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Why regulated industries must take caution around email management

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Julian Jansen, Legal Counsel, MailStore – an OpenText Company

 

The pandemic has left many organisations feeling a need to be more agile and adaptable to change. At the heart of this is the shift to a hybrid work approach, which includes a wider distributed workforce and refocusing on the employee experience and collaborative opportunities with third parties.

These seismic shifts in the digital business landscape have also driven finance organisations to take more responsibility for their data, e.g. via robust email management strategies.

A key driver of this is that finance is an industry that is now more heavily regulated than ever before. For example, the second version of the pan-European Markets in Financial Instruments Directive (MiFID II) came into force in 2018, requiring EU member states to implement record-keeping obligations for companies operating in the financial sector (e.g. investment firms, credit institutions or data reporting service providers).

As laid down in MiFID II Article 16 (6), an investment firm must arrange for sufficient records to be kept of all services, activities and transactions undertaken by the business to enable the competent authority to fulfil its supervisory tasks and, in particular, to ascertain compliance with all obligations. Therefore, it is evident that finance organisations need to keep a close eye on how they manage and archive electronic communications.

 

Email archiving vs email data backup in the cloud

The primary objective of email archiving is to ensure that email data remains available in its original form and is retrievable at any given time. Organisations need to analyse which types of emails should be archived for how long. Examples of business-critical information contained in emails are invoices, quotations, support inquiries or service complaints. However, an email management strategy will also have to take into account requirements according to the EU-GDPR and similar data privacy regulations, some of which are described below. Consequently, archiving all emails indefinitely may not be advisable after all.

The capabilities of email archiving are separate from backup solutions, which should be used in tandem to create only temporary copies of the email server’s data on an external storage medium or cloud. A backup system is there for disaster recovery: allowing temporary, backed-up data sets to be copied back from external storage in the event of data loss or system downtime, e.g. due to a hardware failure of a cyberattack.

 

Key requirements when complying with regulations such as the EU-GDPR 

Business-relevant emails virtually always contain personal data or other sensitive information. Industry-specific regulations and data privacy laws like the EU-GDPR have been a key driver of increased awareness of businesses regarding their email management strategy during the last couple of years. Privacy laws contain provisions to protect people’s fundamental rights and freedoms when their personal data is processed. The general EU-GDPR principles include purpose limitation, data minimisation, storage limitation as well as integrity and confidentiality. The entity determining the purposes and means of the processing, the “controller”, will be held accountable for complying with these principles.

An email archiving solution should, for example, allow emails that have been successfully archived to be automatically deleted when appropriate, thus freeing up storage space and complying with data privacy principles such as data minimisation and purpose limitation according to Art. 5 EU-GDPR.

 

Data residency, data sovereignty and outsourcing to service providers

Creating an email management strategy also involves evaluating whether emails are stored on a server managed on-premises by a company’s own IT or with an independent SaaS provider or its subcontractors. When it comes to data storage, leveraging cloud technology is a great option as it offers important scalability. But this does not take care of where email data resides and how it is protected and managed.

Evaluating the implementation of a cloud solution, finance businesses will, on the one hand, have to carefully consider sector-specific requirements such as the guidelines by the European Banking Authority (EBA) or the European Insurance and Occupational Pensions Authority (EIOPA) on outsourcing to cloud service providers.

On the other hand, it is imperative to determine where emails are processed and archived, meaning where the data centres are located and from where access is possible. This is relevant according to Art. 44 ff. EU-GDPR transfers of personal data to a third country shall only take place where the level of protection in the EU is not undermined. In the past, businesses could, for example, leverage the so-called Safe Harbor Privacy Principles to ensure such an adequate level of protection. However, Safe Harbor was declared invalid by the European Court of Justice (“ECJ”) in 2015. This was the first “Schrems” decision named after the now well-known Austrian activist Max Schrems. The EU-US Privacy Shield succeeded Safe Harbour, which was declared invalid in 2020 in another ECJ case known as “Schrems II”. As a result, it is now rather challenging to carry out lawful transfers of personal data to third countries.

In addition, when engaging a SaaS provider, a business should consider entering into a Data Processing Addendum (“DPA”). A DPA is an agreement which covers the requirements of Art. 28 of the EU-GDPR. It is required where a third party (“processor”) is engaged to process personal data on behalf of a controller. Among others, the controller has to ensure the processor has implemented technical and organisational measures appropriate to the risk.

 

Email archiving as part of your business continuity strategy – both inside and outside the business

We recommend all financial organisations implement a sound email governance approach, including an independent email archiving solution, as part of their integral business strategy.

Identifying and managing security and data risks within the organisation can also be challenging. Email archiving can help minimise internal risks, as it empowers security and conformity to regulations specific to the sector and the country or region.

