Corporate treasurers evaluate spend on security systems as fraud rises

Corporates and banks face ongoing need for protection against fraud, with 73% having been impacted in the past year, according to Bottomline and Strategic Treasurer’s 2023 Treasury Fraud & Controls Survey. On a more positive note, over half (53%) indicate they are in a better position to battle fraud than last year. 

The survey demonstrates year over year the top fraud attempts on businesses come from business email compromise (BEC) and social engineering. This year, respondents indicated that payment diversions also contributed to fraud attempts.

A significant portion of respondents indicated that the reliance on remote work increased their risk of fraud, with 64% pointing towards BEC, 39% to data theft and 38% to external fraud. At the same time, 41% of companies indicate that their requirements for security have grown. Still, only three out of seven firms run financial impact analyses where they evaluate the costs of fraud and the benefits of adding security.

“Poor protection of the custody of sensitive payment files across a company’s network remains a massive exposure,” warned Craig Jeffery, Managing Partner and Chief Researcher at Strategic Treasurer. “Only 38% of companies maintain a full audit trail of payment files across their network. Often, these files are unencrypted and un-hashed, exposing them to easy compromise and redirection of payments.”

As we move through 2023, the spend on security is expected to remain strong, with 30% of companies spending more on fraud prevention, detection and controls than in previous years. The use of network visualisation and analytics to help investigate financial crimes is still a developing technology. Banks are leading the charge in this investment, with most banks (55%) considering this, while only 11% of corporates are doing the same. The survey also indicates that centralised fraud investigation groups are becoming standard practice, further buoyed by plans to use artificial intelligence (AI) and machine learning (ML) to fight sophisticated payments fraud.

“We have seen banks and corporates embrace the need for widespread security system adoption across the ecosystem over the last few years,” said Omri Kletter, Global VP of Product Strategy, Cyber Fraud and Risk Management at Bottomline. “This year, the survey indicates treasurers are actively engaged and making a significant effort to implement fraud detection and prevention controls. This is encouraging given the growing concerns of internal and external threat levels organisations are experiencing.” 

 

Lloyds Bank and Enigio launch trade digitisation partnership

Lloyds Bank and Enigio have launched a long-term partnership to support greater use of digital documentation in trade finance through the use of blockchain technology. 

Through the partnership, Lloyds Bank and Enigio will look to widen the application of Enigio’s trace:original solution for digital original documents including promissory notes, bills of exchange and bills of lading. It will also explore opportunities to feature trace:original documents within wider trade finance products, such as documentary collections and credits. 

By removing the need to transfer documentation within trade transactions physically, Lloyds Bank aims to deliver faster, more affordable, flexible, sustainable and secure digital trade solutions for clients.

Enigio’s solution is designed to enable the creation of digital documents that can be ‘possessed’ by an individual, transferred between parties and originals can be distinguished from copies, just like paper-based counterparts. This means digital documents can be used in processes where an ‘original’ document is required. Unlike other digital trade solutions that require all parties to subscribe to digital platforms, this solution only requires the party creating the document to be an Enigio user. 

Lloyds Bank’s work with Enigio is part of its ongoing digital strategy and paperless trade initiative. It follows its successful completion in August 2022 of the UK’s first transaction utilising a digital promissory note purchase. 

This pilot transaction, the first under the International Trade and Forfaiting Association’s (ITFA) Digital Negotiable Instrument Initiative (DNI), saw the sale and purchase of land worth £48m completed between several UK businesses within a single day. The underlying promissory note was issued using trace:original. 

In February 2023, Lloyds Bank also shared its learnings and experience in electronic payment undertakings (ePUs) under the DNI initiative to help fintech group Mercore complete the UK’s first digital bill of exchange transaction, which was also executed through trace:original.  

“Existing industry-wide trade solutions are, comparably, much slower, more cumbersome and more environmentally intensive than their digital counterparts, involving upwards of 28 billion pieces of paper, globally every year,” noted Gwynne Master, Managing Director, Lending and Working Capital at Lloyds Bank. “Digitisation makes processes faster, cheaper and more secure. We support the adoption of digital trade documents and look forward to collaborating widely with our clients and partner banks to support their continued uptake.”

 

UBS executes first cross-border intraday repo trade with Broadridge 

Broadridge Financial Solutions has announced that UBS and a global Asian bank have successfully executed the first cross-border intraday repo transaction on Broadridge’s blockchain enabled Distributed Ledger Repo (DLR) platform. This intraday trade marks the launch of the next phase in the rollout of Broadridge’s DLR platform.

The platform's global expansion across both sell-side and buy-side firms enables a network effect of increased benefits and additional transaction types. This platform provides a utility where market participants can agree, execute, and settle repo transactions, providing flexible settlement cycles based on counterparts’ needs. Broadridge says that the DLT Repo platform significantly increases settlement velocity and collateral mobility, thus making intraday possible. The platform also reduces the operating cost and risk of all repo activity, including well as overnight and term repos.

“Intraday repo is a valuable tool to manage our liquidity usage and provides flexibility in our funding capabilities with reduced operational risk,” said Beatriz Martin, Group Treasurer at UBS. “This accomplishment builds on the foundation we have established as an early adopter of the Distributed Ledger platform.”

