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From Fintech to Regtech… from potentially disruptive to leaner compliance opportunities
| 31-5-2017 | François de Witte |
Introduction
Fintech describes a wide range of innovation in financial technology, going from payment systems to lending and trading platforms.
Fintechs are seen in many cases as potential disruptors of the traditional intermediation of heavily regulated banks and other financial institutions See also my articles on PSD2 further down.
However Fintechs can also be enablers, helping banks and financial institutions to streamline their regulatory reporting and compliance, or help the disruptors in coping more easily with compliance in the future.
Setting the scene
Fintechs are playing an increasing role. The investments in Fintechs exceeded EUR 25 billion in 2016, and they bring a real digital revolution. Fintechs are perceived to foster the Digital Revolution, but equally to increase the digital divide in our society between the skilled and/or wealthy and those who are not.
Regulatory compliance is time-consuming and expensive for both financial institutions and regulators. The volume of information that parties must monitor and evaluate is enormous. The rules are often complex and difficult to understand and apply. There is a lot of data to be analyzed. Much of the process remains highly labor-intensive, or still depends heavily on manual inputs.
The Regtechs can be considered as an outgrowth of Fintec. Regtech use digital technologies— including big data analytics, cloud computing, robotics, behavioral analysis, blockchain technology and machine learning to facilitate regulatory compliance. Amongst other things, Regtech applications automate risk management and compliance processes, enable companies to stay aware of regulatory changes around the world, facilitate regulatory reporting and support strategic planning.
In recent years banks have seen opportunities to ask Fintechs to solve their large regulation and compliance issues. They can change the paradigm of banks from heavy IT releases to agile sprints, from integration to standardizing protocols, from static functions to workflows.
Hence financial institutions are more willing to consider using Fintechs for getting more efficiency. During the seminar, somebody of the panel mentioned: “Collaboration is the best innovation”. Banks can also help Fintechs thanks to their experience in managing large databases, managing risks and providing the required critical mass.
We have seen some applications recently in areas such as the KYC (Know Your Customer) domain.
Regtech – some other considerations
However, as mentioned during the seminar by Antonio Garcia Del Riego, Head of EU Corporate Affairs at Banco Santander, in Europe there remain obstacles in using Fintechs. The Bank Regulators in Europe expect the banks to deduct the goodwill from the core capital of the banks. This implies that software investments cannot be capitalized and need to be written off immediately in the P&L. A second challenge is the ability to attract digital talent, given the fact that the regulators limit the way in which the remuneration can be paid, whilst startups can be very creative here.
For the regulators, there also remain challenges. Once banks will have automated their reporting, the regulators will have to follow. They also will have to attract digital talent, to treat all these data in an automated way. If they do not succeed in this, they might challenge the use of Regtechs, and this is not what we want.
Regtechs can potentially offer similar benefits to regulators as they do to financial institutions. We recently observed that some (quite few) Regtech providers have emerged to serve the significant needs of regulators. There have seen recently some examples in Fintechs bringing behavioral models to the regulators, or new cognitive technology or the use of Blockchain technology (smart contracts), to trigger automatic alerts for the regulators when the banks exceed some thresholds.
Some regulators are taking initiatives to foster innovation. In 2016, the FCA (US) created its “regulatory sandbox,” a space where financial services companies are encouraged to test new products without regulatory consequences. Recently the Australian Securities and Investment Commission also created its regulatory sandbox, suggested to establish a new regtech liaison group, comprising industry, technology firms, academics, consultancies, regulators and consumer bodies, and announced that it would host a Regtech hackathon later in 2017.
Other countries have also taken steps to support Fintech and Regtech innovation. The Monetary Authority of Singapore is in the process of developing a regulatory sandbox. We might expect other regulators to also take similar initiatives.
Conclusion
Thanks to their digital technology, Regtechs enable banks and other financial institutions to reduce the burden of compliance. However some steps need to be taken to create a level playing field and some topics will have to be clarified.
One can ask oneself the question how far these innovations can become game changers, awakenings for the banks, or even force them to more transparency and predictability towards regulators.
