Siddharth Parashar, Chief Financial Officer at Firstsource Solutions
With the FCA’s announcement in mid-August that the implementation of Strong Customer Authentication (SCA) has been postponed by 18 months, banks and the financial services sector breathed a sigh of relief. With the previous deadline just days away, it was clear that both businesses and consumers were unprepared for many of the changes and challenges that SCA would bring. Now, with a new deadline and extra time to increase awareness and ensure processes are in place, it is time that all public and private sector stakeholders come together to review how it can be a success.
Where to start?
SCA is going to be a massive change for both business and consumers. Consequently, there needs to be a large education programme taking place that lets businesses know what is happening, how it will affect them, and informs consumers on what to expect. However, while some financial sector organisations have carried out advice and information campaigns aimed at their own customers, an industry-wide campaign would be more effective. This, however, should not only be on the private sector to handle and instead needs to include government and regulatory bodies too. Having one clear message would make a huge difference in both raising awareness and making it clear what businesses need to do.
Highlighting the size of the problem ahead of the last deadline, was a survey conducted by Stripe which found that 3 in 5 small businesses said they were unfamiliar with SCA. These sorts of numbers should concern all of us working in the financial sector, as it really underlines how unprepared we were last time around and how much work there is to do in raising awareness.
This is in stark contrast to the case of GDPR. Back in 2018 when it launched, organisations from across the board had many questions, but were at least aware of the change and the steps they needed to take. The same simply cannot be said for SCA, yet the disruption it could cause if handled badly is on a similar scale.
What’s more is that any awareness campaign equally needs to focus on consumers as well as businesses. The first time that a customer makes a purchase online and gets declined due to SCA checks will undoubtedly cause confusion and annoyance if they are unaware of what is happening. By running a consumer-facing campaign about SCA, what it means, why it is being done and what consumers will need to do will go a long way in helping. Having educated consumers and businesses will make the transition to SCA much easier, which can only be a good thing given the generally accepted opinion that extra payment security is a good thing.
Having the right resources in place
However, while having an industry-wide awareness campaign will help, customers and businesses alike are likely to have questions and concerns during its initial roll out. This will unquestionably lead to an increase in the volume of calls and questions that contract centres receive. Financial institutions must preempt this rise in customer enquiries and ensure they have skilled customer support teams in place.
Needing to scale up and down with customer demands, financial service businesses should look towards the business process outsourcing (BPO) sector to provide the short term increase in team size that they need. This will help ensure they can cope with an influx of customer enquiries but also guarantee that it would not come at the detriment of their everyday customer service operations.
A focus for everyone
While the financial services industry needs to step up, enabling businesses to do the same, it is not just down to them. In fact, the government and the FCA also need to play an important role in ensuring the UK as a whole is ready for SCA in March 2021. There needs to be a GDPR-like approach to informing the public, including through TV adverts and emails.
If anything, the delay to its introduction should be used as an opportunity for improvement. Now there is a chance to vastly enhance our approach and preparation for SCA, it’s a matter of seeing who is willing to put the effort in now – and who will experience bad repercussions in early 2021.
IS YOUR OFFICE LEASE CRUSHING YOUR BOTTOM LINE? YOU HAVE OPTIONS
By Jonathan Wasserstrum, Founder / CEO, SquareFoot
These are unprecedented times for us all. Nobody has a playbook to get through it. Every company right now is undergoing a series of budget cuts and enduring difficult questions, trying to trim wherever it possibly can to help withstand the profound pressures and unique challenges that the covid scare haqs brought with it from an economic standpoint.
Companies looking to avoid having to make significant layoffs to offset their expenses are having to find other budget items that they can slash or reconsider. For many companies, especially those on the smaller side, that relief may come through renegotiating or rethinking their office lease. Especially at a time like this, when there’s so much uncertainty on how long this pandemic might last, and with staffers working from home indefinitely, this sizable area of cost to the business doesn’t make sense for some businesses to carry.
