact on the planet and building communities by investing in businesses that implement measures to ensure ethical practice, sustainability and accountability.

Statistics indicate that investors continue to put their money into businesses with a strong focus on environmental, social, and governance investing (ESG), even at the start of the year as the Covid-19 pandemic was already unfolding.

According to investment research company Morningstar, investors around the world put a total of $45.6 billion into funds focused on ESG in the first quarter of 2020. This is not to say that this sector was immune to global investment outflows experienced in response to the outbreak of Covid-19.

After reaching an all-time high of $960 billion at the end of 2019, following three years of consistent growth, sustainable funds declined by 12% in the first quarter. Comparatively, investment funds overall declined by 18%.

But what does the future hold for this investment sector beyond Covid-19? The reality is that it is simply too soon to tell. We have no evidence so far that companies which apply ESG criteria will weather this storm better.

In fact, it’s too early to know what the overall impact on investing will look like long-term beyond Covid-19. Globally, we are still collectively figuring out the ‘new normal’ during this unprecedented crisis.

We have seen that investors are typically focusing on the short-term, dealing with their current investments and focusing on the survival of their companies or their bankable assets.

Our clients want to know how the pandemic will change the world from an investment perspective. We have discussions with clients about how the corporate landscape, and therefore investment opportunities, will be affected. There is a lot of consideration of the impact on sectors including biotech, robotics, gaming and the automotive industry. Consider, for example, that the latter will be affected by a significant reduction in the use of public transportation.

People aren’t asking about ESG. There hasn’t yet been time to look to the long-term. During this period of uncertainty, there have been ripples of talk around the world about how nature will ‘take back cities’ and conspiracy theories that ‘planet Earth is teaching us a lesson’.

Perhaps one good thing that will come out of this is that we will emerge with more consciousness and more purpose. The world will certainly be less global and more local after the crisis. Covid-19 has shown the limitations of globalisation, disruption in supply chains, and transportation, for example.

One of the potential advantages for companies that are already ESG classified is that they may already produce locally for environmental reasons, which could give an edge in this new world where we realise the fragility of global imports and the importance of supporting local business. Other companies may still need to adapt their supply chain.

We have already seen businesses launching new initiatives to help those in need during this time. Beyond Covid-19, it stands to reason that there will be heightened social awareness. More than ever, people are thinking about social factors and uplifting communities. Sustainability could well be in focus as the world collectively heals and looks to the long-term for the planet and its people.

 

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Wealth Management

KEEPING DATA IN THE VAULT: INSIDER BREACH RISK IN FINANCIAL SERVICES

by Tony Pepper, CEO. Egress

 

Financial services organisations are trusted with far more than just money; they are also responsible for keeping customers’ highly sensitive personal and financial data under lock and key. We’re hyper-aware that the growing value of this data means financial organisations are prime targets for malicious cyberattacks – but this isn’t the only threat they face. In fact, not a day passes without these firms’ own employees putting data at risk from within.

You might think that, when it comes to reducing overall breach risk, employees represent low-hanging fruit – surely it is easier to control the actions of a company’s own team members than it is to defend against external attackers? However, this not the reality experienced by financial firms worldwide. While external attackers are always motivated by malicious intent, the employee population is far more heterogenous and, in a sense, much more human. This makes understanding and mitigating insider risk a more nuanced exercise. Just because it is difficult, however, doesn’t mean it is impossible. It’s crucial that financial services companies shift the dial on insider risk and reduce breach frequency, because the penalties for failing to do so are becoming increasingly draconian and the repercussions from customers much more severe.

The recent Egress Insider Breach Survey aimed to understand the different attitudes towards data sharing and ownership among employees in financial services companies and the approaches that IT leaders in the sector are taking to managing insider breach risk.

We found a whole range of diverse profiles of people who put sensitive financial data at risk for very different, but very human, reasons. Some need monitoring to keep their less-than-honest traits from getting the better of them, while others need a helping hand to save them from making genuine, well-meaning mistakes. And across all respondents, we also found confusion over who really owns data, contributing to the more cavalier attitudes displayed by some.

