About Me

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I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Monday, 22 February 2010

SEPA: Stuck in the Doldrums with "Courageous" Action Needed

28 Jan 10

Two years after the introduction of the first single euro payments area (SEPA) instruments, the European payments harmonisation project, seen as a major building block to the Lisbon Agenda 2010 goals, seems to be stuck in the doldrums.

At the Financial Services Club in London, which attracted around 50 participants from the payments industry, the ayes only just managed to win a slim majority over the nays in the debate around the question "Is SEPA happening and does it matter?".

Despite supporters of the motion arguing that there was "wind in the sails" of SEPA in terms of political momentum backing migration, many obstacles still remain, such as:

  • Lack of an end date for legacy payment instruments.
  • Lack of defined ownership: who will take responsibility for setting the end dates?
  • Lack of legal basis: the Payment Services Directive (PSD), which provides the legal underpinning to SEPA Direct Debits (SDDs) for example, is still to be transposed in a third of the euro countries.
  • Lack of a business case for consumers, corporates, banks, automated clearing houses, public administrations, etc.
  • Lack of consistency: the development of additional optional services (AOS) may lead to '32 flavours' of SEPA.

Both sides of the debate agreed that "courageous" action was needed in order to scrap legacy payment instruments and drive the SEPA project to completion.

First published on www.gtnews.com 

LMA Launches Combined Par/Distressed Trading Documents

26 Jan 10

The European secondary loan market has undergone significant changes over the past two years, particularly with reference to the post-Lehman Brothers environment and a marked increase in price volatility. After 10 years of sustained growth in secondary loan activity in the euromarkets, unsurprisingly this trend reversed in 2008, when volumes for the year fell to €80bn from €173bn in 2007.

In light of the changes, the Loan Market Aassociation (LMA) initiated a project seeking to minimise the documentation-related basis risk faced by institutions; dealing with a lender/investor becoming insolvent; and addressing documentation matters that commonly attracted debate.

The decision was taken to harmonise the LMA par and distressed trading documents and create a standard set of documents with only a few key variations reflecting the nature of the different markets. One of the goals of harmonisation was to speed up the time it takes to settle a trade, thereby limiting counterparty risk, according to Justin Conway, in-house counsel, Goldman Sachs, speaking at a LMA event in London.

The new standard LMA terms and conditions were formally launched on 25 January 2010, along with all the related revised documents. Prior to then, the market was given access to the draft revised documents over a two-month period to enable participants to become familiar with them.

Clare Dawson, LMA managing director, said: "Given the widespread concern about lenders or investors becoming insolvent post-Lehmans and the other market issues thrown up by the disturbance in the financial markets, we consider this move to a combined set of documents, incorporating termination on insolvency of a lender, to be an important step in enhancing overall market liquidity, which continues to be one of the LMA's prime goals. The changes have been well received by the market and we will, of course, monitor their usage over the coming months."

First published on www.gtnews.com 

Deutsche Bank Takes an 8% Stake in Eurogiro

21 Jan 10

Deutsche Bank's Global Transaction Banking division has strengthened its ties with Eurogiro, a global payments network and community, by taking an 8% equity stake in the company.

Eurogiro is the second largest network for cross-border payments with a focus on connecting the world's postal organisations, post banks, banks and other financial institutions. Deutsche Bank has been engaged with Eurogiro for over 10 years and has established numerous long-term relationships with the Eurogiro community. The bank is an acting board member of Eurogiro and also provides its members with US settlement services. This offering is currently being expanded to include multi-currency settlement services.

Speaking at an event in London, Paul Camp, head of cash management financial institutions at Deutsche Bank, said that this investment underscores the bank's commitment to remittances, which it sees as a driver for future growth.

"Becoming a shareholder in Eurogiro perfectly supports our global remittance initiative. Clients will benefit from our existing product capabilities enhanced with the Eurogiro reach and functionality, such as SMS advising. With minimal investment, our global clients can earn additional revenues as well as attract and retain customers with a new and improved remittance offering," he said.

First published on www.gtnews.com 

Walker Review Recommends Bank Board Overhaul to Monitor Bonuses

26 Nov 09

The final report of the 'Review of Corporate Governance of UK Banking Industry' has recommended overhauling the boards of banks and other big financial institutions by strengthening the role of non-executives and giving them new responsibilities to monitor risk and remuneration. It also recommends a stewardship duty on institutional shareholders to play a more active role as owners of businesses.

Sir David Walker, currently a senior adviser to US bank Morgan Stanley and author of the report, said: "The fundamental change needed is to make the boardroom a more challenging environment than it has often been in the past. This requires non-executives able to devote sufficient time to the role in order to assess risk and ask tough questions about strategy.