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More articles on this subject:
PSD 2: A lot of opportunities but also big challenges (Part I)
PSD 2 : The implementation of PSD 2: A lot of opportunities but also big challenges (Part II)
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Nieuwe spelregels voor valutahandelaren
| 30-5-2017 | Erna Erkens | treasuryXL |
Wij hebben onze valuta-expert Erna Erkens gevraagd om te reageren op een artikel in Het Financieele Dagblad over de nieuwe gedragscode voor valutahandelaren. Zij geeft een reactie in de voor haar zo typische manier zonder een blad voor de mond te nemen.
Vrijwillige gedragscode
Ik schaam me inderdaad dat dit nodig is maar ik schaam me er niet voor dat ik 35 jaar als valutahandelaar met veel passie gewerkt heb. Gedeeltelijk voor rekening en risico van de bank, maar meer als sparringpartner van klanten. Zoals ik dit nu nog ben. De genoemde gedragscode is een vrijwillige en ik denk niet dat deze snel invloed zal hebben. Eigenlijk is het zoiets als de eed die bankiers moeten afleggen.
Mindset
Het moet een begin zijn van een mindset verandering. Maar als we nu kijken dat banken teveel boeterente rekenen bij de oversluiting van hypotheken, dan blijkt dat bij alles wat niet transparant is voor klanten de mindset ‘klant centraal’ even wordt vergeten. Dit moet veranderen. Er moet een andere motivatie komen om dingen te doen en vooral om dingen te laten. Dus geen focus meer op….. aandeelhouderswaarde. Hoge budgetten die gekoppeld zijn aan extra salaris in de vorm van bonussen. Maar, dit moet komen van bovenaf. Dus moeten het bestuur en de commissarissen het goede voorbeeld geven. Zij bepalen de richting van de bank. Mensen zijn hebberig en dit gedrag wordt nog steeds gestimuleerd. Maar niets doen is ook niet goed. Dus het is een zeer bescheiden begin.
Taak voor het bestuur
Dit begin moet samengaan met de besturing van de banken (of bedrijven). Besturen moeten budgetten vaststellen en bonussen uitdelen als collega’s eerst elkaar en dan klanten helpen. Het bestuur moet beginnen om te zorgen voor een veilige arbeidsomgeving waar wordt aangeven dat werkzaamheden zullen/ kunnen veranderen, maar dat er niemand ontslagen zal worden. Dat managers instaan voor hun afdeling (mensen) en niet aan de kant van hun bazen uit angst. Zorgen dat de afdeling een goedlopende machine is met als centrum een gezamenlijk belang en geen individueel belang. Verzet tegen kennis is macht en politiek gedrag. Samen staan we voor onze club en we zorgen voor elkaar. Dat staat bovenaan. Het klinkt misschien soft, maar dat is het niet. Als mensen zich veilig voelen geven ze bloed zweet en tranen en heb je weinig ziekteverzuim en voelt iedereen zich goed. Mensen werken harder en zo krijg je vanzelf meer en beter resultaat en veel loyaliteit voor elkaar en het bedrijf. Mensen zijn dan trots op waar ze werken. Als er angst is of onveiligheid dan werken mensen voor hun geld en van 9 tot 5 met geen of weinig loyaliteit.
Zonder politiek gedrag en als mensen eerst voor elkaar zorgen en mensen voelen zich veilig gaan ze automatisch voor de klanten zorgen. Verkopen is transfer of trust. En dit begint in de top van de organisatie.
Mening
Dus wat vind ik ervan? Bestuurders van valutahandelaren: Schaam jullie dat jullie de omgeving maken waarin de menselijke behoefte van hebberigheid belangrijker wordt dan collega’s en klanten. Jullie moeten beginnen met het geven van het goede voorbeeld. Laat dit een begin zijn, maar vooral bij de bestuurders. Ik heb altijd discussie gehad over dat ik teveel op de stoel van de klant ging zitten. Ik ben daar tot op de dag van vandaag trots op. Dat is wie ik ben. En zo zal ik altijd zijn. Dat heet empathie en dat geeft vertrouwen. ‘Practice what you preach’ niet alleen op papier in missie en visie maar in gedrag. Altijd! Eventueel tijdelijk ten koste van winst nooit van mensen. Dan komt het met de aandeelhouders ook goed.
