The Financial Services Club's Blog

Fund managers wake up to MiFID and SCREAMMMMM

After three years of anticipation, we're now just 93 days away from 1st November and the implementation of MiFID.   Now you would think that after 1,217 days of thinking about MiFID's implications and implementation, that most folks would be ready ... pah!

Just last week SunGard's survey (13 page pdf), taken at TradeTech conferences and covering over 300 financial institutions, found that half of firms are behind in their MiFID preparations and many still don't know what Best Execution is all about (covered extensively in this blog already).

But there's a really big hole in MiFID that has just been fallen into by one group of folks who thought they were unaffected by this wonderful Directive.

Who is it you ask?

Well, when MiFID was first discussed, I thought that market-makers - the systematic internalisers - would be most affected.  Then everyone told me that it was the traditional exchanges that were going to become obsolescent.  And throughout all of this we talked about the restructuring of the sell-side.

"But what about the buy-side?" some of us said.  "Won't they be affected too?"

Not really they all thought.

18 months ago, the buy-side were pretty dismissive of MiFID and its impact.  In a Liquidnet Survey of the buy-side in November 2005, 82.7% believed the directive would provide little  or no benefit and 43.8% said they will not spend any money to comply with MiFID.

Well, they obviously ignored the FSA's CP 06/14, '"Implementing MiFID for firms and markets" released in July 2006 (365 days ago) which answered the question "Who's affected by MiFID?" with the answer:

 

• retail banks;
• investment banks;
• portfolio managers, excluding managers of collective      investment schemes;
• stockbrokers and broker-dealers;
• futures and options firms;
• corporate finance firms;
• wholesale market brokers;
• operators of RMs and MTFs;
• providers of custody services; and
• commodities and venture capital firms.

 

In other words, almost everyone.

The point is that fund managers are all suddenly whingeing about MiFID.

Bit late isn't it?

Oh, sorry, I just realised I haven't told you what they're whingeing about.

Well, they finally woke up to MiFID's impact when they realised that MiFID creates an uneven market where fund managers are forced to disclose the commissions they pay to distributors, but there is no equivalent regime for competing vehicles, such as structured products and life insurance.  

Although structured products are covered by MiFID, they can be sold direct and so are not affected by MiFID's inducement clause whilst life insurance, according to the way most markets have transposed the Directive, aren't really subject to MiFID-equivalent disclosure requirements.

Now, all the leedle fundy wund managers are jumping up and down and screaming and banging on Brussels door.

According to yesterday's Financial Times Jean-Baptiste de Franssu, Chief Executive for Continental Europe at Invesco, said: "There is increasing demand for transparency from the fund industry even though it is already more transparent than structured notes and insurance.  If there's a need for more transparency that's fine, but it should be across the board."

Meanwhile, Marcus Mecklenburg, Head of Policy and Associations at the BVI, the German industry association, was jumping up and down: "It's an outrage that you can do whatever you want within the wrapper of a structured product.  We need to challenge individual regulators and say: 'Is this really a reasonable state of affairs?'"

Well guys, you can jump up and down, stomp around, kick and scream, even hold your breath until you turn purple, but you've had three years to work this out and it's too late.

Tough.   

How the media changes reality: banks liars and bullies

In an eight-page document to the Chief Executives of UK Banks released on Friday, the UK's Financial Services Authority (FSA) accused the UK Banking industry of being "unfair". The document concludes an investigation into unauthorised overdraft charging complaints procedures.  In softening the blow with an opening "we did see evidence of firms taking steps to improve their approach" and the fact that they "noted positive efforts by some firms to do more to assess who they are charging, why and when", the document then gave a pretty flagellating summary of its conclusions:

• "in some firms we found significant deficiencies and important areas of weakness" in responding to complaints;
• "a failure to respond to these complaints";
• "delaying or impeding complainants" with "unfair closure of accounts, or threats to do so"; and
• making "false or misleading statements" to complainants.

The conclusion is that the senior management of all firms "need to review their firms' complaints handling procedures" and check that "they comply with our standards, which include handling complaints fairly."

Or else.

