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Interest rate meetings delayed due to Queen Elizabeth II – Industry roundup: 9 September

The United Kingdom enters mourning for Queen Elizabeth II, delaying interest rate meetings

Buckingham Palace announced yesterday that Queen Elizabeth II, the United Kingdom’s longest reigning monarch, died peacefully at Balmoral Castle at the age of 96. Condolences and tributes have poured out from around the world, paying respect to a leader frequently described as steadfast and gracious, while the UK enters an official period of mourning.

The Bank of England was expected to meet next week for a new interest rate decision, with most economists expecting a rise of 50-75 basis points. In light of the royal mourning, however, the Bank of England stated today that the decision has been delayed to September 22nd.

EU forms an energy alliance to combat the crisis

EU energy ministers are expected to engage in an emergency meeting in Brussels today to discuss a slew of proposals to combat the crisis collectively. EU countries have reportedly agreed to reduce Russian oil imports and reliance on Russian gas. Back in April, the commission established joint gas purchasing capabilities and planned what was expected to be adequate energy storage for this upcoming winter, according to reports.

Proposed measures include:

  1. Required targets to reduce peak-hour electricity use.
  2. Limiting the revenues of companies that generate electricity using less expensive methods than gas, such as nuclear or renewables, and utilize the windfall profit to assist struggling consumers and businesses.
  3. Capping revenue of oil and gas companies that yield from high prices. Rather, the companies are to utilize the windfall gains to assist low-income households and to invest in renewable energy sources.
  4. Assisting utility companies in remaining solvent in the face of market volatility.
  5. Limiting Russian gas prices.

However, reports indicate that EU leaders are not in consensus regarding the priorities or energy plans. Germany, for example, is said to be hesitant on capping Russian gas prices, while Poland desires a price limit on all non-EU gas sources. Other difficult issues include whether or not the gas and electricity markets should be decoupled and how to ensure consumer’s understanding of the long-term need to change habits and consume less energy, even if governments intervene to keep prices low.

UK businesses to receive provisional energy relief, but concerns about zero-carbon persist

Business enterprises in the UK expect to have some financial relief to limit the impact of soaring energy bills on their businesses. However, the assistance is temporary with a six-month review, according to a research firm. Given the possibility that the energy crisis may last three years or longer, many businesses are requesting longer-term stability.

Energy prices and input price inflation are still the top two concerns for businesses in the coming months, according to the reports publicized by the Office of National Statistics. More than a fifth of businesses are said to be subject to market fluctuations, paying variable electricity rates, with 10% stating their fixed or hedged contracts will expire by the year end, resulting in about a third of business being exposed to the significant price increases of electricity. Approximately one in seven businesses are reportedly dealing with variable rates for gas prices.

Even with these most recent aid measures, reports indicate that it will be difficult for businesses to weather the coming economic storm. Although energy concerns and high business costs may be at the top of the list of financial pain for businesses, reports show that there are still many other issues that need to be resolved. More than a fifth (21%) of companies report disruption in the supply chain, and more than a third (36%) continue to experience issues with staffing shortages. These are reportedly contributing to the price spiral because higher wages are being offered to recruit employees and customers are paying for rising input costs.

Although the Prime Minister has reportedly reaffirmed support for the UK's 2050 net zero goal and is said to have plans to accelerate the deployment of clean technologies, it was noted that the UK will continue to stay committed to a defined and realizable carbon transition path. Increasing home energy efficiency, in particular, is a critical long-term solution to rising energy costs, according to reports.

The Reserve Bank of India and the Ministry of Finance urge companies and banks to use the rupee to boost exports

The Reserve Bank of India (RBI) and the Ministry of Finance urged banks and business organizations to promote rupee-based exports, pledging to approve applications in an expeditious manner.

Reports indicate that the initiative comes amid Russian trade conducted through alternative channels, with payments becoming a major obstacle and a significant portion of the businesses affected by sanctions. The central bank has insisted that this trade in rupees become a long-term endeavour, encouraging the internationalization of the rupee.

In order to facilitate cross-border trade using Indian currency rather than dollars or euros, the two agencies requested banks to encourage their counterparts to open unique rupee vostro accounts. A rupee vostro account maintains the foreign entity's holdings in Indian rupees in the Indian bank. The Ministry of External Affairs, the Department of Commerce, and industry associations have reportedly been tasked with raising awareness and encouraging their partners to enrol in the framework. According to reports, some nations, such as Zimbabwe, Sri Lanka and Argentina, are showing interest in settling bilateral trade in Indian currency.