"Institutional investors should be less passive and prepared to engage earlier if they suspect weaknesses in governance. They enjoy the privilege of limited liability whereas taxpayers have ended up assuming unlimited liability in respect of the big banks. Early preventive medicine through shareholder engagement can save everyone substantial time and money later on," he said.

On pay, the Walker Review recommends extending the role of the remuneration committee to cover firm-wide remuneration policy, as well as giving the committee direct responsibility for the pay of all highly-paid employees. At least half of variable pay or bonuses should be paid in the form of a long-term incentive scheme with half vesting after three years and the rest after five years. Two-thirds of cash bonuses should also be deferred.

In addition the report recommends greater pay transparency in the big banks by requiring public disclosure of the number of employees earning more than £1m, broken down by bands of pay.

Other specific recommendations in the report include:

Active investors to sign up to a new independently-monitored Stewardship Code.
Financial Reporting Council to sponsor Stewardship Code.
FSA to monitor investor conformity with the Code.
Chairman of board to face annual re-election.
Chairman of remuneration committee to face re-election if report gets less than 75% approval.
Most non-executives to spend substantially more time on the job.
Induction process for all non-executives and regular training.
Non-executives to face tougher scrutiny under Financial Services Authority (FSA) authorisation process.
Banks should have board level risk committees chaired by non-executive.
Risk committees to scrutinise and if necessary block big transactions.
Chief risk officer (CRO) to have reporting line to risk committee.
CRO can only be sacked with agreement of board.
Remuneration committees should disclose right of high-paid employees to receive enhanced benefits.

Walker said: "We need to get governance back to centre stage. Of course major regulatory issues need to be addressed to assure the soundness of the financial system but there will be significant downside if the regulatory pendulum swings too far. It could harm the ability of banks to provide customers with the financial services they need and lead to substantial increases in fees and charges. Improved governance can play an important complementary role by instilling greater confidence in the way banks are being run by their boards and overseen by their owners. This should help regulators to strike the right balance."

The Walker Review proposes that most of the recommendations are enforced through inclusion in the Combined Code on Corporate Governance or a separate Stewardship Code for institutional investors, both operating on a 'comply or explain' basis. It would be for the Financial Reporting Council (FRC), which has been closely consulted and is currently reviewing the Combined Code, to decide exactly how this would be done. The FSA will consider how to take forward the recommendations applying principally to financial institutions. It is proposed that the recommendations on pay disclosure should be enforced through legislation in the forthcoming Financial Services Bill.

The Labour government has said that it will "move quickly" to implement the reforms of bank pay and governance. Specifically, the government's Financial Services Bill will allow the Treasury to issue regulations forcing banks to disclose in bands the number of staff earning more than £1million per annum. It will issue draft regulations for consultation in the New Year and bring them into force as soon as practicable after enactment of the Bill. This will force disclosure for the 2010 performance year.

Chancellor of the Exchequer Alistair Darling said: "Banks failed because some of the top people running banks failed to do their jobs. Tougher regulation, including stronger capital and liquidity requirements, reform of the mortgage market, greater competition, consumer protection, and living wills will help to make our system safer for the future. But the culture of the banks themselves must change. Sir David's proposals are the blueprint for how banks must be run in the future."

Commenting on remuneration aspects, Jon Terry, partner and head of reward, PricewaterhouseCoopers (PwC), said: "The Walker Review, and any consequent changes to the Combined Code, may represent a last opportunity for the 'comply or explain' approach to governing executive pay in the UK - it would be a shame if companies did not take it.

"The potential for multi-tiered regulation across sectors and countries has very real repercussions in terms of affected organisations' ability to compete for talent - a level regulatory playing field remains critical. Particular care needs to be taken so that overly prescriptive requirements do not put UK institutions at a competitive disadvantage - their appetite for change is being jeopardised by the inconsistent speed of change in other countries," he added.

The FRC proposes to adopt the recommendations in the Walker Report that it considers are appropriate for all companies. Sir Christopher Hogg, chairman of the FRC, said: "The Combined Code on Corporate Governance and its related guidance provide a framework for all listed companies."

The FRC will issue a report on its own review of the impact and effectiveness of the Combined Code in early December, together with a draft revised Code, which will be subject to consultation. Subject to the outcome of that consultation, and the necessary changes to the Listing Rules, the updated Code will apply to all listed companies with a Premium Listing for financial years beginning on or after 29 June 2010.

In addition the government has asked the FRC to take responsibility for a stewardship code for institutional investors as recommended by Walker. The FRC has agreed to do so, subject to consultation designed to ensure it can be operated effectively.

