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Transformation tops CFO priorities for 2024 - Industry roundup: 26 January

Transformation tops CFO priorities for 2024

Leading digital transformation efforts in the finance function is the top area CFOs are focused on in 2024, according to a recent survey by Gartner, Inc. The survey of 185 CFOs, conducted through September and October 2023, revealed that improving finance metrics, insights and storytelling, leading change management efforts, and optimising costs were also priorities that over 70% of CFOs considered to be critical to their success.

At the same time, however, CFOs foresee considerable difficulties when modernising the finance department structure because efficiently deploying new finance technology into the function can be time-consuming and disruptive to day-to-day activities. Gartner experts advised that successful transformation efforts in finance require that the CFO actively leads technology delivery efforts rather than simply engaging and collaborating with IT departments.

Research from Gartner shows that the digital initiatives with a better-than-even chance of realising the intended benefits are those where finance leadership are focused on digital delivery: the actual creation or implementation and management of a digital system.

“The focus on transformation efforts aligns with the increased interest in GenAI and other disruptive technologies,” commented Marko Horvat, vice president, research in the Gartner Finance practice. “This also speaks to the role the CFO plays in evaluating and aligning investment in these transformative technologies, both in finance and across the enterprise.”


Sustainable bond issuance will hold steady this year 

Total sustainable bond issuance this year is likely to withstand enduring macroeconomic challenges, according to a report from Moody’s Investors Service. Moody’s project sustainable bond issuance to reach US$950bn in 2024, little changed from US$946bn in 2023 despite still-high interest rates and slowing economic growth. The forecast comprises US$580bn of green bonds, US$150bn of social bonds, US$160bn of sustainability bonds and US$60bn of sustainability-linked bonds (SLBs).

Growing policy support for green solutions including green hydrogen, biofuels, battery storage and carbon capture, utilisation and storage is fuelling growth in private and public investment. Such support can improve the cost competitiveness of these technologies, increasing the likelihood that these projects will become a growing fixture of sustainable bond frameworks.

The report also noted that continued investor focus on the robustness and achievement of sustainability performance targets and the materiality of financial adjustments has discouraged some would-be issuers from entering the market. With waning appetite for SLBs, Moody’s expects volumes to decline both in absolute terms and as a share of total sustainable bond issuance.

Despite a rise in sustainable bond issuance supporting emerging market economies, the amount of financing remains well below required volumes. As a result, other means of financing will continue to emerge. The Moody’s report cites multilateral development banks (MDBs) becoming issuers of sustainable bonds and enablers of private capital flows.

Elsewhere, application of the new European green bond standard in 2024 will be the cornerstone of the market's embrace of regulatory standards, the report finds. Disclosure requirements and reporting standardisation should also help support sustainable bond activity.

The report also shines a light on how market innovation will unlock new opportunities for long-term growth. Projects addressing natural capital, gender equity and just transition will continue to blossom this year, which will help diversify the market and bolster its long-term growth prospects. Structural innovations will start to take root, including blockchain-based sustainable bonds and use-of-proceeds instruments comprised of sustainability-linked loans.


Kantox solution to centralise FX management for global corporates

Kantox has announced the launch of In-House FX, a solution designed to allow companies to centralise the foreign exchange (FX) management and trade executions of their subsidiaries, maximising exposure netting for the group and enhancing liquidity. 

Managing the FX of various business units poses significant challenges for finance teams, often leading to high trading costs, limited visibility, and a lack of consolidated FX management. The solution uses Kantox’s Dynamic Hedging technology to seamlessly integrate the FX operations of subsidiaries with the headquarters. 

In a statement, Kantox said that subsidiaries can benefit from 24/7 internal FX transactions, currency risk is managed seamlessly, and with only one trading entity, businesses can centralise and improve bank terms.

In addition to round-the-clock liquidity, the central treasury can have complete control over subsidiaries’ hedging policy as well as internal trades, including reviewing rates and approving or rejecting internal FX transactions that exceed specified criteria. Finance teams gain full traceability from the original entry at the subsidiary level to the execution of external trades. 

