UK Finance’s latest must–read blogs

Accelerated Settlement in the UK?

On 20 June, UK Finance brought together industry and policymakers for ‘Accelerated Settlement in the UK’.??

This conference welcomed over 300 participants from across the investor community, broker dealers, custody banks, central securities depositories (CSDs), trade associations, legal and consultancy practitioners, regulators, and government representatives. We heard from a range of domestic and international speakers, who shared insights and perspectives on a future UK transition to T+1 settlement.?

Of highlight was the keynote speech delivered by US Securities and Exchange Commission (SEC) Chair Gary Gensler, who shared his advice following the US’ transition to a T+1 settlement cycle in May?

Key takeaways include:??

• T+1 lowers operational and counterparty risk and increases efficiency. It has benefits for both everyday investors – who will be able to receive their money quicker – and institutional investors – who will have liquidity freed up more quickly.?
• The US’ smooth transition was by no means an accident, but rather the result of thousands of market participants who worked with the SEC. Transitioning to T+1 is a team sport.??
• It is important to set an implementation date and try your best to stick to it. This helps organisation, planning and implementation.?
• Transition costs are unavoidable, for instance, international investors may need to shift their operations to cover foreign currency risks.??
• Time zones are also important; however, the UK’s time zone is one of its strengths. The UK will benefit from the US’ move to T+1, for example, more so than some eastern markets.??
• It is also important to note that we already live in a world where settlement cycles are not aligned, and market participants have always found ways to overcome this.?
• Given the US’ success and the benefits of T+1, it might be time to consider raising the possibility of further shortening beyond T+1.?

Read the full blog post from Ayesha Ghafoor , Principal and Will Clamp-Gray , Manager, Capital Markets and Wholesale, UK Finance .?

Automation Strategies in Banking?

Exploring the automation challenges faced by banks, the webinar covered issues like compliance, legacy processes, improving efficiency, APIs, data management, and third-party vendor integration.??

On 23 May, UK Finance’s Director of Digital Technology and Innovation, Phillip Mind, led a Confirmation-sponsored webinar on automation in banking. The panel comprised Elvis Crespo, Deputy Head of Compliance, Industrial and Commercial Bank of China (ICBC); David Hagerty, Senior Journey Developer at NatWest; and Confirmation’s Global Strategic Account Executive, Simon Edie.?

Top Challenges and Opportunities?

Phillip initiated the first webinar poll, asking the audience to prioritise their top challenges and opportunities. The leading responses were adopting new tech for streamlined processes (76.7 per cent) and staying compliant with widening regulatory responsibilities (65.1 per cent).?

David emphasised the importance of integrating new tech to link different platforms. NatWest is addressing two significant challenges – making new and legacy platforms communicate efficiently and achieving consistent customer information across the bank. “This opens the door to automation that was impossible before, because those systems weren’t connected,” he said, stressing the value of “air traffic control and governance”.?

Elvis highlighted the growing demands of compliance, particularly in data protection and cross-border trading – “new systems must be implemented across the organisation”. He recommended engaging senior management in replacing legacy systems, due to the complex governance required. With many players taking on different roles in different compliance processes, “we can create quite a mess, so we need proper project and process structures”.?

David also advocated iterative development and rigorous testing when adopting new tech. He wasn’t surprised to see the audience’s most important goal for 2024 was workflow improvement (84 per cent). “There’s still great inefficiency out there, despite all the lean and agile programmes. Technology moves so quickly that what was once classed as efficient is now behind the curve.”?

Read the full blog post from Simon Edie, Team Leader and Global Strategic Account Executive, Thomson Reuters Confirmation. ???

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The Rise of Neobanks and Alternative Lending?

At the start of 2023, small businesses in the UK numbered 5.5 million, constituting 99.9 per cent of the business landscape, according to the Federation of Small Businesses .?

In response to the challenges faced by small businesses, an increasing number are turning to mobile-friendly online neobanks and alternative lending platforms. These fintech companies provide non-traditional banking services digitally.?

