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Industry roundup: 21 July

Deutsche Bank’s Corporate Bank onboards digital employee for client-facing role

Deutsche Bank has announced the onboarding of a new digital employee, named Blue Bot ‘Yi’ within its Corporate Bank division in China. Undertaking a client-facing role, the employee bot is responsible for handling financial reports including real-time customised transaction reports and cash pooling reports, and for processing direct client enquiries, which the bank says has already been successfully done for two of its clients in China.

Named after its creator Zhu Yi, head of China Innovation and Fintech Products at the bank, Blue Bot ‘Yi’ is the Corporate Bank’s first digital employee with a client-facing role. It has been allocated an employee number and has a dedicated working email address.

Developed within Deutsche Bank’s Blue Water Fintech Space in Shanghai, Blue Bot ‘Yi’ performs its duties based on robotic process automation (RPA) combined with semantic recognition and AI technology to automatically complete the collection and distribution of customised information.

The first digital worker is still receiving new training to be further enhanced after being integrated with Deutsche Bank’s API and other artificial intelligence capabilities. The bank says that its scope of work and capabilities have gone far beyond the basic concept of RPA. It hopes that this digital breakthrough will help to achieve higher efficiency while reducing costs.

 

Wolters Kluwer whitepaper explores potential COVID-19 hedge accounting implications 

A flexible approach to hedge accounting portfolio, particularly in light of the COVID-19 pandemic, is important according to a white paper from Wolters Kluwer’s Finance, Risk & Regulatory Reporting (FRR) business.

Hedge accounting is a way to align risk exposure with true economic and financial exposure. Hedge accounting ensures that an income statement reflects steps taken to mitigate risk in a loan portfolio. It achieves this by adjusting accounting figures to neutralise the portion of the realised or potential profit or loss that a bank has protected with a hedge.

According to the white paper, the pandemic will certainly have a significant impact on hedge accounting. Companies frequently turn to cash flow hedges to offset transactions that have highly predictable outcomes. The use of hedge accounting can also be affected when the contractual terms of an underlying financial instrument are changed. A bank might apply fair-value hedge accounting to term deposits with conditions that include significant penalties for early withdrawals, for instance. If the bank no longer applies these penalties during the pandemic, then the hedging relationship practically dissolves as the term deposit turns into a demand deposit and there is no longer a fair-value exposure to hedge.

Another effect of COVID-19 might occur if an increase in a borrower’s credit risk reduces the effectiveness of a hedge. If a hedged asset becomes impaired, then the hedging relationship will end if the hedge can no longer be deemed effective.

Hedge accounting requirements and best practices evolve in line with market trends and are often complemented by amendments to accounting standards. There is, for example, the way in which money market rates and spreads behave and the impact of the overall interbank offered rates (IBOR) reform for financial institutions to consider. Equally important are the economic consequences of the COVID-19 pandemic, currently being addressed by government relief measures, which can impact the behaviour of financial institutions and their counterparties. This, in turn, alters the measurement of instruments and projection of cash flows, affecting hedging and hedge accounting. A great deal of flexibility is therefore required to align hedging and hedge accounting with the new economic realities, the white paper notes.

 

Candidates for testing central bank digital currency integration announced by Banque de France

Banque de France has announced the overview of candidates for its experiments with central bank digital currency (CBDC). The lessons learned from these experiments will constitute a direct contribution to the more global reflection conducted by the Eurosystem on the benefits of a CBDC. 

Following the examination of the applications received on 15 May 2020 in response to the call for applications for experiments in interbank settlements launched by the Banque de France, the following eight companies were selected:

  • Accenture.
  • Euroclear.
  • HSBC.
  • Iznes.
  • LiquidShare.
  • ProsperUS.
  • SEBA Bank.
  • Société Générale.

The experiments proposed by the successful candidates will allow (i) to explore new methods of exchanging financial instruments against central bank money, (ii) to test the regulation in central bank digital money in order to improve the conditions of execution of cross-border payments and (iii) revisit the methods of making central bank money available. In due course, Banque de France will start to collaborate with each of the eight candidates in order to carry out the pilot projects over the coming months.

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