In reporting the news, the UK media typically went over the top with the following headlines:

"Lies, scams and threats – banks are condemned", The Times

"Banks Accused Of Bullying Customers", Sky News 

Funnily enough, both of these are produced by Rupert Mordoch's News Corporation who obviously detest banks.  Maybe this has something to do with the Wizard Mordoch's own upbringing in Australia which gave him a pretty tainted view of banks and politicians, although he is not alone as yet another national, the Daily Mail, ran the headline: "Watchdog attacks 'bullying banks' over rip-off charges".

What it shows is that UK banks have been caught out this time - and this is not the first time - and so the UK's leading newspapers will continue to run a campaign to destroy the image of UK financial providers.

Meanwhile, if you look at less consumer-oriented reporting, a few other headlines on the same FSA report are more measured:

"Two firms face enforcement action over unauthorised overdraft charges", Money Marketing

"Clarity on bank charges could take over a year", Yahoo

So, I think we have a case here of skewing the news reporting to suit the reporter and the audience.  After all, "lies, scams and threats" is a bit extreme, although the FSA's publication could be interpreted that way.

Of course, the banking sector does not help itself when you get this headline in the Daily Telegraph about how Lloyds TSB accidentally leaked a memo that trains staff to reject customer's overdraft charge claims; and then you have today's Guardian reporting that the banks will be paying out over £1 billion this year in unfair charges - which is five times more than the previously estimated cost of £200 million - after HSBC admitted it had already paid out £120 million. 

The point of all of this is that banks do not behave in their customer's interests.

Now this perplexes me as I cannot think of many service organisations that could get away with treating the customer this badly as the customer would leave ... apart from maybe the gas and electricity services, the telephone and broadband firms, the airlines ... now I mention it, banks aren't so bad after all.

All of this points out that banks can be an easy target and the truth is that banks can sometimes be somewhere between 'unfair' and 'liars and bullies', but are never always unfair, lying and bullying, or they wouldn't keep any customers would they? 

You tell me your view.

Mobile banking in America creates a big debate

CNBC in the USA ran a report at the end of June on mobile banking.  The report is interesting as 2007 is definitely the year of the mobile phone, or cellphone if you're American, with Bank of America, Citibank, Wachovia, Washington Mutual, Wells Fargo, and ING Direct all launching mobile bank services.  The mobile service allows folks to transfer funds, check balances, make bill payments, and look up branch locations.

There's nothing too radical there although it intrigues me that the US banks, which are meant to be behind on mobile banking, are actually launching these services ahead of some European banks.  For example, put the search "Mobile" into Natwest's website and what comes back?  The Mobile Banking Service ... a bus that goes around Wales, Cumbria, Devon and Cornwall with a teller inside.  Whoopee-doo.

Nevertheless, the really interesting outcome of CNBC's news report is this conversation at Slashdot, where US consumers leave their reactions to the wonderful news that they're going to get mobile bank services.

Here's a selection of a few of the comments:

"I can see the appeal of something like this if it's handled well and securely." Mobile Tatsu

"I think it's a smarter way." FBJon

"Did any of these banks actually do any analysis of the security of cell phone  data?" Whuffo

"When is the last time that a major company put security ahead of profits?" Ushering

"USA is a backwater for mobile technologies..." Anonymous Coward

"This isn't anything new. It's just being passed as news as the big banks now realize that enough of their market base is technologically adept and accepting of having this kind of banking access available."  Radon360

"My phone is not an ATM, why are they trying to make it like one?" Eggman

"Does this mean that I can recharge my bank account by plugging my phone into a  wall outlet." Dsgrntlxmply

"Sweet, now I can see how little money I have no matter where I am!" Botkiller

and many more with probably my favourite being KakofB's, "It's all about being a space cyborg from the future." 

There's also a long list of non-US entries about how great mobile phone services are in Denmark, Finland, India, South Africa, Brazil, Argentina and even Belgium :-), although the most interesting comment maybe comes from JSHurst:

"I'm a developer for one of the larger US banks and am currently in the pilot for the mobile personal banking rollout ... this is actually my employer's second rollout of personal mobile banking. They were the first major bank to offer mobile services (over a decade ago) but canceled the program because of lack of interest. Perhaps features looming on the horizon like 'contact-less payments' will draw more attention, but the response amongst most my coworkers on the pilot has been pretty ho-hum: kind of neat, but I don't think I'd use it very often."

