Financial losses from climate risk may be underestimated by 80%

The financial risk of climate damages to physical assets may be underestimated by over 80%, finds research conducted by Professor Irene Monasterolo, and her co-authors from Vienna University of Economics and Business (WU), Utrecht University (USE), the University of Venice and the University of Zurich. The research also introduces a novel approach to assess better the risk of climate change on firms and investors. 

The research finds that financial losses are underestimated by up to 70% when analyses do not consider geolocation and climate risk and by up to 82% when tail risks are overlooked. These profound discrepancies show the need to mainstream asset-level data in climate risk assessment and climate stress tests. This allows for avoiding a large underestimation of losses and quantifying the investment needs for adaptation, which in turn helps to design effective policies and investments to adapt to climate change.

“Our findings demonstrate the severe consequences of neglecting asset-level climate risk assessments,” the researchers write. “This methodology empowers policymakers, investors, and stakeholders to make informed decisions that enhance resilience to climate change,” said Professor Monasterolo.

The researchers translated climate risks into economic and financial losses, applying this approach to Mexico, a country already largely affected by climate change, relevant to FDI, integrated into regional and international value chains, and a significant recipient of climate adaptation finance. The paper was published in Nature Communications.

 

Six consecutive months of growth for more than half of UK sectors

Eight out of 14 UK sectors saw output grow in June, according to the latest data from the Lloyds Bank UK Sector Tracker. While this was three fewer than in May (11) when the Tracker reported a 15-month high as the economy moved back into growth mode, June was the first time since 2022 that more than half of UK sectors had been growing for six months in a row.    

In addition, eight sectors saw demand, as measured by new orders, rise – just one fewer than in May (nine). However, food and drink manufacturing saw demand increase at the fastest pace of any sector monitored (60.3 vs. 52.3), driven by higher customer numbers. A reading on the Tracker above 50.0 indicates expansion, while a reading below 50.0 indicates contraction. 

In June, manufacturing output (53.3 vs. 53.4 in May) grew faster than services (52.1 vs. 52.9) for the second month, with the most significant lead over services since January 2021. Similar to May, growth in manufacturing was once again driven by food and drink producers. 

Notably, three out of the seven monitored manufacturing sectors – metals and mining (59.1), chemicals (53.1) and food and drink (52.4) – also reported a rise in employment, the most since November 2023.  

Meanwhile, the Tracker’s ratio of manufacturers’ new orders to finished goods reached a 30-month high (1.13 times the long-run average), indicating that firms had more orders than they could meet with what they already had in stock.  

“The Tracker’s data suggests that manufacturers are now benefitting from a mix of growing demand and rising output which, if utilised well, will be crucial to maintaining growth going forward,” said Dave Atkinson, UK Head of Manufacturing, SME & Mid-Corporates, Lloyds Bank. “Key to this will be effectively managing working capital alongside the availability of cash or finance to make any investments they need to support the growth – whether that’s to hire new staff, increase volumes of raw materials or additional plant within their factories.” 

 

“Low-touch” equity trading desks fight through growing pains

Brokers are battling shrinking commissions, staffing shortages and other growing pains as they rush to keep pace with the rapid expansion of e-trading in US equities. As the volume of electronic equities trading grows, a significant proportion of U.S. “low-touch” trading desks are planning to expand their teams over the next 12-18 months.

About a third of the US sell-side electronic equities professionals taking part in a recent study by Coalition Greenwich are looking to beef up their algo sales and desk coverage, while a quarter are seeking to boost their execution and analytics consulting, on-desk trading assistant, and trade operations or algo support roles. Other brokers said they would consider hiring if they could find the right candidate, and half the study participants named short-staffing a significant issue for their desks.

“In addition to staffing issues, low-touch traders are still grappling with zero commissions, tightening regulatory requirements, and other challenges,” says Jesse Forster, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of ‘U.S. Equity Electronic Trading: The Broker View 2024’.

Many sell-side desks are looking to expand desk capacity by outsourcing trading-related functions. More than three-quarters of respondents route some of their electronic client flow through third-party platforms, with about half relying on them for at least 80% of their flow.

Brokers already rely heavily on external providers for critical technology needs. For example, algo customisation is a key differentiator for many brokers, with nearly half citing it as their selling point. However, only 22% of brokers keep all their algo tech stacks in-house. 

“Integration issues are a major pain point for electronic sales traders, who are seeking to connect with external trading technology providers and ensure seamless workflows,” added Forster. “For bank-based traders, the challenge is compounded by internal compliance demands.”

Looking ahead, brokers see the potential for artificial intelligence to alleviate some of the pressure from understaffed desks. Desks could ultimately replace some traders with AI, but as one study participant noted, “We’re not there yet.”