Professional email archiving solutions allow businesses to choose between different strategic archiving approaches, depending on their needs. It’s essential, however, that the right archiving strategy is chosen. If legally compliant email archiving is the prime focus, journal archiving could be the best option. Alternatively, if offloading the email server is the main objective, mailbox archiving in tandem with specific delete rules may be the better bet.

Combining the two approaches is also feasible, allowing financial businesses to deploy email archiving as an indispensable part of their corporate strategy.

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CBDCs: the key to transform cross-border payments

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Dr. Ruth Wandhöfer, Board Director at RTGS.global

 

If you work in finance, you’ll have been hearing a lot about central bank digital currencies (CBDCs) and the moves different markets are making towards using, regulating and evaluating the viability of moving to an economy based on digital currency.

We are already seeing progress in the research, piloting and introduction of CBDCs into the financial system. The Banque de France for example, recently launched its second phase of CBDC experiments in line with the “triple digital revolution” unfolding in the financial sector. The infrastructures of financial markets and fintechs, however, are not prepared to accommodate their security, stability, and viability.

This could be an issue in the not too distant future. Each year, global corporates move nearly $23.5 trillion between countries, equivalent to about 25% of global GDP. This requires them to use wholesale cross-border payment processes, which remain suboptimal from a cost, speed, and transparency perspective. In fact, the G20 cross-border payments programme considers improving access to domestic payment systems that settle in central bank money, as one of the key components in facilitating increased speed and reducing the costs of cross-border payments.

The current state of cross-border payments

International transactions based on fiat are currently slow, expensive, and highly risky due to today’s disconnected financial infrastructure, messaging, and liquidity. Wholesale cross-border payment settlement can take 48 hours or longer, which is not practical in today’s digital world. Even if not every market moves to CBDCs, in an increasingly digital era, cross-border settlements between central banks will unavoidably involve dealing with CBDCs. So, not only will we have different currencies, we’ll have different technical forms of currency being exchanged – digital and fiat – as markets adopt CBDCs at different rates, adding another layer of complexity to cross-border settlements.

While there is much anticipation about the opportunities CBDCs can bring, the adoption of this technology will only be widespread if payment and settlement capabilities are overhauled to allow for new innovations in currencies.  This need for transformation represents an opportunity to redesign existing infrastructure to support cross-border CBDC transactions.

The current cross-border payments system involves correspondent banks in different jurisdictions using commercial bank money. Uncommitted credit lines used in cross-border transactions are a potential risk for any bank that relies on credit provided by a foreign correspondent bank. Interestingly, there is no single global payment and settlement system, only a complicated network of interbank relationships operating on mutual trust. While trust has allowed financial systems to function smoothly, when it begins to fail, as it did during the 2008 financial crisis, the result can be catastrophic.

Following the crisis, the Bank for International Settlements (BIS) implemented the Basel III agreement, which required banks to maintain additional capital against correspondent banking account exposures. These risk-weighted assets impose a costly capital charge on positions held by banks at other banks under correspondent arrangements. While this framework helps combat risk, it neglects to address the inherent problems in traditional correspondent banking that contribute to these risks.

Making the case for CBDCs

CBDCs can offer an improvement in settlement risks and are certainly thought to have potential benefits by the BIS. If implemented correctly, wholesale CBDCs can indeed accelerate interbank transactions while eliminating settlement risk. They can also encourage a more efficient and straightforward method of executing cross-border payments by reducing the number of intermediaries.

It is likely the evolution towards CBDCs will initially see the financial market supplement rather than replace existing payment instruments with new types of digital currency. CBDCs will coexist with current forms of money in a wholesale context, and their payment rails will also work alongside the existing payment systems. In simple terms, CBDCs will need to be linked to the broader capital markets ecosystem and applications such as securities settlement, funding, and liquidity.

If built with an innovation-first mindset, the future of banking infrastructure should provide full interoperability and convertibility between fiat, CBDCs, and any other type of digital money used in wholesale payments.

The future of CBDCs

To unlock the full potential of CBDCs, a ‘corridor network’ will need to be formed. This involves combining multiple wholesale CDBCs into a single, interoperable network under common governance agreed upon by all central banks involved. The legal framework of this platform would then allow for payment versus payment (PvP) or, where applicable, delivery versus payment settlement.

Practical wholesale CBDCs appear to be on the horizon, either as a supplement to existing financial systems or as part of a transition to a digital, cashless world. Looking ahead, central banks would benefit from collaborating with fintechs that provide innovative cloud native technology to enable seamless wholesale cross-border payments without interfering with the flow of funds. If wholesale CBDCs are to become a reality, fintechs must be prepared to accommodate them.

 

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Green growth: The unstoppable rise of climate technology investment

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With the investment community focusing more and more on renewable technologies, investor interest is at an all-time high. Ian Thomas, managing director, Turquoise, reviews the current investment landscape and highlights the opportunities for investors keen to capitalise on this growing trend.