Headquarters can also manage risk from internal trades by executing an external FX transaction before providing a rate and confirming the internal FX transactions (no book-holding), immediate confirmation of internal FX transactions (book-holding), or by aggregating internal FX transactions into external ones (back-to-back). Headquarters also acts as the sole trading entity, managing netting at the group level on top of subsidiary-level netting.

“The Kantox In-House FX solution allows us to centralise our FX management in the Hotelbeds Group,” commented Ignacio Ramos, Corporate Finance Director of Hotelbeds Group. “Kantox In-House FX provides internal liquidity to 22 subsidiaries, and we are able to net our exposure on a group level.”


ECB continues rate pause

The ECB’s Governing Council has decided to keep the three key ECB interest rates unchanged. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will stay at 4.50%, 4.75% and 4.00% respectively. 

In a statement, the ECB noted that incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook. Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions. Tight financing conditions are dampening demand, and this is helping to push down inflation.

The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, underlying inflation dynamics and the strength of monetary policy transmission.

“Going into the meeting, the markets were expecting approximately 145bps of cuts this year from the ECB,” commented Shane O’Neill, Head of Interest Rates at Validus Risk Management. “Following the meeting, these cuts have been pared back to 137bps and, in our opinion, this pricing is still too dovish. Though the economy is likely to have “stagnated” in the fourth quarter and demand in the labour market is beginning to wane, inflation remains above target and the ECB is resolute in its messaging – this is objective number one.”

A complicating factor in the fight against inflation is the continued geopolitical turbulence in the Middle East – particularly the issues in the Red Sea. These developments have already seen shipping costs into Europe increase dramatically, an effect which will feed through into prices and add to inflationary pressures. 

“Lagarde once again told markets that the ECB will remain data driven in its decisions, it will not want to cut rates too quickly at the risk of an inflation double header,” added O’Neill. “We can therefore expect the ECB to wait for inflation to be within touching distance of its 2% target before it begins to make meaningful adjustments to the depo rate.”


Global ransomware threat expected to rise with AI

Artificial intelligence (AI) is expected to increase the global ransomware threat over the next two years, according to ‘The near-term impact of AI on the cyber threat assessment’, published by the UK’s National Cyber Security Centre (NCSC), a part of GCHQ. The report concludes that AI is already being used in malicious cyber activity and will almost certainly increase the volume and impact of cyber attacks – including ransomware – in the near term.

Among other conclusions, the report suggests that by lowering the barrier of entry to novice cybercriminals, hackers-for-hire and hacktivists, AI enables relatively unskilled threat actors to carry out more effective access and information-gathering operations. This enhanced access, combined with the improved targeting of victims afforded by AI, will contribute to the global ransomware threat in the next two years.

Ransomware continues to be the most acute cyber threat facing UK organisations and businesses, with cyber criminals adapting their business models to gain efficiencies and maximise profits. According to the National Crime Agency, it is unlikely that in 2024 another method of cyber crime will replace ransomware due to the financial rewards and its established business model.

“Ransomware continues to be a national security threat,” said James Babbage, Director General for Threats at the National Crime Agency. “As this report shows, the threat is likely to increase in the coming years due to advancements in AI and the exploitation of this technology by cybercriminals.”


US GDP for Q4 beats expectations

Real gross domestic product (GDP) in the US increased at an annual rate of 3.3% in the fourth quarter of 2023, according to the ‘advance’ estimate released by the Bureau of Economic Analysis. While down from Q3’s 4.9% growth, this figure was higher than the 2.0% consensus prediction and the 2.4% estimated by the Atlanta Fed GDPNow forecast.

The increase in real GDP reflected increases in consumer spending, exports, state and local government spending, nonresidential fixed investment, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The increase in consumer spending reflected increases in both services and goods. Within services, the leading contributors were food services and accommodations as well as health care. Within goods, the leading contributors to the increase were other nondurable goods (led by pharmaceutical products) and recreational goods and vehicles (led by computer software). 

Within exports, both goods (led by petroleum) and services (led by financial services) increased. The increase in state and local government spending primarily reflected increases in compensation of state and local government employees and investment in structures. The increase in nonresidential fixed investment reflected increases in intellectual property products, structures, and equipment. 