 

Everything OK, CHAPS? UK RTGS service hits a snag

The Bank of England has acknowledged that, on Thursday, July 18th, a global payments issue affected the bank’s real-time gross settlement (RTGS) CHAPS service and delayed some high-value and time-sensitive payments, including some house purchases.

The BoE worked closely with a third-party supplier, industry, and other authorities to resolve the issue as promptly as possible. Later in the day, it was able to confirm that the third-party supplier had restored service following the earlier issues and that CHAPS payments were once more settling as normal. In a statement, the bank noted that it expected all payments received on Thursday to be settled by the end of the day.

Retail payment systems were unaffected, so people and businesses could still use cash points, card payments, and bank transfers as normal.

 

HKMA names stablecoin issuer sandbox participants

The Hong Kong Monetary Authority (HKMA) has announced the list of participants in the stablecoin issuer sandbox.  The following institutions (in alphabetical order of their names) will participate in the sandbox:

• JINGDONG Coinlink Technology Hong Kong Limited;
• RD InnoTech Limited; and
• Standard Chartered Bank (Hong Kong) Limited, Animoca Brands Limited, Hong Kong Telecommunications (HKT) Limited.

During the assessment process, these institutions demonstrated genuine interest in developing a stablecoin issuance business in Hong Kong with a reasonable business plan and that their proposed operations under the sandbox arrangement would be conducted within a limited scope and in a risk-controllable manner.

The sandbox, launched in March 2024, is part of the HKMA’s efforts in facilitating the sustainable and responsible development of stablecoin ecosystem in Hong Kong.  Through the sandbox, the HKMA allows institutions with plans to issue stablecoin in Hong Kong to conduct testing on their operational plans, and also facilitates the two-way communication on the proposed regulatory requirements, with a view to formulating fit-for-purpose and risk-based regulatory regime.

Sandbox participants are expected to comply with the sandbox requirements. HKMA notes that participants will not handle the general public’s funds at the initial stage, and will not solicit funding from the public or offer any products associated with the sandbox.  The central bank urged members of the public to stay vigilant to potential scams purporting to be related to the sandbox. The HKMA will make a separate announcement in case sandbox participants are allowed to handle the general public’s funds within a limited scope due to adjustments to the testing scope.

 

RMB overtakes the euro as a trade finance currency

Swift’s RMB Tracker has shown that in June 2024, the RMB remained the fourth most active currency for global payments by value, with a share of 4.61%. Overall, RMB payment value decreased by 0.22% compared to May, while all payment currencies decreased by 3.23%. Regarding international payments, excluding payments within the Eurozone, the RMB ranked fifth with a share of 3.23% in June.

The tracker uses data from live and delivered MT 103 and MT 202 - customer-initiated and institutional payments - and ISO equivalent messages exchanged on Swift. RMB’s fourth place out of all international currencies in June saw it behind the US dollar (47.08% of all global payments value), the euro (22.72%), and the British pound (7.08%).

As a global currency in the trade finance market, based on live and delivered inter-group only MT 400 and MT 700 messages exchanged on SWIFT, RMB ranked second based on value, accounting for 5.99% of June’s trade finance transactions. While this field remains dominated by the US dollar (83.16%), the RMB did move ahead of the euro in June (5.92%).

Regarding FX spot transactions, RMB was June’s sixth most used currency for FX confirmations, falling back below the Canadian dollar in the month. The US dollar claimed the top spot, followed by the euro, pound and yen. In terms of the top economies carrying out FX spot transactions in RMB, the UK came out on top in June (39.26%), followed by the US (15.10%), Hong Kong (12.53%), France (7.95%) and China (7.42%).

 

Komgo digitalises operational management at Gunvor’s OBSI facility

Komgo’s Konsole platform is being used to upgrade Gunvor’s syndicated facility for the issuance of guarantees, digitalising the operational management of its facility, and aiming to enhance coordination and efficiency for both Gunvor and Société Générale Paris, acting as facility agent.

Gunvor is one of the world’s largest independent commodities trading houses by turnover. As a pivotal player in the energy trading sector, it operates an uncommitted syndicated facility to handle the issuance of off-balance sheet instruments (OBSI) related to its trading activities. This facility includes a large number of participants and is operated via six fronting banks, coordinated by Société Générale Paris acting as facility agent. As such, the facility demands intricate coordination among all participants and constant supervision by the facility agent to accommodate the needs of business.

Gunvor has partnered with Komgo to equip the facility with a solution designed to streamline and enhance operational efficiency. The Konsole platform was introduced to capture all OBSI instruments issued by Gunvor via the fronting banks, channel requests and issuance validations to facilitate the monitoring of the facility utilisation.

