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JP Morgan considers new locations due to blackout concerns – Industry roundup: 7 September

JP Morgan evaluates shifting its operations from Germany to London due to blackout concerns

JPMorgan Chase & Co. has developed plans to move operations from Germany to London as major financial institutions anticipate potential blackouts in the eurozone. Other major financial institutions have also prepared emergency action steps following the cut off from Russian gas supply. Compounding the energy crisis in Europe, the vital Nord Stream 1 gas pipeline has been closed. Russia cited sanctions as the cause, and it is currently unclear whether the pipeline will be reopened anytime soon.

Finance companies are urged to brace for the worst as a result of the market turmoil, which has already seen wholesale gas prices soar, stocks plummet and the euro fall below US $0.99.

Years ago, as a result of the Brexit vote, JP Morgan reportedly transitioned billions of dollars' worth of assets from London to Frankfurt. Now, however, the bank is looking into several options for weathering the current storm, with shifting a portion of operations back to the UK as a potential measure.

New cybersecurity regulations for New York financial firms prompt a national shift

The New York Department of Financial Services (NYDFS) introduced new amendments last month in order to strengthen its cybersecurity requirements for financial institutions with state headquarters, potentially tightening regulations for all US banks.

New York has reportedly taken the lead in establishing cybersecurity rules and guidelines for financial institutions even as far back as 2015. Additionally, the NYDFS is said to have played a pivotal role in establishing cybersecurity regulations and guidelines in 2017.

The cybersecurity landscape has changed over the last five years, and the amendments indicate that the NYDFS is still looking towards optimizing cybersecurity practices. The most recent NYDFS proposals have reportedly raised the bar for senior leaders, increased technology requirements, expanded the list of events that must be reported within 72 hours, added a new 24-hour ransom payment reporting requirement and a 30-day submission deadline for defences, entailed significant new requirements for business continuity and disaster recovery, and raised the bar for annual certification and assessment requirements.

The revised regulations would create a new class of larger entities subject to stricter requirements for their cybersecurity initiatives. Additionally, the cybersecurity program now includes non-public data to be kept on those information systems. This substantial expansion of covered data is expected to have a significant impact on reporting and certification requirements in the future.

The following are some of the major clauses of the NYDFS amendments:

  • More rigorous notification obligations
  • Higher standards for larger “Class A” companies
  • Expanded obligations on company governing bodies
  • Greater requirements for operational resilience and incident response
  • Improved technology and policy requirements
  • Additional requirements for risk assessments, impact assessments
  • Clear enforcement considerations

Qatar instructs local banks to halt foreign currency swap transactions

Qatar's central bank (QCB) has reportedly instructed banks in the Gulf state not to exchange currency or swap deals with organizations outside of the nation without prior approval. According to reports, bankers state that this move is intended to end Qatar’s riyal depreciation against the dollar. The Qatari riyal, which has been officially pegged to the dollar since 2001, has reportedly been quoted below its value in the offshore market since mid-2017.

The QCB also stated that it is not taking any steps to restrict banks' ability to conduct swap transactions with counterparties. Those decisions are left to the commercial and risk management judgment of the banks.

Reports indicate that Qatar's central bank foreign reserves and hard currency liquidity increased by 3.8% in the last two years to 211.3 billion riyals in July 2022, up from 203.6 billion riyals in 2020. According to a Gulf economist, the fact that the Qatari riyal is still not trading at the peg undermines their reasoning, as Qatar is reportedly receiving more dollar revenue than it has before. Furthermore, with Qatar hosting the upcoming World Cup in November 2022, investors expect the riyals to be in much higher demand on international markets than usual.

Binance to discontinue support for USDC, the second largest stablecoin

Binance, the third-largest stablecoin issuer, announced that it will transfer customers' holdings in three rival stablecoins, USD Coin (USDC), Pax Dollar (USDP) and True USD (TUSD), into its own stablecoin (BUSD) on 29 September to improve liquidity and capital efficiency for users, a move that has many investors perplexed. In addition, the world's largest cryptocurrency exchange is planning to discontinue spot, future and margin trading with USDC, USDP and TUSD pairs.

According to Binance, users will still be able to withdraw money in USDC, USDP and TUSD at a 1:1 ratio to their BUSD-denominated account balance. USDC, issued by Circle, a US $9 billion firm backed by BlackRock, Fidelity, FTX and Accel, is the second-largest stablecoin with a market cap of more than $50 billion. CoinMarketCap data reported that the stablecoin is used in transactions worth more than $5.5 billion per day. Currently, the Binance stablecoin, BUSD, is said to have a market capitalization of $19.3 billion. According to CoinMarketCap, its daily volume trades increased by more than 56% to more than $6.5 billion.

A Circle spokesperson commented that while optimizing dollar liquidity on the biggest exchange in the world may have advantages, the paradigm does raise potential market conduct concerns. Based on market activity, it appears that much of this transition has already passed, Circle added.