Green, or climate, finance is a label for providers of finance who are supporting investments seeking positive environmental impact. The label covers investments in green infrastructure, venture capital investment in clean technologies and renewable energy. Green finance has grown by leaps and bounds in recent years, supporting public wellbeing and social equity while reducing environmental risks and improving ecological integrity.

Worldwide, energy investment is forecast to increase by 8% in 2022 to $2.4 trillion, according to a new report by the International Energy Agency, with the expected rise coming mostly from clean energy – $1.4 trillion in total. To put this rocketing figure into some perspective, clean energy investment only rose by 2% annually in the five years following the signing of the Paris Agreement in 2015. Energy transition investment has some way to go, however – between 2022 and 2025, to get on track for global net zero, it must rise by three times the current amount to average $2,063 billion. [1]

Turquoise has been active for almost 20 years as a venture capital investor and adviser to companies in the climate technology space that are raising capital and/or selling their business to a strategic acquirer. Reviewing current industry investment news, as well as drawing on examples from the portfolio of Low Carbon Innovation Fund 2 (LCIF2), managed by Turquoise, I have commented below the latest on the renewable energy trends most piquing investor interest.

 

Solar PV

Renewable power is leading the charge when it comes to investment, with wind energy and solar PV emerging as the cheapest option for new power generation across many countries, and now accounting for more than 80% of total power sector investment. Solar power is responsible for half of new investment in renewable power, with spending divided roughly equally between utility scale projects and distributed solar PV systems.

This huge increase in solar spending, which continues in spite of supply chain issues affecting raw material delivery, has been driven by Asia, largely China (BloombergNEF, 2022). Meanwhile, Europe is re-doubling its efforts to achieve an energy transition away from Russian gas and other fossil fuels, building on investment that was already rising steadily prior to the outbreak of war in Ukraine. Germany, the UK, France and Spain all exceeded $10 billion on low-carbon spending in 2021.[2]

 

Wind

Last year was a record year for offshore wind deployment with more than 20GW commissioned, accounting for approximately $40 billion in investment. The first half of 2022 saw $32 billion invested in offshore wind, 52% more than in the same period in 2021 (BloombergNEF, 2022). Taking into account also onshore wind, in 2021 investment was spearheaded by China, followed by the US and Brazil.[3]

In the UK, suggested targets include plans to host 50GW of offshore wind capacity, as well as 10GW of green and blue hydrogen production, by 2030. Investors will naturally be encouraged by proposals to simplify the planning process across the board for renewable projects.[4] France and Germany have also increased their offshore wind targets, signalling further support for investment.

 

Decarbonising housing: the business opportunity

The need to decarbonise residential housing, made all the more urgent by current energy prices, also offers substantial scope for investment. The gas price spike is naturally increasing interest in technology such as electric heat pumps, which had already enjoyed 15% growth in 2021 albeit from a very low base.

Recently, Turquoise announced an investment by Low Carbon Innovation Fund 2 (LCIF2) in Switchd, which operates MakeMyHouseGreen, a data-driven platform that allows homeowners to source and install domestic renewable energy generation, including solar panels and battery storage with other energy saving products in the pipeline. The investment will enable Switchd to roll out the MakeMyHouseGreen platform to a much larger number of customers. The latest episode of the Talks with Turquoise podcast series saw us interview Switchd co-founder Llewellyn Kinch about the UK energy market and national transition to decarbonisation, covering the rise of residential renewable energy and energy efficiency.

 

Adapting to the low-carbon economy

Meanwhile, investors should not forget opportunities on the other side of the energy market. Renewables are undoubtedly exciting investors, but there are also opportunities for fossil fuel companies to adapt their business models to the low-carbon economy. Turquoise advised GT Energy, a portfolio company from our first fund that develops deep geothermal heat projects, on its sale to IGas Energy, a leading UK onshore oil & gas producer. Under IGas ownership, GT Energy will progress its flagship 14MW project to supply zero-carbon heat to the city of Stoke-on-Trent through a council-owned district heating network.

 

A broad investment landscape

Forecasts show that renewables will increase to 60% of power generation in Europe by 2030, and 40% in the US and China by the same date.[5] As demand rises for climate technology, the investment opportunities in green finance are far broader than they ever have been. Undoubtedly, as the energy crisis continues, investor interest will continue to soar to even greater heights.

[1] https://www.iea.org/news/record-clean-energy-spending-is-set-to-help-global-energy-investment-grow-by-8-in-2022
[2] https://ihsmarkit.com/research-analysis/global-power-and-renewables-research-highlights-july-2022.html
[3] https://dialogochino.net/en/uncategorised/56938-global-wind-energy-council-vice-chair-brazil-offshore-wind-accelerating-2/
[4] https://www.edie.net/uks-clean-energy-investment-ranking-rises-after-government-sets-95-low-carbon-electricity-target-for-2030/
[5] https://www.spglobal.com/en/research-insights/featured/energy-transition-renewables-remain-the-cornerstone-of-future-power-generation

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