This comment begs the question as to whether we're developing technology for our own sakes or our customers or our competitors? 

My own view is that banks need to roll-out mobile banking services as mobile telephony is now ubiquitous and pervasive.  Soon, my mobile will be as powerful if not more so than my laptop. 

So, if you think you can ignore mobile banking, then you might as well ignore the internet as the two today are pretty much one and the same.

 

SEPA moves to China

Y'know I was going to write an indepth analysis of the ECB's 5th report on SEPA titled: "SEPA: from Concept to Reality" (31 page pdf download) only to find my Dutch friend Donald at the excellent blogspot Linkdump on Payments had beaten me to it. 

If you can't be bothered reading his whole write-up, the gist is that the report only makes "political sense" and the ECB is "no longer objectively analysing the world; they just join in the political game and produce papers that they think may get them a good press." 

In other words, the document is all guph, hype and political conniving according to Linkdump. 

So I thought I'd take a different tack.

I recently signed up with the Financial Times alerts service and have entered various keywords that interest me, such as MiFID, Banking and Women.

It came as a surprise therefore that I kept getting these headlines about China. 

Today's was "China's gung-ho economy exacts a heavy price" and last week's was "OECD urges China to act on pollution".

Nothing to do with any of the keywords I had entered. 

Then I found out that these were all related to SEPA, the State Environmental Protection Administration, which manages pollution and environmental issues in China.

So I then entered SEPA into Google and guess what?  It also stands for the Scottish Environmental Protection Agency which looks at National Waste Strategies; the Spanish Language School in Costa Rica; the South-Eastern Planetarium Association; the Solar Electric Power Association; and many more.

Now this could be a very dangerous situation.

After all,  a Chinese Airline Director worried about carbon emissions may one day encounter a weird bunch of people including a Scottish Sewage Expert, some Latin-American Spanish chappie, a couple of Aliens from Essex and some Druidic Sun-worshippers, intermingled with a bunch of bankers talking about the Euro. 

Watch out for the day of the Global SEPA Conference!

JWG-IT MiFID TechSIG model applauded by investment firms as critical gaps remain days away from implementation

from PJ Di Giammarino of JWG-IT: The Financial Serivces industry think-tank

Industry has the potential to save EUR millions through a new approach

London – July 2007. JWG-IT Group Limited, the think-tank for EU-driven IT change in financial services, is pleased to announce that the JWG-IT TechSIG, assembled from the market’s leading technology suppliers, is seeing early success in its development of technology architectures which meet regulatory and market needs. There are less than 50 work days until 31 countries have to be tested and ready for the Markets in Financial Instruments Directive. Through capitalising on TechSIG’s collaborative approach, the industry stands to save millions of euros by using pre-defined flat pack solutions for complex infrastructures.

Significant customer and regulatory pressures sparked by MiFID will mean those that are not ready will risk losing customers and incurring significant fines in 2008. According to a research report, “Who’s ready for MiFID?”, which Thomson IFR published earlier this week, the TechSIG is addressing 90% of firms’ top issues by developing reference architectures for:

• Doing the trade right (DTR)
• Reporting the trade correctly (RTC)
• Storing and retrieving records (SRR)

68% of firms surveyed predict the first challenges to their best execution will come in the first quarter of 2008 and expect that regulatory fines across the market will total €50 million by the end of the year as the regulators have no alternative but to impose penalties for breach of the law, according to 73 respondents from financial institutions across Europe.

Phil Higgins of Brookcourt Solutions commented “We are building a common understanding of people, process and technical options which apply to ALL divisions of the bank. This level-setting helps technologists identify issues and present their investment case to senior managers who need to understand how technology can also be a business benefit.”

TechSIG is now leveraging 19 months of JWG-IT research to lay new foundations for a pioneering form of collaborative working. Members are using diagnostic tools, models and reference architectures to focus and truncate complex discussions about what is required to fill key gaps. A seminar, held recently in London with technologists from Tier 1 and 2 firms, reviewed the architectures and, in a blind survey, participants awarded 3 out of 5 for overall approach, with 66% expressing an interest in working with the group on the detail.