First published on www.gtnews.com 

CFOs Should View CPOs as 'Gatekeepers' to the Supply Chain

20 Nov 09

"The supply chain is a gigantic source of risk to us...we are exposed to a collapse in our business delivery if this breaks down" [CFO]

"The supply chain is critical and we are all guilty of not watching it closely enough" [CPO]

Despite the similarity in emphasis on the centrality of the supply chain for business, there is a fractious rift between many finance and procurement departments, with chief financial officers (CFOs) overlooking the role chief procurement officers (CPOs) play as 'gatekeepers' to the supply chain. According to recent research by Professor Adrian Done, IESE business school, and Basware, a purchase-to-pay solutions firm, the gap persists even though supply chain risk has significantly increased due to the economic climate and years of severe cost cutting.

This qualitative report, following a quantitative study of 550 CFOs conducted in June 2009, provides insight into how large organisations are struggling with risk evaluation and cost control. Indepth interviews with 20 CFO/CPOs in continental Europe, the UK and US reveal that cost control and reduction has become 'the new normal' going into 2010, with the urgency for reactive cost cutting measures continuing to supersede longer term investment driven directives. The report also identifies a growing trend for increased levels of finance and procurement collaboration, as well as transparency among businesses seeking to overcome finance and purchasing challenges.

In an interview with gtnews, Done said: "CFOs have finally woken up to supply chain risk. What they are not aware of is that there is a function within their company that is a 'gatekeeper' to the supply chain. The July survey revealed that only 17% of CFOs think that CPOs belong on the board and only 28% feel that the procurement function can help to reduce supply based risk - this is staggering. How else are you going to reduce supply chain risk other than through your own procurement or sourcing department?" A contributing factor to this situation, he believes, is a communication breakdown between the two departments, which should be working together in order to get the supply chain under control and leverage the benefits.

In addition, Done voiced concern that businesses are focused solely on the large risk events and not paying attention to the slow fading away of small suppliers. "Businesses are looking for 'tsunami' events in the supply chain but failing to keep track of the 'soil erosion' that takes place day-to-day. This mentality is a big disruption as decision makers fail to see the sequential risks of suppliers struggling to meet demands, while obsessing about discrete insolvency episodes and their impact on short-term operations," he said.

To help tackle these challenges, Basware recommends a three-point plan for CFOs and CPOs alike:

As cost cutting options narrow, finance and procurement must use each department's expertise to find a way forward. CFOs need the knowledge residing in the realm of the CPO to fully grasp the issues involved, and likewise, CPOs will need to take a more active part in formulating corporate strategy and be more innovative in its execution across the supply chain.

It is imperative that organisations push levels of spend visibility, cost transparency and general openness to unprecedented levels in order to unleash significant new areas of cost savings. Only once an organisation has 100% spend visibility - both direct and indirect - can they make informed and effective financial decisions.

Develop integrated and collaborative relationships with first and second tier suppliers to better evaluate and control risk in the supply chain. Fostering closer relationships with preferred suppliers will enable an organisation to tap into supplier expertise to identify the source of potential threats.

First published on www.gtnews.com 

Diversification Could Have Saved the Financial Industry, Says TowerGroup's Silva

10 Nov 09

Diversification could have saved the financial industry, said Ralph Silva, research director, European banking and payments, TowerGroup, and yet governments are currently carving up banks, such as Lloyds Group and The Royal Bank of Scotland (RBS), into distinct business units. Silva explained that the banks hardest hit by the crisis were the ones highly concentrated in one or two financial services industry sectors and with limited geographical spread. Other banks that had diversified businesses across many geographies, such as HSBC, have tended to survive the downturn better.

Speaking to over 100 bank and corporate clients at Pegasystem's European Banking Expo, Silva said that the days when banks determined what happened to their future are over. Today, it is politicians and shareholders that make the decisions, yet it is the banks' senior managers that see the need for diversification. "Bank devolution is the future," according to Silva.

Silva identified six trends that hold for both retail and wholesale banking:

1. Changing customer behaviour: less than 10% of customers have all products with one bank brand.
2. Customer retention has declined over the past six years: this trend is not based on price but customer service levels.
3. Regaining trust is a challenge: used car salesmen have more trust than banks.
4. Customer acquisition cost is going up: brand management is increasing because of negative sentiment.
5. Client support cost is also rising: service expectations are being set by grocery stores, not financial services.
6. Risk levels are rising.