According to the government and RBI, the action will lessen downward pressure on the rupee while lowering transaction costs and removing foreign exchange risk for businesses. Reports also indicate that there are fees associated with every currency conversion as well as risk associated with the exchange rate between the time the order is placed, delivered and the time the payment is received. Legislators also asserted that the action can also aid nations who are experiencing balance of payment issues.

Authorised merchants in India, according to reports, can now establish unique rupee vostro accounts with a correspondent bank from a partner country under the new arrangement. While exporters can be paid in Indian rupees from the balance in the account, payments made by Indian importers can expect to be credited into these accounts. Additionally, companies have the option to offset export receivables against imports, as well as accept bank guarantees for commercial trade transactions.

The provisions of the mutual agreement reportedly permit the use of the surplus balance for specific current or capital account transactions. Additional uses for the money in the accounts could include projects, investments and government securities investments.

Mounting fintech sector poses a crisis risk, warns US bank regulator

The rapid growth of fintech services and digital banking could potentially lead to financial risks and a crisis, warned Michael Hsu, Acting Comptroller of the Currency, a US. bank regulator. Hsu stated that the infiltration of fintech companies into the traditional financial sector, including bank partnerships, is becoming increasingly complex and creating a division across the banking sector, warranting significant awareness.

In an effort to offer a unified customer experience, banks and tech companies are collaborating in ways that make it more challenging for regulators to determine where the bank ends and the tech firm begins, according to Hsu. Bank partnerships with fintechs are growing, as valuations for fintech companies decline and financing costs rise. Hsu commented that this raises concerns about customer protection as well as IT risks related to information security and resilience.

Wise unveils SWIFT Receive through its platform, establishing six new partnerships

Wise, a financial technology firm and developer of Wise platform for banks and non-banks, has launched its new SWIFT Receive service, enabling clients from banks of all sizes to receive cross-border payments rapidly, conveniently and cost effectively, even if their financial institution is not connected to SWIFT.

Reports indicate that many neobanks are not connected to SWIFT today due to the time and resources required to connect to the system, preventing their customers from receiving money from abroad on a consistent basis. Wise's new service will reportedly simplify the process for neobanks to connect, enabling their customers to receive global payments in multiple currencies through SWIFT, using their existing account details in an efficient and secure manner.

Additionally, the technology will offer businesses that currently use SWIFT the ability to transfer to Wise's service and receive incoming SWIFT payments cost effectively and efficiently. Wise Platform's SWIFT Receive service, according to Steve Naudé, Head of Product, can reportedly benefit all banks, whether they are established institutions with a long history or newly formed neobanks. Although established banks have long been linked to SWIFT, many emerging banks find it difficult to commit the capital requirements for participation. The platform gives established banks speed and affordability, while providing neobanks with an easy way to enable customers to receive money from abroad.

The introduction of SWIFT Receive via Wise Platform, which included the formation of six new partnerships, is said to benefit companies worldwide by increasing transparency, simplicity, speed and affordability. Wise Platform is currently operational with over fifty banks and non-bank partners worldwide.

The power of fintechs to help secure SMEs in Europe from an inflationary spiral

In many nations, inflation is at levels not seen since the 1970s. Over the next 18 months, reports indicate that there will likely be a significant recession across a large portion of the world. The situation in Europe is especially dire, with many businesses and citizens experiencing rising energy prices. The supply chain crisis at the end of 2021 was a major contributor to these issues, emphasizing the importance and vulnerability of the infrastructure that supports the economies.

According to Finextra’s data, the average payment time for an invoice is two months for SMEs in Europe, which has increased by 10% in 2022. Additionally, most individuals and businesses are unable to obtain credit because of the nature of their work, pushing many into bankruptcy and exacerbating Europe's supply chain challenges. Furthermore, the movement of goods continues to stagnate, and logistics becomes cost prohibitive as inflation continues to rise further, reports added.

However, the fintech industry is said to be uniquely positioned to assist SMEs and sole proprietors in various industries. Fintechs, which enable open banking, can purportedly also develop and adapt services for Europe's SMEs in underserved sectors such as logistics. Services such as factoring can reportedly transform into a support mechanism by leveraging digitalisation and the latest AI and automation techniques to make it fully accessible to any customer. It provides SMEs with a safety net to continue operating, helps protect them against inflation, and potentially gives them access to capital for continual growth.

Reports indicate that there are a wide range of financial tools and services, particularly in the areas of insurance, leasing and loans, to assist SMEs, as simplicity and speed is essential to them.

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