“The smart investment firms have realised MiFID presents massive infrastructure challenges. The new data and security challenges are complex, real and go far beyond the high profile topics. We are addressing immediate and long term needs,” commented Parm Sangha of Cisco and Vice Chair of TechSIG.

The group has now achieved a critical mass, having doubled its membership to 22 in the last 2 months, and it continues to bring in leading players. “TechSIG is working because the members know that it will provide customers with more efficient and effective technology choices. Our first seminar was a small but important step in a long journey, as it confirmed that we are focusing on the right topics with the right model”, said Nigel Woodward of Intel and Chair of TechSIG, who added, “Our next step is to detail the architectures and start testing the logical prototypes. It is now starting to get very exciting - watch this space!” To support the TechSIG workstreams, leading testing companies are now preparing test assets which support their architectures.

PJ Di Giammarino, CEO JWG-IT, concluded, “The industry runs a serious risk of panicking and flushing cash down the IT toilet by making sub-optimal MiFID resource decisions. It is great to see new levels of common sense from traditional technology competitors who are now working together to get ahead of the curve and help their customers. Their efforts are setting a new standard for the technology vendor marketplace.”

For further details about TechSIG or JWG-IT, please see www.jwg-it.eu, which has over 500 members of the financial community registered to receive updates and alerts.

IFR publish 'Who's Ready for MiFID'?

from PJ Di Giammarino of JWG-IT: The Financial Serivces industry think-tank

Thomson IFR announce the publication of ‘Who’s ready for MiFID?’ by PJ Di Giammarino, CEO, JWG-IT Think-Tank. The IFR Market Intelligence report is the first comprehensive healthcheck of EU capital markets’ new capabilities that need to be deployed in less than 50 workdays. The 73 responses to the survey cover a representative cross-section of the industry, featuring both buy and sell-side companies of varying sizes and focuses of business.

The snapshot is worrying. There is still widespread confusion about what needs to be done to comply with the directive and about the consequences for those that don’t:

1. The sell-side is feeling the heat across all the change drivers

2. Significant disconnects are apparent across the back-office

3. Firm resourcing and readiness varies considerably. Often compliance departments are unaware of their true position; many infrastructure managers hold a very different view

4. 95% expect fines for non-compliance in 2008 and are concerned about who will carry the can

5. All expect a “best execution” challenge from their customers
This uncertainty will have profound implications for the next three to four years as 20% of firms are investing to gain competitive advantage from their MIFID programmes now and some of these will have the capability to change the market.

“MiFID [is] a different challenge, in that there are no comprehensive instructions for the firm or the regulator and the industry faces significant “known unknowns”. This, not surprisingly, has resulted in firms taking different views on what to do, how to do it and the implications of their decisions. The differences are interesting and important for all parts of the financial services value chain. This report will help firms understand those differences and their own relative position in the industry.” from the foreword of the report by Nicholas Child, Managing Director, Head of EMEA Markets Compliance, Citigroup Global Markets Ltd.

The report’s online ‘MiFID Healthcheck’, is a self assessment tool for purchasers to assess their relative readiness against their peers and across their own organisation. It is timely as 2008 budgets, that will set the agenda for change and consequently the health of the industry, are currently being developed.

For more information:
please contact
Thomson IFR – Jonathan Price +44 (0) 20 7369 7575 jonathan.price@thomson.com
JWG-IT Think-Tank - PJ Di Giammarino +44 (0) 20 7870 8004 pj@jwg-it.eu

and please see Chris Skinner's latest publication: The Future of Investing in Europe's Markets after MiFID

Futures and Options Report from Chicago FIA F&O Expo 2006 featuring Tom Groenfeldt

View the video from The Banking Channel: here.

HSBC's view from the top

I recently went to a conference in the HSBC tower at Canary Wharf. 

On entering the building, there's  a few things that strike me.

First, the lovely pair of lions as you walk up to the building. 