 

Deliberate “data breachers” – from well-intentioned but reckless to disaffected and destructive

Our study found that the financial services sector has more than its fair share of deliberate “data breachers”. Of the thousand employees we questioned, almost a third (32%) said they or a colleague had intentionally broken company policy when sharing or removing information in the past year. This compares with just 15% of healthcare workers and 11% of government sector employees.

The reasons given for this deliberate flouting of security policy varied. One-third said they were simply trying to get their job done but didn’t have the appropriate tools to share data safely. On the face of it we might have some sympathy with those employees, but would consumers and businesses want to bank with those firms?

It’s more difficult to be sympathetic with those motivated by self-gain, including the 41% who took data with them because they were moving to a new job. And we have even less sympathy for the 15% who compromised data because they were angry with the company and wanted to deliberately cause harm.

 

Operator error – mobile, tired, under pressure

Even with their firm’s best interests at heart, employees still make mistakes. 30% of financial sector workers said they or a colleague had caused an accidental data breach in the past year – again more than twice as many as their public sector counterparts. A third had sent an email to the wrong person and a further third had clicked on a link in a phishing email.

Their reasons behind these breaches varied from the pressure of working in a stressful environment, to tiredness and rushing. A significant proportion, however, said they made an error due to using a mobile device – and given the current requirement for mobile remote working during this COVID-19 pandemic, this is a definite cause for concern.

 

Breach detection gaps and technology limitations

Next, we examined what IT leaders in the sector have in place to mitigate insider breach risk. Concerningly, 60% said the most likely way they would discover an insider data breach was via internal hand-raiser reporting by either the employee themselves or a colleague. Only one third felt that their breach detection systems would pick up the issue.

In a similar vein, traditional data protection technology use was surprisingly inconsistent across financial firms. Email encryption, anti-malware and secure collaboration software were in use by fewer than half of financial sector companies. Again, raising the question whether consumers and businesses would be willing to trust their data to financial firms if they knew they didn’t have systems in place to protect it.

So, why is this the case? From the data we uncovered, it seems as though organisations are resigned to a proportion of insider breach incidents occurring, accepting them as an inevitable result of doing business and employing people. But this doesn’t need to be the case. It is possible to apply human layer security solutions to mitigate these risk factors and make a positive impact on breach frequency figures.

 

Human layer security – a helping hand and a watchful eye

Take the issue of rushing or tiredness. This can lead to users adding the wrong recipients to emails or failing to spot the subtle changes in familiar email addresses that denote targeted phishing attempts. This risk can be overcome with tools that use contextual machine learning to analyse what the good security behaviour looks like for each user and support them with alerts that tell them they’ve added an unusual recipient to an email, or that they are about to answer a phishing email. A small prompt is all these users need to stop them from making an error and causing a data breach.

Similarly, when using mobile devices with smaller screens, it is very easy to choose the wrong attachment and send sensitive data outside the organisation to the wrong recipient or to the right person unprotected. If an employee is less than honest, our always-on, constantly connected culture also enables them to deliberately do so too. However, it is possible to stop these incidents with an intelligent solution that scans email and attachment content and identifies data such as personally identifiable information (PII) or bank account details to alert users that they are about to send information to an unauthorised recipient, or without the correct level of encryption applied. If the user persists, the risky email can be blocked from being sent and administrators alerted to a potentially intentional attempt to breach data, so they can respond accordingly.

Ultimately, the most effective way to address human-activated threats to security is by implementing tools that support and manage users when they are at their most humanly vulnerable; tired, rushing, under pressure, angry or self-interested. As our research and wider evidence shows, the financial services sector is more than averagely vulnerable to insider data breaches, meaning human layer security must be a priority for IT leaders in the field if they hope to reduce breach frequency and keep sensitive data firmly in the vault.

 

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