Neobanks distinguish themselves by operating exclusively through mobile platforms without any physical branches, setting them apart from digital banks which are essentially the digital extension of traditional banks with physical locations. Unlike neobanks, digital banks maintain a hybrid approach.?

Instead of targeting traditional banking customers, many neobanks direct their marketing efforts towards the unbanked demographic – individuals who have not utilised banking services, often due to the inability to afford high fees or reluctance stemming from complex onboarding procedures. Neobanks aim to cater to the unbanked by providing them with affordable interest rates and service fees, while also simplifying paperwork and streamlining the onboarding process to make banking more accessible.?

In recognising the need for comprehensive financial solutions, including lending options, neobanks are increasingly forming partnerships with alternative lenders. This collaboration allows neobanks to leverage the strengths of alternative lending platforms, characterised by their agility, technological prowess, and customer-centric approach. By integrating alternative lending into their digital ecosystem, neobanks extend their service offerings beyond mere transactional capabilities.?

Read the full blog post from Inês Macedo, Head of Digital Marketing, Cubefunder ??

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NIS2 Directive – are you ready??

Finance is one of the 10 industries that the European Parliament consider essential for society to function, so it is, therefore, one of the first to be affected by the NIS2 Directive. The official summary of NIS2 calls for “a high common level of cybersecurity across the Union,” which includes national cybersecurity strategies, setting up cyber crisis management authorities, putting cyber risk management measures into place, clear reporting, and having enforcement action plans.?

As cybersecurity experts, CSC of course champions NIS2 – good cyber hygiene can only benefit everyone. But what does it mean in reality? There are only four months to go until the October deadline, by when member states will have to define how they’ll make the requirements of NIS2 applicable to their own laws. Although mandated to EU member states, it also covers any organisation doing business in the EU—so UK organisations must be proactive when it comes to applying NIS2 as well.??

Here are my top three tips for UK finance organisations to get prepared for NIS2.?

1. Review your risk management policies. The finance industry is no stranger to risk management, but to meet NIS2 requirements, I suggest ensuring that cyber security is explicitly referenced?

2. Audit your suppliers for NIS2 compliance. At CSC we say you’re only as strong as your weakest link – a cyberattack on an organisation in your supply chain could affect you just as much as a direct attack, so make sure that the organisations you work with are compliant, and therefore lower risk.?

3. Appoint a cyber security incident response team (CSIRT). This is mandated by NIS2 – organisations within each affected industry will need to appoint a CSIRT, which will liaise with the government’s own CSIRT in the event of an incident.?

Read the full blog post from Patrick Hauss , Head of Corporate Development and Strategic alliances EMEA, CSC ?

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Prudential Regulation Authority (PRA), SS1/23 - what you don’t know can hurt you?

If you think that the Bank of England’s new regulation on model risk management - SS1/23 Model Risk Management, which came into force last month, does not apply to you, then you may be in for a nasty surprise.

On first reading, the Prudential Regulation Authority’s (PRA) supervisory statement seems to concern only those banks and investment firms which have “internal model approval to calculate regulatory capital requirements for either credit risk, market risk, or counterparty credit risk.” However, nowhere else in the document is this narrow definition repeated. Could it be applied to any models used anywhere in a bank??

Do you have the list??

I checked with technical officers at the Bank of England, and they confirmed that SS1/23 Model Risk Management principles apply to all models wherever they are used in the bank. My contact went onto clarify that this meant not just AI and not just models used to calculate capital requirements. He specifically called out marketing, fraud and credit risk as areas that ARE included in this regulation.?

In a perfect world, all banks would have well documented, auditable and managed governance processes for all the analytical models they run. In reality, after more than 30 years of building, buying and using analytics models, we all know that even creating a list of them all is a huge challenge. Yet, that is exactly what is required to comply with SS1/23 – meaning that, as of 17 May this year, many banks may be technically out of compliance.?

Read the full blog post from Simon Axon , Financial Services Industry Strategy and Business Value Engineering, Teradata. ???

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