The lions are feng shui good fortune symbols that you'll find outside most of HSBC's global offices, and are replicas of the lions that guard the traditional Shanghai offices of HSBC.

Being a saddo, when I was in Shanghai actually went to see these lions.  Funnily enough, I was one of several bankers who had their pictures taken by the lions as these are the original HSBC lions. 

According to Wikipedia, HSBC Shanghai ordered the lions from the UK at the time of construction and named them after the Hong Kong branch manager, A.G. Stephen, and the Shanghai branch manager, G.H. Stitt, with a replica pair placed outside the Hong Kong branch.  Unfortunately, the lions were nicked by the Japanese during the war and so the Shanghai lions are also copies placed there by the Pudong Development Bank in 1997.  Equally, the classic HSBC building is no longer owned by HSBC - as mentioned, Pudong Development Bank own it because  HSBC moved out in the 1950's due to the political situation at the time.

Ah well, there's nothing like authentic is there?

The second thing that struck me was the lovely pair of security guards who greeted me before I entered the building.

"Where are you goin'?"  was the grunt from the chap who looked a little bit like Odd-Job from the classic James Bond film Goldfinger.

"Pardon", was my response as I could have just been walking down the street.

"Where you goin' widdat?" said Odd-Job as he blocked my path pointing at my laptop bag.

"I have a conference here."

"Puddit threw the scanner den."

OK, so he wanted me to go through the door - I still hadn't walked into the HSBC Building at this point - and to have my laptop bag scanned.   I suppose in these days of terrorism, a bank's HQ has to be secure but it didn't do much for my sense of comfort to be greeted by such an intrusive welcome.

Anyways, after sweeping through the security scanner, the 'remove all articles that may be sharp' request, the biometric access control panel, the bodysearch and the Guantanomo Bay 'put on this orange boilersuit whilst we check your clothes for radiation' command ... I got into the building and took the elevator to the 41st floor.

And what a view from the 41st floor.  On a clear day you can see all the way over to ... Barclays Bank.

Now, it cannot be by chance that the main customer hospitality suite at HSBC is strategically positioned so that you walk to the window and look right down upon Barclays Bank.  The Barclays building is a good few metres shorter than the HSBC Tower. 

In fact, it's 34 metres shorter.  The HSBC Tower is 200 metres tall with 42 floors whilst the Barclays building is 156 metres tall with 32 floors.

In fact, as we were milling around before the conference began, I spotted HSBC's chairman Stephen Green in the room with his arm around a client's shoulder steering the customer over towards the floor-to-ceiling windows overlooking the view of Barclays and beyond.

I couldn't quite hear the conversation but I imagine it went something like this:

Stephen Green points to the horizon and says, "now there is the Dartford Bridge, that is the Millennium Dome or, as it's now known, the O2 stadium, and over there is City Airport."

The client points at the Barclays tower and says "what's that?"

Mr. Green responds, "Oh that?  That's nothing."

Ah well, at least Citigroup's centre is 200 metres tall so they have equal stature ... except that HSBC put a radio antennae on their roof which is a metre taller than Citi's.

Na-na-na na-na.

Bankers battle over dress code

I recently encountered an interesting conversation between two CIOs of two major European banks.  I won't say anything more than one was a major French bank and the other a major Dutch bank who both share the same building.

The first and second floor are occupied by the I.T. operations of the major French bank, whilst the Dutch bank has the next three floors, using the top floor as their customer hospitality suite because of the fantastic views up there.

The trouble is that you can see everything in all the offices on all the floors as you go up in the lifts / elevators, because the building is all glass.

That is why the Dutch bank's CIO was lamenting the fact that the French bank's I.T. folks were giving the bank a bad image.

Why?

Well, the Dutch bank has a dress-down Friday.  All other days the bank requests staff to wear formal business attire and formal dress is mandatory for anyone working or visiting the top floor: the customer hospitality suite.

Meanwhile, the French bank's dress code is dress-down every day, as they do not entertain any external hospitality.  Just technical folks getting on with running the bank's data centre.

As a result, some of the nerdy Frenchie techies had taken the dress code to the extreme by wearing ripped jeans and t-shirts with scruffy trainers.  In fact, some were even wearing the fashionable low-waist jeans that hang just beneath your bum so that everyone can see your cool backside in all its naked or barely covered glory.

