Have you succumbed to the hype and bought a new iPad or indeed one of the excellent Samsung tablets as I have? Are you frustrated by not being able to use a device like this at work?
This topic that we have covered in previous bulletins and blogs, continues to exercise analysis and excite comment. The trend for use of these essentially retail gadgets (stronger tablets blog) for commercial purposes is being driven from both the boardroom who like the ease of use and personalised experience and more junior tech savvy staff who are looking to use tools and apps and the more visual and social media approach of tablet computing to make their jobs easier and more enjoyable. Some firms have adopted a policy of limited roll out of company provided tablets – typically to more senior staff, almost as a status symbol or management benefit. Others have gone down the Bring Your Own Device route we discussed last month which reduces the capital cost of providing the devices but is balanced by an increased complexity of integration and security of a wider range of less controlled devices. If this is an area of interest, you can join the active discussion on one of our LinkedIn groups.
Over recent weeks, I have been running polls looking at what appears to be the relatively simple question of “How important is having accurate Retail Distribution Review (RDR) proposition information on your public website before its implementation in January 2013?” This was run in a number of LinkedIn groups and whilst not particularly scientific, appeared to generate a more complex response. I deliberately chose different types of group to poll, and this yielded a stark difference in responses. I intend to run more polls of this type on this regulatory topic but for now let’s look at the immediate results.
In the specialist RDR discussion group there was almost unanimous support for the view that being an early adopter is an advantage. This is in contrast to the more general Financial Sector group where the response was far more mixed with support that clients are not yet interested. There is an obvious difference in the level of knowledge about the regulation in the RDR specialist group which suggests that those who understand its impact see more advantage in being well prepared and getting website information (e.g. whether the firm is independent or restricted, and a transparent mechanism of calculating the new advice charges) in place before the formal regulatory deadline. The full trend should emerge as I conduct yet more research at the same time taking some input from RDR implementation programmes that MPI is running. If there are specific areas or questions that you think we should investigate, please get in contact
It is often said that film sequels are never quite as good as the original, but this trait has yet to be definitively proved for financial regulation. One reason for this, probably, is the lack of effective measures of success for regulation: there is no ready equivalent of box office takings. What financial measures there are appear to be ambiguous. Take receipts from fines for example. On one hand larger fine receipts could be seen as a success – an indication that the regulation is biting. However, it might also be argued that large fines are a sign of regulatory failure, as surely the purpose of regulation is to prevent or deter people from particular behaviour and not simply to turn their continued transgressions into a ready revenue stream. Also preventing a similar market failure – new regulation almost always follows a failure – is not a clear indicator of whether it is a blockbuster hit. It always seems that the latest regulation is aimed at preventing the last crisis, but seems incapable of predicting and hence preventing the next. It is a bit like casting actors for King Kong but then they end up struggling through Othello.
So this is the murky world into which MiFID II is being introduced. It follows the original MiFID which was seen as a partial success, in that it acted as a catalyst for the restructuring of Europe’s equity markets and driving greater transparency around execution policies, but failed to deliver the promised level playing field for securities trading. The European Commission states that MiFID II sets out to make financial markets more efficient, resilient and transparent, and to strengthen the protection of investors by increasing the supervisory powers of regulators and provide clear operating rules for all trading activities. Amongst the expanded areas this wide ranging regulation tackles include clearing, derivatives, as well as automated trading. It also seeks to introduce on a Europe wide basis the removal of commissions for retail products similar to that being introduced on a UK only basis with the FSA’s Retail Distribution Review. These significant changes in regulation and the differing speeds of implementation mean that Europe will continue to be a complex regulatory arena for many years yet, despite the Commissions efforts to bring all constituent to the same level. We will see how this develops over the coming months with key votes due over the summer, with a final vote in September.
If you work for a large corporation, it is highly likely that you will carry both a corporate mobile device (often it seems, despite recent problems, this will be a Blackberry) and a personal smartphone (an iPhone or Samsung Galaxy II seem to be popular choices in the UK). The corporate device needs to be secure and reliable with often some of the less secure device features, such as the camera or ability to play music/video or download apps, being disabled – often the very features that attract people to their personal device. However, some firms are exploring the ability for people to use their own personal devices to access corporate networks and data. For example, a number of recent clients I have worked with, allow me to connect one of my PCs to their corporate network for email and file access, so long as I use the software and security token they provide. This improves mobility and connectivity and from my experience works well. It also means that firms can avoid buying staff or consultants laptops that all too often (I am told) go walkabout complete with their confidential data on trains or in pubs. It is a win in terms of flexibility, cost and security.