At SquareFoot, the commercial real estate company I founded in 2011, near the beginning of a decade of positive economic outlook, I envisioned helping growing companies to find office space. And I staffed up with a talented team of in-house brokers to show offices in NYC, and to work on deals in 30 other major U.S. cities.
I raise this background to offer some context for how dire the situation is now with regard to commercial real estate, when it’s not possible to show available office spaces to interested parties. Just a month ago, we were looking ahead at a very promising 2020, on track to act on and to achieve goals we had set. Because of this current economic downturn that has hit us all, we’ve also had to shift priorities accordingly.
We’ve instructed our brokers – effective immediately – to make themselves available to all concerned business owners as trusted advisers to walk them through their current leases and to outline for them all of their options. Even if they never do a transaction with us, I want my team to step up and provide some expertise to stressed-out executives. This is our small but significant way of helping to prevent other companies from having to let go of key staffers. We want to make this an easy choice for entrepreneurs. But, first, it requires them to understand what options they can move on.
We are already working closely with a number of businesses to review and to summarize their current leases, giving them some clarity and greater comprehension of what is set in stone and what can be adjusted in the wake of this crisis. Among the options that I and the team are exploring on behalf of those who have reached out include:
- Checking with your insurance agent about your Business Interruption Insurance coverage;
- Subletting the space. It’s not an optimal time to find a subtenant, but it’s still something worth pursuing to salvage the situation at hand;
- Post empty desks on PivotDesk, a business unit that SquareFoot owns and operates to rent out (as a host) a small number of desks within an office (to a guest) to share the space;
- Propose a rent abatement now from the landlord and arrange for a term at a higher escalated rent on the back end; or
- Walking away. Closing up shop and declaring bankruptcy isn’t anyone’s first option, but handing back the keys and letting the landlord keep your security deposit is a path forward for the most desperate of clients.
Obviously, this is not a situation that anyone hoped to be in or had prepared for. We don’t proclaim to have all of the answers for every company, but we do hope that giving some knowledge and sharing some wisdom with those in the most vulnerable of positions right now would leave them better off than without it. In addition to the specifics of the situation for each individual client, we can also step back and have offered some additional background on what to expect from the real estate market in the coming months.
For instance, we anticipate that subleasing will emerge as increasingly important to fill spaces quickly. Amid the 2008 financial crash, subleases went from 20% of the market to 45% of the real estate market after the stock market market crashed. If that’s the direction we’re heading again – and it seems we might – it’s perhaps wisest for those holding onto long term leases to act quickly.
Once the quarantine is lifted, it’s possible that everyone else will catch up and get wise to this opportunity in the market and they will likely request these types of discounted transactions in a rush all at once; subleases could flood the market, driving costs straight up.
Moreover, if similar effects on the office market emerge soon the way they did during the 2008 financial crisis then there will likely be a sharp increase in the number of tenants looking to:
- Renew their lease
- Arrange for a short-term extension of their lease
This is the lowest risk strategy for any tenant, of course. Lease renewals are likely to be incredibly popular in the coming months. We expect that landlords will be working closely and compassionately with tenants at this time to offer existing tenants who are looking for short-term extensions to offer incentives, in the form of free or reduced rents.
As the markets go sideways, you can likely find better value on the space you already have. Whether you work with my team and me, or with someone else, we still advise that you should act quickly. Right now, it’s all about reducing costs to keep people in place. Your office lease is a better place to start the discussion than anywhere else on that long list of expenses.
CAPITAL MARKETS – LIQUIDITY MANAGEMENT DURING COVID-19
Tony Farnfield, Partner at management and technology consultancy, BearingPoint
When “Dr. Doom” predicted the 2008 financial crisis back in 2006, and spoke of a necessitated market correction and was calling for the repricing of riskier assets; predicting a continuation of a global financial slowdown, or even a global recession starting in 2020, this prediction was based on known factors affecting the global economy. The unforeseen outbreak of Covid-19 and the increased volatility this has brought to global financial markets was not taken into account.