This was causing much consternation for the Dutch bank who had no control over what the first and second floor were wearing.   As a result, you would proudly entertain your top corporate clients to your hospitality suite overlooking the Thames, whilst travelling through a reception and glass lifts with a parade of scruffy staff in ripped jeans exposing builder's bums.

Trying to explain that it was actually another bank's staff apparently did little to pacify the customer's displeasure.

Vive la Résistance!

Government scraps identity cards

The government intends to scrap the controversial national identity card program. Instead, the Home Office is working with NATO and the US Department of Homeland Security to create a globally recognised standard for identity management using the latest chip designs from VeriChip Corporation.

The program has been given the internal codename "C-square" - which stands for the Citizen's Chip - and the idea is that the chip will replace id cards and passports.

Everyone will be issued with their own, individualised, unique identity on a chip. The chip will hold secure, PKI identification codes that can only be read by government-issued wireless NFC devices and the codes represent data about the user - a digital birth certificate, social security number and criminal record.

The intent is that the chip will only be accessible by government personnel, such as security officers and police, although chip readers will also be issued to banks to be used for identification purposes during the account opening process, and for proof of identity for any transactions above £1,000.

From the banking perspective, the advantage of the Citizen's Chip is that it will also provide an authentication and identification to the payment systems of the banks. For example, banks will be able to provide customers with any form of payments device - mobile, wearable or card-based - and have the payment authenticated by a wireless authentication chip standard used and approved by governments, law enforcers, financial institutions, and businesses globally.

The aim is to introduce the Citizens' Chip standard from January 2010, with citizens to be given the choice of either having the chip implanted in the arm or neck. Home Office representatives were persuaded to move towards placing the chip inside the arm or neck of the citizen after seeing VeriChip's programs successfully operating with hospitals and medical practices. As a result, the program will be promoted through local health services, as the government believes this will encourage early adoption, with initial advertising as a healthcare programme during late-2009, and with chips available from any local doctor's practice from 1st January 2010.

Promotion will be based upon the benefits of the chip monitoring heart, blood pressure and brain activity. Any early warning of health deterioration will be alerted to your doctor, who will be able to treat you effectively before any major health issues arise. The chip will also provide convenience in usage at airports and other cross-border checkpoints by providing those with the chip inside with a fast lane processing service.

Although the Home Office has admitted that the program may be controversial, they are keen to progress the idea of a chip implant because identity card trials have proven to be subject to substantial fraud, even with biometrics on the card. By implanting the chip, government and security departments worldwide have determined that this will be the most secure method of managing identification because the chip only works whilst inside the original host's body. The way it works is that when the chip is implanted within the body for the first time, it becomes NFC-identity enabled. However, should the chip be removed from the body, it is immediately disabled and cannot be reactivated. In effect, it becomes defunct.

The government will implement the Citizen's Chip program across all major control points, such as airports, railway and police stations, from 1st January 2010. From 1st January 2012, implants will be mandatory. Citizens without the chip implant after that date will be subject to potential internment and questioning for an initial period of up to 28 days or will be repatriated to their home of origin.

Now, you may have guessed by now that I made all of this up ... but I bet for a moment back there, you believed every word didn't you?

Big Brother's watching you ;-)

Government scraps identity cards

The government intends to scrap the controversial national identity card program. Instead, the Home Office is working with NATO and the US Department of Homeland Security to create a globally recognised standard for identity management using the latest chip designs from VeriChip Corporation.

The program has been given the internal codename "C-square" - which stands for the Citizen's Chip - and the idea is that the chip will replace id cards and passports.

Everyone will be issued with their own, individualised, unique identity on a chip. The chip will hold secure, PKI identification codes that can only be read by government-issued wireless NFC devices and the codes represent data about the user - a digital birth certificate, social security number and criminal record.

The intent is that the chip will only be accessible by government personnel, such as security officers and police, although chip readers will also be issued to banks to be used for identification purposes during the account opening process, and for proof of identity for any transactions above £1,000.