Within federal government spending, the increase was led by non-defence spending. Wholesale trade industries led the increase in inventory investment. Within residential fixed investment, the increase reflected a rise in new residential structures that was partly offset by a decrease in brokers' commissions. Within imports, the increase primarily reflected an increase in services (led by travel).

“Looking at what this means for growth and monetary policy over the coming quarters: during the most recent Federal Open Market Committee (FOMC) meeting policy setters amended their forward guidance, with three 25 basis point rate cuts now expected during 2024,” noted Nathaniel Casey, Investment Strategist at wealth manager Evelyn Partners. “This coupled with falling inflation has proved positive for fixed income markets with the US 10-year treasury bond falling by nearly 1% since it’s its peak of around 5% in October.

“With yields falling, financial conditions can ease, supporting the economy. Consumer sentiment has also been improving recently, returning in January to its highest levels since June 2021, and providing a further boost to consumption and reducing the likelihood of an economic hard landing.”


Mastercard and The Clearing House extend real-time payments partnership

Mastercard and The Clearing House (TCH) have announced an extended multi-year partnership, bringing the companies together to collaborate on innovative capabilities for consumers, businesses and governments to evolve and embrace the digital economy through real-time payments (RTP) adoption on the RTP network. The partnership continues Mastercard’s role as the exclusive instant payments software provider for TCH’s RTP network, enabling both companies to integrate new instant payment use cases across a range of payment flows.

Instant payments became a reality in the US in 2017 when The Clearing House launched the RTP network, the first new payment rail in 40 years designed and powered by Mastercard. For consumers, RTP provides instant access and confidence that a payment is received, 24/7. For businesses, RTP enhances value by simplifying payments for customers, enabling faster wage disbursements, improving liquidity management, and optimising capital workflows, and for governments, it helps activate local economies through disbursement and settlement.

Today, real-time payments offer speed of payment, extensive data exchange, real-time messaging, and 24/7/365 availability. Mastercard and The Clearing House continue to support, invest, and develop real-time account-to-account technologies that enable the transmission of rich payment and non-payment data both in the US for the RTP network and around the world. 


Worldline and Commerzbank eye instant payments in Switzerland

Worldline is further expanding its partnership with Commerzbank, enabling the bank to offer its customers in Austria, France, Italy, the Netherlands, Spain and the UK the sending and receiving of real-time transfers in euros. It is also possible to process instant payments in Switzerland in Swiss francs. Instant payments are processed via the scalable Payments Back-Office processing platform from Worldline that was previously integrated into Commerzbank's banking systems.

The strategic trigger for the introduction of instant payments in Swiss francs is a decision by the Swiss National Bank (SNB) in June 2021, according to which the acceptance of such payments will become mandatory for financial institutions. From August 2024, the largest banks in Switzerland, including Commerzbank, must be able to process instant payments. In line with the forthcoming regulation on instant payments in the EU, the remaining Swiss banks will follow by 2026.

Worldline has a network-independent solution that is used as a SWIFT Service Bureau. Commerzbank will also use the existing solution to connect to the new SIC 5 system for Swiss Instant Payment Clearing.


House of Lords appoints new Financial Services Regulation Committee

The UK’s House of Lords has appointed members to its new select committee on Financial Services Regulation. Lord Forsyth of Drumlean will chair the committee. Its members are:

  • Baroness Bowles of Berkhamsted.
  • Baroness Donaghy.
  • Lord Eatwell.
  • Lord Grabiner.
  • Lord Hill of Oareford.
  • Lord Hollick.
  • Lord Kestenbaum.
  • Lord Lilley.
  • Baroness Noakes.
  • Lord Sharkey.
  • Lord Smith of Kelvin.
  • Lord Vaux of Harrowden.

The creation of the committee follows the passing of the Financial Services and Markets Act 2023 (FSMA 2023) which repealed retained EU law for financial services and established a new framework for the regulation of financial services in the United Kingdom.

“The financial services sector is an essential part of the UK economy and effective regulation is a key component in securing growth and competitiveness,” said Lord Forsyth of Drumlean. “This is a highly experienced Committee which will bring increased scrutiny and accountability to regulators. In common with all Lords Committees, its work will be evidence-based and thematic.”

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