Three months on from the initial outbreak, and we have already witnessed the biggest intraday drop in the Dow Jones Industrial Average. The outbreak, coupled with the oil price shock, triggered responses from the Federal Reserve, the Bank of England and Central Bank of Canada to cut benchmarks rates in an effort to even out the shock to the wider economies.
There is a high degree of uncertainty on how the coronavirus crisis will unfold. We could experience only a temporary disruption – lasting from a few weeks to a few months, or a prolonged stress in markets, assuming that it will be months until vaccine clinical trials begin and with rate cuts (already reaching bottom) having limited effects on the required stimulus.
Banks have undeniably improved their liquidity following regulatory guidance post financial crisis; however, treasury departments will need to prepare and caveat for a wide range of possible outcomes. Traditional stress testing, scenario development and re-calibration have not taken into account conditions such as the ones experienced with the Covid-19 outbreak or the speed with which things evolved.
At a generic level, there are three key steps Treasurer’s should look to take:
- Convert uncertainties into emerging and quantifiable risks
This is already being considered by some of the larger financial institutions under their crisis management responses. However, it’s important to highlight that even for those that have triggered the crisis management process, the forecasting, rebalancing and risk assessment should be continuous, taking into account new developments in the following manner:
Continuously monitor and develop scenarios of potential sources that could disrupt funding and liquidity usage. With the right analytical capability, cash-flow projections should adapt to changing scenarios, including scenarios coming from the different business lines. Scenario sources could include unexpected credit usage that could encourage either large prepayments or defaults, or changing corporate customer behaviour – deposit inflows from corporates and depositors affecting leverage-constrained institutions. Also, there should be some consideration given to the availability of funding sources or, for wholesale funding, acceleration or reduction of funding plans.
Take immediate actions in increasing liquidity and cash holdings in the short term to cover for the uncertainty.
Continuous risk assessment
Account for emerging risks previously not accounted for, such as the temporary closure of operations or reduced capacity of market utilities. Assess those scenarios and how these are captured and factored in stress tests. Intraday liquidity should be the primary focus to understand immediate cash requirements.
- Refine your liquidity risk measurement
Better identification, measurement and analysis of key liquidity drivers should become core for an institution’s ability to effectively manage and mitigate particularly unique risks not previously considered. To do this, Treasurers should consider the frequency of their monitoring, and increase levels to daily stress tests and daily Early Warning Indicator testing to include daily developments.
In-depth analysis of risks
Re-run your liquidity risk identification exercise to understand better your current exposures, especially examining certain instances of this outbreak crisis, e.g. oil-related exposures, airline, marine or supply chain related exposures etc.
Re-calibrate based on new understanding
Re-assess existing scenarios or add new scenarios in covering a range of events and timeframes (e.g. sustained spread of the virus over x months vs limited spread and containment). Revisit your Early Warning Indicators to monitor emerging risks. At a later point, revisit these to assess if market signals existed and if they were picked up by your indicators.
- Review your mitigation plan
Identification, assessment and measurement is only part of the overall response. Stresses or risks that can be crystallised need to be accompanied by mitigative actions, agile and feasible enough under the current market conditions. Contingency funding actions might need to be revisited to determine if additional actions need to be considered.
Revisit and verify the availability of near real time reports, such as positions of securities holdings reports. Such information should be readily available and synthesised in the event that you will need to communicate clear and concise plans to investors, regulators or other market participants in relation to liquidity management strategies to foster confidence in the market.
In summary, reviewing and preserving an institution’s liquidity under extreme and volatile circumstances is the core responsibility of any treasurer. However, we know that any scenario or contingency planning is unlikely to be fully predictive of unprecedented scenarios such as this. Re-visiting already set practices and testing their efficacy and completeness should be the first step before considering inserting new scenarios and new actions into the mix. Nothing tried and tested can always remain true.
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