So, should firms take the next step and allow smaller personal mobile devices, with their myriad of operating systems and apps, to connect to the corporate network? Well, some firms have already decided it is and are doing this, with software firms such as Citrix keen to promote solutions that allow it to be done securely. Citrix point to their survey evidence that there is strong demand from both users and firms for this type of BYOD flexibility – if the security concerns can be addressed. On the other hand, there is also evidence of a backlash from people who are keen to retain the divide between work and personal life and the flexibility to simply switch off the corporate Blackberry at weekends or holidays. Despite this, it does seem likely that there will be an increased blurring of work and personal mobile usage which may drive us towards a single device.
We can often become obsessed – okay, I can often become obsessed – with the contradictions of financial regulation and then assume they are somehow unique. I was, however, reminded the other day that finance does not have a monopoly on regulatory confusion. It starts with the question, what is the difference between a cake and a biscuit (or cookie for our US readership)? This is not simply some pub quiz speciality with little or no relevance to the business world. The relevance is that there is a different Value Added Tax (VAT) treatment between a biscuit and a cake in the UK. We have talked about the impact of inconsistent VAT or sales tax treatment for financial services in previous bulletins, most recently its impact across Europe for commission sharing agreements that was covered recently in our companion bulletin. Also the UK investment sector is currently struggling to understand the VAT impact on the advice charges being introduced as a result of the Retail Distribution Review given the less than totally clear guidance from HMRC, the UK tax authority.
However, the financial sector is not the only special cake, sorry, case. In 2008 as the BBC reported the UK Treasury faced a £3.5m bill, because the European Court of Justice ruled the UK tax authorities had wrongly imposed VAT on a supermarket teacake, for some twenty years. The sums of money involved may not be as large as in Financial Sector, but the complexity of the situations created by regulations with multiple exceptions certainly get close.
Over recent months we have become used to every new solution to a financial sector issue including the key elements of cloud, social media and mobile. Regular readers will remember our analysis on financial sector clouds and will be well aware of many of the growing uses of social media. However, we are now seeing a change in the mobile aspect of this fashionable troika with the move from the use of smartphones to the ubiquitous adoption of the tablet touch based computer. As with the adoption of the cloud, the widespread use of tablets started in the consumer space as successfully pioneered by the iPad and the late Steve Jobs. Even non-Apple fans must admit that the iPad does a very slick job of delivering entertainment and personal functionality in an attractive format, but just as the iPhone has not taken over the corporate smartphone world, is the iPad up to serious corporate business use? Well if you scan the iTunes app store, then undoubtedly there are a larger number of iPad business apps available. However, many of these can be categorised as document or media browsers providing a convenient way to find and view public domain/web available content on the tablet. This is probably the case as the use of retail targeted devices for corporate presents challenges for the user, business and technology alike, as there are multiple operating systems, formats and also that retail users are less willing to pay for heavyweight business necessary features such as strong security.
So it was with interest that I saw this month the announcement from ConvergEx that it has made its order management system, the Eze OMS accessible through an iPad. To do this, they have had to employ specific software techniques to overcome security issues with this retail device e.g. automatically wiping sensitive data. They say, firms will be able to control how often these automated data wipes occur and will also have the ability to remotely disable users. Other more device oriented approaches are also emerging for example the Cisco Cius tablet which provides an enhanced Android operating system based device with support for full business strength security, connectivity and supportability coupled with built in Cisco industry standard video, webex and collaboration/social media functionality. Having had a “hands on” demo of this device recently it is impressive and it has all the features and pedigree to succeed, but as other tablet platforms (e.g. HP) have found, the application providers and user take up will be key to its success.
Whether it is on a TV advert, a finance company website or in the small print on a bank’s brochure we have all seen, but potentially not read, the warnings and disclaimers that sensible regulators mandate. For more traditional media, even websites, this makes sense but when you look at channels such as text and twitter with their restrictions on message size these warnings are difficult, if not impossible, to incorporate. The FSA has spotted this potential issue recently e.g. in the mortgage market. So what is the FSA’s solution – ban the use of Twitter for any financial product? This gives rise to an image of King Canute sitting on the beach commanding the waves to stop coming in on the tide. There are some things you can regulate and some things you just need to get used to.