Erna Erkens
Owner at Erna Erkens Valuta Advies (EEVA)
Andere artikelen van deze auteur:
Valuta ontwikkelingen en rente – Verwachtingen voor 2017
Valutabewegingen van Euro, Britse Pond en US Dollar: Altijd reuring op de markten
Mergers & Acquisitions: The 26 process steps for a corporate treasurer
| 29-5-2017 | Theo Paardekooper |
One of the topics on the agenda of the treasurer is the merger and or acquisition strategy of the company. This blog gives you a short guidance in the 26 steps in selling (or buying) a company.
26 process steps
The treasurer will join a team of experts to execute this process.
Step 1. Market research. This research will give a clear view on the market to collect sufficient information for the management to make decisions during this process. Mostly a request for information is launched to candidate advisors that will be used in this sales process. These advisors will give a snap shot on the transactions containing information that is used in the Steps 2, 3, 4 and 5.
Step 2. Track record. Investigate the track record of the advisors involved in this process.
Step 3. Valuation of the company compared to its peers. Valuation can be based on Discounted Cash flow, EBITDA-multiples or Net asset Value.
Step 4. Prepare a Long List of possible buyers (or targets). This list can contain strategic buyers (competitors or companies in the same value chain) and financial buyers (private equity and hedge funds).
Step 5. Negotiate a fee structure for the mandate holders of the transaction, the investment banker, legal and tax advisor.
Step 6. Contact program prepared for the parties on the Long List on an anonymized basis. The name of the selling company is not (yet) mentioned in any contact with parties on the Long List.
Step 7. After establishing the first contacts in the markets a Short List will be prepared containing up to 15 possible candidates
Step 8. Preparing a teaser and a non-disclosure agreement. (NDA)
Step 9. An investment memorandum will be submitted to potential buyers after accepting an NDA.
Step 10. A process letter will be distributed containing the time frame and schedule for the next steps in the buying (or sales) process.
Step 11. Non-binding offer launched by the buyer including a data room request. This non binding offer contains at least: – a price and/or pricing mechanism, – information about the buyer and its representatives, – specification of the deal (buying in cash, shares, earn-out, vendor loan etc.) and other requests for information that are required to launch a binding offer
Step 12. The bidder will arrange a bank financing agreement or term sheet.
Step 13. Assessment of the bids by the seller. To a maximum of 5 possible candidates will be assessed.
Step 14. Send an invitation to organize a due diligence. This due diligence will be related to the domains of legal, fiscal, financial, Human Resources, intellectual property, environmental and commercial items. A data room will be available for the potential buyers. Management of the selling company and management of the buying company will give management presentations. Also site visits can be part of this process. The due diligence reports will show the risk, the impact of these risks and the possible actions to mitigate this type of risk.
Step 15. Golden parachutes. Offer to key managers in the target company who probably will not “survive” after the transaction but who will be important in de selection process.
Step 16a. Launch of a binding offer including reservation to final approval by the banks and shareholders of the buyer.
Step 16 b. Presenting term sheet of banks showing the financing capabilities of the buyer to close the deal.
Step 17. Start the approval/advise process to inform formal regulators and the employee’s council of buyer and seller.
Step 18. The seller will send a term sheet/heads of terms to the final preferred bidder (or 2 bidders)
Step 19. The seller gives exclusivity rights to one or two preferred bidders for a period of 3-4 weeks to negotiate a Sale Purchase Agreement (SPA) or an Asset Purchase Agreement (APA).
Step 20. Negotiation of SPA or APA containing:
Price and pricing mechanism about corrections on working capital, debt and cash position and conditions precedent.
Representations (Reps). A declaration of the seller about all the information submitted to the buyer. This information can’t give any reason for discussion or claim after closing.
Warranties, valid for a defined period containing a defined amount to cover certain risks
Step 21. Signing
Step 22. Closing. Transfer of shares from seller to buyer
Step 23. Settlement of share price payment after pre defined calculation of the price as defined in the pricing mechanism.
Step 24. Placing of funds on an escrow account, established to cover the warranties given buy the seller.
Step 25. Closing of accounts that were used for settlement. In the Netherlands a notary public is used in the settlement procedure, but this is not the process in other countries.
Step 26. 18 months after closing. Release of the escrow funds to the seller.
These 26 steps are a framework, but some steps can be merged in one process step. The position of the treasurer in this process is linked to his experience and his position in the management of the company.
Theo Paardekoper
Independent treasury specialist