Pan-African bank Carbon emerges into a full-service financial institution via Mambu’s solutions

Carbon Finance, a Pan-African micro-finance bank, has extended its partnership with Mambu, a Berlin-based software company, in order to expand its financial services offering and accelerate its growth. The agreement is said to enable Carbon Finance to offer a full range of banking products and services, as well as launch Carbon Zero, a new buy now, pay later (BNPL) product.

Carbon, which was founded in 2012, has reportedly been a steadfast Mambu client. It began as a lending platform in Nigeria and then received a banking license in 2020, launching a rapid transformation into a full-service, customer-centric bank. Furthermore, Carbon reportedly developed daily banking services and e-wallets using Mambu's API-enabled composable technology through partner integrations. Today, the bank is said to offer no-fee accounts, quick loans, funds transfers at no cost, savings and investments, as well as the ability to make payments for airtime and bills more easily.

Reports indicate that Carbon chose Mambu’s cloud-native banking platform for its scalability and flexibility to disburse loans immediately, assisting them in developing market credibility. The ability to innovate quickly and introduce new products and features are said to be some of the benefits. Additionally, in response to rising consumer demand for split payment options, the bank launched its new BNPL product Carbon Zero to assist customers in obtaining products and services in sectors such as healthcare, finance, travel and wellness.

Standard Chartered launches digital banking in Indonesia

Standard Chartered Bank, a London-based global banking and financial services group, and Bukalapak, an Indonesian e-commerce firm, have partnered to launch a digital banking platform in Indonesia called BukaTabungan, which is said to offer a paperless onboarding process for opening accounts rapidly.

Reports indicate that BukaTabungan combines Bukalapak's all-commerce platform with Standard Chartered’s banking-as-a-service (BaaS) technology solution, nexus. Additionally, Bukalapak, which reportedly has a marketplace that serves 6.8 million online merchants, is expected to advance their digital banking efforts as well expand financial inclusion to the country's underbanked population through this collaboration.

BukaTabungan uses automation and security technologies that include biometric facial recognition, artificial intelligence and E-KTP (Indonesia's biometrics-enabled ID program) validation when opening an account. Additionally, users of BukaTabungan can reportedly also take advantage of a number of promotional offers until the end of October 2022.

Victor Lesmana, President, Commerce & Fintech, Bukalapak, commented that the citizens of Indonesia, through BukaTabungan, can now expect to have access to sophisticated digital banking services in an efficient and secure manner. Business owners can also obtain financial services to support their operations from reputable financial institutions, supporting the growth of MSMEs in Indonesia while also expanding financial inclusion across the country.

KPMG to establish an embedded financial hub in Singapore

KPMG, a global network that provides audit, tax and advisory services, has established an embedded finance hub in Singapore to assist companies expanding into financial markets such as payments, blockchain and lending. The hub, the first of its kind in Singapore, is expected to operate for a minimum of two years and offer support for more than 120 financial and non-financial enterprises vying to enter the embedded finance market.

According to KPMG, participants can expect to receive support for venture acceleration and best practices from its financial services professionals. Additionally, start-ups can test their developments at the hub and receive feedback from other participants.

Reports indicate that the hub will try to encourage cooperation between participants in the non-finance sector and the financial services sector as they test services and provide access to APIs that can be incorporated into external channels and applications. Anton Ruddenklau, Partner and Global Head of Innovation for Financial Services, KPMG International, commented that the next stage of the fintech disruption is advancing much further than open banking into embedded finance. This is expected to create new opportunities for developing financial services businesses and partnering with corporations on new embedded finance initiatives.

Ernst & Young to devise strategy to split the firm

Ernst & Young (EY), a global organization headquartered in London with a workforce of over 300,000 in more than 150 countries providing audit, consulting and financial advisory services, has announced a plan to divide the Big Four giant into two separate companies. The proposal is expected to be approved by the committee later this week, prompting a vote among EY's 13,000 partners, according to reports.

Amazon, Apple, Alphabet, Coca-Cola and General Motors are among the companies that EY currently audits. Reports indicate that the division of the firm's core businesses would enable the consulting practice to pursue rewarding opportunities that are presently constrained by EY's existing audit partnerships.

According to the Financial Times, EY is projected to have generated more than US $45 billion in revenue at its annual financial reporting meeting later this year. The proposed transaction would split 60% of the revenue base to create a new consulting company, while the remaining 40% would continue to audit businesses under the EY brand. The consulting firm plans to raise approximately $10 billion by selling a 15% stake in the public markets later next year, and it expects to borrow approximately $17 billion.

The deal, dubbed "Project Everest" within the firm, is said to benefit EY partners in both its consulting and audit businesses. According to reports, the average partners within the audit practice in the US and UK could potentially earn substantially large payouts from the split, depending on stock multiples. Partners in the newly formed consultancy expect to receive shares in a separate company worth approximately seven to nine times their annual compensation.

Once the company's executive committee has finalized the proposed split, partners in those offices will vote on the proposal between the end of this year and early 2023. At this time, negotiations with the US Securities and Exchange Commission and other international regulators are expected to commence.

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