Just as five out of the six trends above focus on the customer experience, the Pegasystem event shone a spotlight on its customers through a number of case studies, for example:

Greg Toyn, programme director at HSBC, was on hand to talk about the challenges of implementing a global project, in this case a new global payments investigations (GPI) programme created with Pegasystems. The GPI project is a core component of the OneHSBC payment transformation programme which aims to improve the bank's payments proposition through providing best-in-class service, while at the same time reducing operational costs and eliminating inconsistencies and redundancies. Discussing best practice, Toyn said that getting stakeholder buy-in, including identifying who cares about the project and who holds the power of influence within the organisation, is crucial in order to manage the "inevitable" crisis that is likely to occur at least once during the lifetime of a project. It is important to keep a grip on the scope of a change programme and identify what is actually needed, not what people want. "What normally happens is there is a dislocation between the business side's idea of the project and the project that the IT people are implementing. It is crucial to join those up and manage requirements and estimation," Toyn said.

Rosie Jones, transition analyst in Tesco's treasury department, spoke about the company's overhaul of its treasury in several change projects to enable straight-through processing (STP). She said that previously, in 2007, the treasury had numerous ways of making payments and wanted a better, simpler, and cheaper way to do so; therefore, it decided to restructure its treasury environment, which included implementing a treasury management system (TMS) upgrade and new systems for dealing, confirmation matching and payments. The desired outcome was the introduction of STP and improved system service levels. Currently, Tesco's in the UK is fully STP for payments and is doing final testing for its operations in Asia.

Loretta Gannon, a member of BNY Mellon's (BoNYM) innovation team, representing treasury services global product management and strategic development, spoke about the successful electronic bank account management (eBAM) pilot programme the bank completed with United Technologies Corporation (UTC), a US government contractor. The pilot used Alliance Lite from SWIFT and BoNYM's operating environment, which included Pegasystems, SWIFT FileAct and an XML utility. Benefits from the bank's perspective were: enhanced product offering; standardisation lowers the total cost of ownership (TCO); improved clients services and service level agreements (SLAs); and gained efficiencies through the technology. The client benefits from faster account opening and closing and easier maintenance. Gannon believes that the eBAM standard will create a tipping point for adoption and move the industry into a "new paradigm".

First published on www.gtnews.com 

Italy Not Ready for PSD, Says Industry Players

27 Oct 09

Italy will not have fully transposed the Payment Services Directive (PSD) into law in time for 1 November launch date, according to key players in the Italian banking and payment services community at an industry event in Milan. Despite appearing to be on target according to the European Payments Council (EPC) website, the picture is "very patchy", said Carlo Tresoldi, president of SIA-SSB, pinpointing contentious areas such as payment service provider (PSP) provisions (Title II), transparency of conditions (Title III), rights and obligations (Title IV), and final provisions (Title VI).

The delay of Italy and other national legislators in transposing the PSD is of great concern for industry players across Europe as they are suspended in limbo, to a degree, and this situation may not change in the near future. Tresoldi said that it would still take a long time for the directive to be fully adopted, adding that the EU regulators have indicated they will review the directive in 2012, with an eye to developing a PSD II the year after to fill the gaps.

Speaking to just over 500 participants at SIA-SSB's fourth 'Do You SEPA?' conference entitled 'Landing on the PSD Planet', Tresoldi also highlighted the reality of implementing the directive heterogeneously, stating that Italy, for example, is still not clear on its national transposition path. "The current PSD implementation scenario is producing worrying forecasts in terms of the harmonisation objective," he said.

Giampaolo Galli, director general of Confindustria, an organisation representing Italian manufacturing and services companies, agreed with Tresoldi's points on the problems associated with differentiated national implementation. "Within the national implementation, we need to provide highly harmonised instruments because this will affect the benefits for corporates," he said, adding that the main concern in Italy is that the industry will lose some its payments system functionality by moving to a European standard.

Issues plaguing the implementation of the single euro payments area (SEPA) schemes identified at last year's event have continued this year, such as the lack of an end date for legacy instruments and the lag in public administration uptake. Implementing a 'mini-SEPA' is seen as a significant risk, particularly with a lack of effective commitment from the national governments, corporate and consumers, according to Tresoldi.

Franco Passacantando, managing director central banking, markets and payments system area, Bank of Italy, said that SEPA's problems lie in the fact that the advantages have not yet materialised, mainly due to the lack of mass adoption. "The SEPA Credit Transfer scheme has only 4-5% uptake, which is far away from the 20% objective to be reached by December 2010," he said. He also highlighted the slowness of public administrations to take up SEPA instruments, and added that the co-operation around common infrastructure was still very low.

"SEPA is no longer reversible, but we should be aware that it will take more time and cost more than originally thought," he warned.

First published on www.gtnews.com