I am a fan of BBC Radio 4 and was listening to their morning news and current affairs programme as I drove to the office the other day. One of the items was by an anthropologist, Joris Luyendijk, working for the Guardian who had been doing a study of UK financial services. It makes interesting listening about the different tribes in the City and to hear more, you can find the original programme on the BBC iPlayer (the particular article starts around 2 hours and 45 minutes in) or a short version on AudioBoo. One particular comment he made struck me as being absolutely spot on: to paraphrase him slightly, he said “banking is diverse, so no one, silver regulatory bullet will work”. If politicians don’t want to listen to “the Bankers” then maybe they should listen to the anthropologist.
The results of the MPI Europe survey of directors and staff in financial institutions on the usage and trends in commission management in 2011 have been published today. Following an even greater response than the previous year, with more than 50 firms contributing, the overall view was that growth of Commission Sharing Agreements (CSA) continues to accelerate and they now are taking on a more strategic, global role. CSAs continue to fulfil a clear market function and their efficient management by firms contributes to the overall effectiveness of their investment process.
In addition, the MPI survey found that:
- 83 % of Asset Managers believe that market usage of CSA’s will increase over the next 12 months.
- 53 % of European respondents indicated that they had 25 or more CSA agreements already in place.
- 67% of Brokers believe greater market standardisation of CSA agreements would have a “significant impact” on their investment process – underlining the need for many brokers to accommodate differing types of agreement and data interfaces.
This shows that the appetite for leading firms to make the most of CSAs as a way of improving the effectiveness of their investment process continues to grow, in spite of, or possibly because of, the current market conditions. To maximise these gains, leading firms are moving away from manual or restrictive processes and looking to increase automation and also to support and leverage global CSA relationships.
Importance of global agreements
Over half of all respondents indicated there would be a material effect if they could operate a global CSA effectively. It was not clear from the responses whether issues with global agreements were due to system, organisational or external market factors, however at MPI, we have seen the number of global clients we work with in this area increase over recent years – providing further evidence of this trend. We have frequently been involved where an institution has been looking to put global CSA business and systems processes in place that also allow them to provide a level of customisation to local requirements.
You can also find more background information on commission sharing/unbundling arrangements on our website at http://www.mpi-europe.com/newmarketmodel.asp
MPI surveyed a range of financial sector firms to understand the key trends, challenges and opportunities in the use of commission sharing agreements. The survey was conducted during a 5 week period in July/August 2011 and gained responses from over 50 asset managers, brokers and research providers.
There is almost universal agreement, given the recent financial crisis, that banking and indeed banking regulation needs to change. However, the other clear message from the financial crisis is that the role banks play is vital to our economic prospects and the need, to use a medical analogy, to keep the patient awake and working, even during surgery. Taking the medical theme further, it is not necessarily advisable to put the patient through every medical procedure at the same time. This concept, known as absorbability by change professionals, looks to assess and control the amount of change to be undertaken within an organisation so that “business as usual” can continue alongside the implementation of the change. So how is banking doing on this absorbability scale?
To assess this, I carried out the following exercise. By setting out the key regulations that will impact UK/European financial services organisations over the next few years, I was able to very quickly fill a page with the names and abbreviations of the major regulatory initiatives that we have mentioned in this bulletin over recent months (e.g. RDR, MiFID 2, Basel III) and also a few new ones (e.g. PRIPS, FATCA). Then I added organisational changes, such as the splitting of the UK regulator the FSA and the anticipated ICB/Vickers proposals, and then the various market, technology and economic challenges. Lastly, I drew out the connections between the items whether they represented new challenges, complexities or indeed solutions. It did not take long for a spider’s web of interrelationships to emerge. Not only did this reaffirm the MPI strategy of concentrating our efforts in these areas, but also that the banking sector must be very near, if not already over, the maximum amount of interlinked change that it can safely absorb.
Before I get accused of going soft on banks, it is worth remembering that having a healthy, self-supporting banking sector is not just an abstract concept, but is essential if the taxpayers who are currently propping up several major banks are to get our money back. So, the suggestion would be to limit additional change and, for example, allow more time for the implementation of new regulatory regimes – it is a time for prioritisation and judgement rather than retribution.