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Industry roundup: 24 September

European FIs say it may take over a decade to complete open banking objectives

Research from open banking platform Tink has revealed that in spite of growing positivity, the complete implementation of open banking will take financial institutions many years to realise.

The survey of 308 executives across 12 countries found that four in ten (40%) believe it will take their institution between 5-10 years to realise its open banking objectives, and a further 37% believe it could take over a decade. These cautious timescales reflect the size of the task at hand, with many organisations embarking on complex, large-scale open banking transformation projects that will take several years to realise. 

Of those surveyed, executives in Spain (37%), Italy (34%), and France (32%) were most optimistic about their open banking timescales - predicting their institutions’ objectives can be completed in under five years. This reflects a more limited scope for open banking strategies in these markets, focusing on short term compliance-based use cases rather than larger scale open banking transformation projects.  

Meanwhile, with the UK a trailblazer for the open banking movement, it is unsurprising that its executives are positive about the completion of their open banking objectives, with over one in four (28%) expecting their institution to deliver on its objectives in under five years. 

When examined across sectors in Europe, challenger banks and wealth management firms are most bullish when it comes to timescales, as 75% and 74% respectively believe their institutions’ open banking objectives can be achieved in under a decade. At the more cautious end of the scale, only 55% of mortgage providers, 56% of credit providers, and 57% of payment service providers believe they can reach open banking maturity within a decade.  

 

FX investors continue adopting digital tools to optimise trade performance

While many foreign exchange (FX) traders turned away from their screens and picked up the telephone to get trades executed during the COVID-19 crisis, FX markets continued their march toward electronification as investors focused on optimising performance on FX trades with order management systems, algorithmic trading strategies and other new tools, according to research from Coalition Greenwich.

As the global pandemic roiled markets last year, the share of FX market participants using the telephone to execute trades jumped to nearly two-thirds, from just 45% in 2019. Despite this uptick in voice trading, the share of FX trading volume executed electronically continued to rise, climbing to 73% in 2020 from 71% in 2019.

"Although the rate of growth for e-trading has slowed in recent years, electronification will continue because digital innovation is helping the buy side and corporates improve execution quality and manage their operational risk," says Stephen Bruel, senior analyst for Coalition Greenwich Market Structure & Technology and author of 'FX Markets Keep an Eye on E-Trading while Expanding their Focus'.

The sell side has every reason to continue pushing for digital innovation in FX. Coalition Greenwich estimates dealer FX revenue in 2020 at US$37.3bn, which represents a healthy 42% rise over the US$26.2bn earned in 2019. Despite this performance, regulatory pressures are compelling banks to increase their attention on the economics of all their businesses, including FX. At the same time, electronic capabilities are a competitive imperative, ranking third behind only voice execution/pricing and sales coverage and relationship management in terms of importance to buy-side market participants.

More than half of market participants in a recent Coalition Greenwich study plan to increase their use of algorithmic trading, and, as trade execution becomes more sophisticated, market participants are applying equal rigour to some of the key elements of the FX lifecycle that surround matching and execution - such as credit management, regulatory reporting, workflow, and collateral management. Buy-side market participants in particular are working to optimise performance, minimise risk and wring out costs through automation initiatives spanning the trading cycle from front to back.

 

Shareholders making an impact on corporate ESG decisions

As You Sow has released its '2021 Shareholder Impact Review: Changing Corporations for Good', summarising its 2021 proxy season engagements. The report provides details of As You Sow’s 188 corporate engagements with 142 companies across 12 programme areas. Each engagement is designed to assist the company avoid material risk by offering sound business solutions and progress on environmental, social, and governance (ESG) issues.

Of these engagements, 86 escalated to formal shareholder resolutions filed on behalf of 181 shareholders. Forty-five resolutions were withdrawn after companies agreed to take responsive actions. Twenty-one went to a vote, achieving share-value support of more than US$1.6 trillion and earning an average 43.3% vote - with a record five majority votes ranging from 53.5% to 98% support.

The report provides a comprehensive listing of each engagement and a summary of highlights. It includes more than 100 ongoing dialogues on a range of critical ESG issues. The five majority votes include a 98% vote at General Electric on climate change that paved the way for an agreement by the company to disclose Scope 3 emissions and reduce them 5% per year over the next decade - a commitment that will lead to global climate progress in critical issue areas such as energy and aircraft engines.

The 81% vote at Dupont on plastic pollution is the highest vote ever on an environmental resolution opposed by management - and aligns with a recently passed  federal bill, HR3684, that, among other important actions, mandates disclosure of plastic pellet spills. Other majority votes include two addressing diversity, equity, and inclusion at American Express (60%) and Union Pacific (82%) as well as a Say on Climate resolution at Booking Holdings, Inc. (56%) asking the company to adopt a Paris-compliant net zero plan and report annual progress to shareholders.

The 188 engagements addressed the following issue areas: 81 on climate change; 46 on diversity, equity, and inclusion; 21 on ocean plastics, single use plastics and recyclability; 7 on pesticides; 6 on racial justice; 5 on political spending; 5 on antibiotics misuse and overuse in factory farming; 5 on petrochemicals; 4 on governance; 4 on PFA reduction or elimination; 3 on CEO pay and wage equity; and 1 on water use.

 

HCL Technologies and Lendico partner on business banking for SMEs

HCL Technologies (HCL) has entered a multi-year application services transformation partnership with Lendico, a brand of ING Germany, to deliver application and engineering services to help it create a digital platform that makes business banking faster and more convenient for small- and medium-sized enterprises (SMEs).

HCL will establish a tech lab in Berlin that will combine fintech mindset, agile culture and customer focus with engineering expertise, global delivery capabilities, and deep domain knowledge of financial services and risk management. Lendico will be the first to leverage the lab to bring innovative approaches for processes, such as credit decisioning, loans collections and KYC. The lab will also enable transformational technology architectures, such as API gateways and microservices. Lendico will be able to scale by rapidly onboarding new partners and bringing new services to market faster, thus enhancing customer experience.

"We want to create complete business banking solutions that enhance our position as a strong partner for SMEs on the basis of the agile mentality that enables us to innovate and scale rapidly,” said Sven Foos, managing director of Lendico and head of Business Banking at ING Germany. "HCL was the ideal partner to support our journey due to its ingrained culture of digital innovation, next-generation engineering capabilities and transformational frameworks."

"Our partnership with Lendico will become a template for fintechs looking to scale digitally by embracing a platform-based ecosystem model," added Sudip Lahiri, senior vice president and head of Financial Services, Europe at HCL Technologies. "This approach will strengthen Lendico’s ability to reach new customers and markets quickly while remaining compliant with strict industry regulation. Our fintech lab will become a hub for financial services innovation in Europe and will further strengthen HCL’s delivery capabilities for banking clients in Germany."

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