From the banking perspective, the advantage of the Citizen's Chip is that it will also provide an authentication and identification to the payment systems of the banks. For example, banks will be able to provide customers with any form of payments device - mobile, wearable or card-based - and have the payment authenticated by a wireless authentication chip standard used and approved by governments, law enforcers, financial institutions, and businesses globally.

The aim is to introduce the Citizens' Chip standard from January 2010, with citizens to be given the choice of either having the chip implanted in the arm or neck. Home Office representatives were persuaded to move towards placing the chip inside the arm or neck of the citizen after seeing VeriChip's programs successfully operating with hospitals and medical practices. As a result, the program will be promoted through local health services, as the government believes this will encourage early adoption, with initial advertising as a healthcare programme during late-2009, and with chips available from any local doctor's practice from 1st January 2010.

Promotion will be based upon the benefits of the chip monitoring heart, blood pressure and brain activity. Any early warning of health deterioration will be alerted to your doctor, who will be able to treat you effectively before any major health issues arise. The chip will also provide convenience in usage at airports and other cross-border checkpoints by providing those with the chip inside with a fast lane processing service.

Although the Home Office has admitted that the program may be controversial, they are keen to progress the idea of a chip implant because identity card trials have proven to be subject to substantial fraud, even with biometrics on the card. By implanting the chip, government and security departments worldwide have determined that this will be the most secure method of managing identification because the chip only works whilst inside the original host's body. The way it works is that when the chip is implanted within the body for the first time, it becomes NFC-identity enabled. However, should the chip be removed from the body, it is immediately disabled and cannot be reactivated. In effect, it becomes defunct.

The government will implement the Citizen's Chip program across all major control points, such as airports, railway and police stations, from 1st January 2010. From 1st January 2012, implants will be mandatory. Citizens without the chip implant after that date will be subject to potential internment and questioning for an initial period of up to 28 days or will be repatriated to their home of origin.

Now, you may have guessed by now that I made all of this up ... but I bet for a moment back there, you believed every word didn't you?

Big Brother's watching you ;-)

Ha, ha, ha ... April Fool ... or is it?

Click here, here and especially here to find out ...

Banks losing fight against money laundering

It must be that time of year, e.g. it’s quiet in the summer so let’s release our research and get the headlines. 

After IBM’s report yesterday, I then got KPMG’s report on Anti-Money Laundering (AML) today. 

This report proves interesting in that it makes it clear that for all the money banks are being forced to spend on Financial Action Task Force (FATF) and Wolfsberg procedures, along with Know Your Client (KYC) operations, they are losing the battle to keep money laundering in check.

The report estimates money laundering flows to be in excess of $1 trillion a year. 

Banks have been the primary target to stem this flow of monies from drug dealers, arms traffikers and other criminals.  As a result, banks have increased their spending on AML operations by over 58% in the last three years, since the last report was produced when banks only expected spend to increase by 43%.

Some of the highlights of the report include: 

• 85% of international banks now have a global AML policy in place.
• 71% of those surveyed say their senior management and board of directors take an active interest in AML, compared to 61% in 2004
• 93% of banks saying the burden of regulation is either acceptable or should be increased, although half of them say that AML regulation should be focused more effectively
• 4 out of 5 banks now perform detailed due diligence on Politically Exposed Persons (PEPs) during account opening, compared to only half of the bnaks in 2004

The downside of all of this however is that 41% of the respondents said they weren't capable of tracking AML across borders, and 26% were only partly capable. 

In other words, two-thirds of the world's banks are restricted in their AML focus to containment within countries, with no way to track across borders and countries.

This is why internet crime is run from Country A with targets in Country B to move funds to Country C and spend the funds in Country D. 

This is why card skimmers steal card details from Country A to harvest the cards in Country B and distribute the cards to people in Country C to spend in Country D.

As with all of these things, the banks cannot be held culpable on their own, and it requires massive investment and support from all influences – governmental, legal, enforcement, financial and even societal – if the poison of crime on the network is to be expunged.  That is why the report states that “despite good intent and strong commitment, many banks continue to struggle to design and implement an effective AML strategy, and they believe that much more needs to be done internationally to combat money laundering more effectively”.