 

Institutional investors embrace ESG bonds 

Institutional fixed-income investors around the world plan to increase allocations to ESG bonds in the next two years. More than 90% of the global fixed-income investors participating in a study from Coalition Greenwich plan to expand allocations to ESG-labeled bonds. That result points to strong demand from the buy side for sustainability-linked and use-of-proceeds bonds like green bonds and social bonds.

“The fact that institutional investors are almost unanimous in their embrace of ESG-labelled bonds should provide a boost of confidence to the organisations and firms working to build out the infrastructure for sustainable investments,” said Stephen Bruel, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of The Continued Maturation of Fixed-Income ESG Investing.

However, even institutions planning to expand allocations to ESG-labelled bonds are not entirely convinced that the market today is fully ready to support the demand. More than 60% of institutions participating in the study believe liquidity in ESG-labelled bonds sometimes falls short of what’s needed, including a quarter of the investors who describe liquidity in these products as “insufficient.”

“Although concerns about liquidity remain, the entrance of new investors and the maturation of the market structure should alleviate these worries over time,” added Bruel, who noted that ESG-labelled bonds are hardly alone when it comes to recent liquidity issues. Over the past year, high-yield, municipal and other bond sub-segments have experienced their own liquidity challenges.

Institutions are increasing allocations to ESG-labelled bonds for two main reasons: to align with their own corporate values, and in response to pressure from stakeholders. However, almost half of respondents in the study say they are investing in these products for the performance.

 

European consumer inflation expectations further declined in February

The latest edition of the ECB Consumer Expectations Survey results, for February 2023, found that consumer inflation expectations had declined further. The median rate of perceived inflation over the previous 12 months fell to 8.7% in February 2023, from 9.5% in January. Median expectations for inflation over the next 12 months continued to decline, moving down from 4.9% in January to 4.6%. Expectations for inflation three years ahead edged down from 2.5% to 2.4%. Inflation expectations remained well below the perceived past inflation rate, particularly at the horizon of three years. Uncertainty about inflation expectations 12 months ahead was unchanged, remaining broadly in line with the elevated levels observed since March 2022. Inflation perceptions and expectations were closely aligned across income groups, but younger respondents (aged 18-34) continued to report lower inflation perceptions and expectations than older respondents (aged 55-70).

Consumers expected their nominal income to grow by 1.2% over the next 12 months, down from 1.3% in January. The small decline reflects the lower expectations of consumers in households with median or below-median incomes. Perceptions of nominal spending growth over the previous 12 months rose to 6.6%, from 6.3% in January. Expectations for nominal spending growth over the next 12 months rose slightly to 3.9%, from 3.8% in January. This slight increase was mainly driven by older respondents (aged 55-70).

While still pointing to a contraction, economic growth expectations for the next 12 months continued to increase, rising to -0.9% from -1.2% in January 2023. In line with the higher expectations for economic growth, expectations for the unemployment rate 12 months ahead declined to 11.5%, compared with 11.6% in January. Consumers continued to expect the future unemployment rate to be higher than the perceived current unemployment rate (11.1%). The lowest income quintile reported the highest expected and perceived unemployment rates.

The survey found consumers expected growth in the price of their home over the next 12 months to increase slightly to 2.6%, compared with 2.5% in January. This increase mainly reflects higher expectations of respondents below the age of 55, while older respondents expected a further deceleration in the growth of the price of their home. Expectations for mortgage interest rates 12 months ahead rose slightly to 5.0%, standing 1.7 percentage points above the expectations recorded at the start of 2022. At the same time, perceived access to credit over the previous 12 months and expectations for access to credit over the next 12 months both improved slightly compared with January. 

 

SEB and Crédit Agricole release blockchain-based digital bond platform 

SEB and Crédit Agricole CIB are jointly launching so|bond, a “sustainable and open” platform for digital bonds built on blockchain technology. Through the platform, issuers in capital markets will be able to issue digital bonds onto a blockchain network, aiming at improving efficiency and enabling real-time data synchronisation across participants. The blockchain network uses a validation protocol, Proof of Climate awaReness, that encourages participants to minimise their environmental footprint.

The pair say that blockchain technology has the potential to modernise and digitalise the banking and financial services sectors through decentralised and efficient infrastructure. The so|bond platform will enable issuers to raise capital and manage securities through smart contracts. These programs automatically execute, control or document events and actions according to the terms of the contract. The platform’s open, transparent and secure model also fosters trust between market participants and allows further innovations such as using a future central bank digital currency.

One of the main barriers to the widespread adoption of blockchain technology is that it is often considered as a high energy consuming solution. Although “Proof of Stake” protocols use significantly less energy than those that use “Proof of Work”, there is scope for further improvement. The so|bond platform is built on a new type of blockchain validation logic, the Proof of Climate awaReness protocol. It enables an energy consumption comparable to non-blockchain systems and incentivises participating nodes to improve their infrastructures' environmental footprint continually. Specifically, each node will be remunerated for its efforts according to a formula linked to its climate impact evaluated with the Life Cycle Assessment ISO standard: the lower the environmental footprint, the larger the reward.

The platform and the blockchain technology were developed in collaboration with the IT provider Finaxys. The environmental footprint is measured according to a methodology developed by APL Data Center and applied by SGS, a certification expert. so|bond is the first use case of this new blockchain technology operating under the Proof of Climate awaReness protocol in global capital markets.