With Konsole, the facility agent gained the capability to oversee line utilisation and transactions in real-time, ensuring stringent control over the lines. The platform’s ability to export extensive data sets rapidly further supports quicker reporting for the participants pool, reducing the time and effort involved by the facility agent.

 

9Spokes introduces automated cash flow tool for financial organisations’ clients

Global data platform 9Spokes has launched a cash flow forecasting product designed for integration within financial organisations' digital platforms. This offering provides small and medium-sized businesses (SMBs) with automated, predictive cash flow management and forecasting capabilities.

A recent study by PYMNTS highlighted that 70% of SMBs operate with less than four months of cash reserves, with 60% spending upwards of five hours weekly managing multiple cash flow tools. 9Spokes’ Cashflow product aims to simplify this task and also align with global trends towards open banking and open data. It is designed to provide SMBs with a comprehensive view of their financial standings across multiple bank accounts and various providers.

The tool leverages machine-learning algorithms to pull historical cash balance data automatically. It aggregates data from multiple sources, including cash balance history and forecasts from various bank accounts - even those held across different financial institutions - giving SMBs a complete view of their current and future cash flow.

 

Westpac brings mobile credit cards to corporate customers

Westpac is launching Dynamic Virtual Cards for institutional, corporate and government customers. The cards aim to enable fast and secure ‘tap and go’ payments, providing users with greater control. They can be used online and in-store via digital wallet tap-and-go transactions.

Customers can generate Dynamic Virtual Cards through Westpac’s integrated expense centre platform. Once generated, end users receive encrypted instructions inviting them to download an app, enabling the virtual card to be added to the digital wallet on their eligible device.

“Administrators can now generate virtual cards while their people are on the go, removing the need to issue physical cards or cash while enabling control and transparency of spending,” said Jeff Byrne, Managing Director, Global Transaction Services Westpac Institution Bank. “Organisations using these cards will be able to tailor parameters for each card in the way they see fit, including by choosing who can use the card, where the card can be used, how much can be spent, how often it can be used and for how long.”

 

Wolves hunt down FX partner

Premier League club Wolverhampton Wanderers FC has appointed Neo, the cross-border payments and foreign exchange (FX) fintech, as its official foreign currency exchange partner.

Neo will handle the club’s FX and multi-currency transfer payments and aim to save on its currency FX transaction costs. This move represents Neo’s entry into the world of sports business. 

Foreign currency transactions can be particularly challenging for football clubs at the highest level. They are often required to make cross-border payments to pay for the likes of players, staff, travel and events and receive funds from broadcasters, investors, other clubs and sponsors. 

Neo offers an international bank account number (IBAN) through which businesses can send and receive payments in over 20 currencies. It also provides FX execution, enabling firms to buy and sell any of these currencies with transparent pricing. Neo’s wallet architecture is designed to make it easy for firms to organise their funds and store multiple currencies, ready for making rapid payments or exchanging currencies, revolutionising the way they transact. 

 

FIS launches trade matching solution for the UK securities finance market

Global financial technology firm FIS has launched an automated matching and execution platform for securities finance trades in the UK. The Securities Finance Matching Platform uses automated matching technology to facilitate straight-through processing of securities finance trades. The cloud-native solution seeks to bolster resilience by providing a new route to market that is designed to mitigate single-point-of-failure risk.

With increasing volumes and tightening margins in the securities finance market, higher levels of automation are crucial for lenders and borrowers of all sizes, who are looking to drive down costs and increase efficiency. The FIS platform aims to address these challenges by swiftly, accurately, and securely delivering the most economic match. 

The automated solution identifies the best-match scenario by automating the evaluation of multiple factors involved in securities trading including fee or rebate rate, capital requirements, transaction and reporting costs, as well as counter-party trading patterns. These enhanced capabilities seek to help customers to achieve the greatest possible depth and liquidity in the market, all while enhancing risk management by mitigating single-point-of-failure risk.

 

Temenos and Visa team up on money movement solutions for banks 

Temenos has announced a collaboration with Visa to integrate Visa Direct, a money movement solution, with Temenos Payments Hub. This will be made available to banks via Temenos Exchange, an ecosystem of partner solutions.

The Visa Direct network lets financial institutions move money to billions of endpoints in over 190 markets and 160 currencies with real-time cross-border and domestic payment solutions. Leveraging Visa Direct, banks can facilitate various use cases for cross-border payments: from person-to-person (P2P) payments, funds disbursements, bill payments to final beneficiaries.

Through the integration, Temenos customers will be able to incorporate Visa Direct’s payment capabilities and consolidate them with other payment services on the Temenos platform. This integration aims to efficiently connect multiple payment sources and channels with various clearing and distribution networks and services.