So, there you have it. 

Banks are spending a fortune on something that cannot be solved, and only spend that money because they have to under the regulatory regime. Governments are trying to work together to sort it out, and introduce more and more regulation that is ineffective because it only works on a domestic or regionalised basis.  And law enforcers are streteched, under-staffed and under-invested.

That’s my take on it anyway.

My solution?

Well, as all drug dealers seem to deal in cash and most money laundering is in cash, I'd just get rid of cash.  Cash is anonymous.  That is why money launderers like it.  That is why we see examples such as this one from Mexico, where a drug dealer was caught with $207 million in cash in their house.

GET RID OF CASH.

There you go.  Problem solved.

If all money were identifiable electronically then launderers and paedophiles would be out of business.

However, cash is still the winning form of payment ... for this very reason.

That's why the last time I laundered any cash was when I left twenty quid in my jeans and bunged them in the washing machine.

Get global, get specialized or get out

IBM sent me a report this morning called “Get global. Get specialized. Or get out. Unexpected lessons in global financial markets.”

The report's theme is that the financial markets will enjoy dramatic growth except that financial firms do not have strategies to capitalize on this growth because they lack global integration.

The study was performed in partnership with the Economist Intelligence Unit (EIU) and spoke to almost 1,000 business leaders: 800 senior financial market executives and over 100 of their corporate clients. 

The headline results are:

• Worldwide investments are expected to double by 2015 to nearly US$300 trillion and to quintuple by 2025 to nearly US$700 trillion

• 60% of this future growth is coming from emerging markets, more than twice that from mature markets

• Chinese investors today have 17% of their savings in bank deposit accounts, while in 2025 over 38% will be invested in securities

• China will be tied with Japan in second place in terms of such investments, with the US maintaining its position in first place

• Financial markets firms are not in a position to capitalize on this as 93% of the executives interviewed acknowledge that their firms are not operating in a globally integrated fashion

• When asked to assess their proficiency with globally oriented organizational and operational practices, two-thirds of the respondents rated the performance of their firms as poor to moderate

• Executives rated specialist financial firms as being more capable than universas banks on some critically important global capabilities

• The barriers to becoming globally integrated are mostly related to culture and associated intangible assets   

Now I've already written extensively on Globalisation, and the growth of China and India, and do not find this surprising as a research result.

For example, I've spent most of my career being employed by American firms who continually strive to be global, but are usually just international.

The reason is that these firms employ key executives who never leave their
American head office.  By way of example, one of my previous employers had a Global Head of Human Resources based in the USA ... who didn't have a passport!  Supposedly, only 8% of Americans have actually travelled outside of America, so it's not surprising that "global" is baloney for those organisations.

Meantime, the same can be said of European nations.  For example, I recently heard a management guru advising Siemens to be more global in outlook. 

The Siemens CEO said, "but we are global". 

The guru retorted, "How many executive team members do you have who are not German?"

The CEO admantly said, "We have one."

"And where is he from?" asked the guru.

"Austria".

Hmmph.

What about Asia?

Well, Asian firms work hard at consensual management techniques, where everyone has a vote and everything is done in a very specific hierarchical style.

For example, I remember signing a deal with the central bank of Singapore for their RTGS system some years ago. 

As we pitched up for the signing ceremony, there were three of us: my boss, me and the country manager for Singapore.  The Monetary Authority for Singapore (MAS) meantime had arranged for around thirty people to be at the ceremony.  When they heard who had arrived, they cleared the room of 27 people to ensure it was just me, my boss and the country manager and our equivalents with the MAS.

That is Asian style.

And these are the cultural learnings that do make globalisation incredibly difficult.

It is the people things.

To really get a grip on those people things, I can highly recommend the book by Richard Lewis called "When Cultures Collide: Leading, Teamworking and Managing Across the Globe".

The book provides you with all you need to know when dealing with different nations, and explains that Germans can be funny, Americans can be diplomatic and Japanese can be charistmatic.  It even implies that the English can be sober, but I'm not so sure about that one ...

Chris Skinner

Files

Download The Changing Face of Payments

Download European Payments Survey 2012