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UK inflation rate shock - Industry roundup: 22 March

UK inflation rate sees shock rise

The UK Consumer Prices Index (CPI) released today shows that inflation surprisingly rose by 10.4% in the 12 months to February. This was up from 10.1% in January and well above analyst expectations of 9.9%. The country’s current era of high inflation peaked at 11.1% in October, with the figure slightly reducing each following month until the February figure. 

The most significant upward contributions to the monthly change in the inflation rate came from restaurants and cafes, food, and clothing. The annual inflation rate for restaurants and hotels was 12.1% in February, up from 10.8% in January, and the highest rate since the constructed historical estimate of 12.1% in July 1991. The upward pressure came from price increases for alcohol served in restaurants, cafes and pubs.

Food and non-alcoholic beverage prices rose 18.2% year-on-year, up from 16.8% in January. This is the highest observed rate in the category for over 45 years. The most considerable upward effect came from vegetables. The UK’s Office for National Statistics (ONS) cited media reports of shortages of salad produce and other vegetables, reportedly because of bad weather in southern Europe and Africa, and the impact of higher electricity prices on produce grown out of season in greenhouses in the UK and northern Europe. 

Grant Fitzner, Chief Economist for the ONS, told the BBC's Today programme that what experts “hadn't been expecting” was “an increase in the price of alcohol in pubs and restaurants in February after some discounting” in January. But he added that the longer-term outlook for the UK was “not quite so bleak”, with expectations that falling energy prices would ease inflation this summer.

William Marsters, Senior Sales Trader at Saxo UK, commented: “This surprise will disappoint markets who were hoping to see restrictive policy bringing inflation down. Rishi Sunak and the UK government will also be left wanting, as halving inflation this year remains one of their key targets. As a result, the pound has gained this morning as traders assess this means a rate hike from the BoE [Bank of England] tomorrow is now more likely.”


HSBC Asset Management launches Euro ESG MMF

HSBC Asset Management (HSBC AM) has launched its latest ESG money market fund (MMF), the HSBC Euro ESG Liquidity Fund.

The new fund follows the bank’s Sterling ESG Liquidity and US Dollar ESG Liquidity funds – launched in October 2021 and October 2022 – which have grown to over £1.94bn and US$735m assets under management (AUM), respectively.

The HSBC Euro ESG Liquidity Fund will invest in a portfolio of issuers that have an A1, P1 or F1 rating or long-term equivalent. To address ESG risks HSBC AM’s ESG scoring system and relative ESG filters will be applied that are appropriate for the money market investable universe. The fund enables institutional investors – including large corporates, pension funds, insurers and others – to focus their cash investments on a solution aligned to their sustainability objectives.

The bank says that issuer engagement is a critical component of the fund’s approach, including a client change-orientated engagement programme. HSBC AM will encourage issuers to address identified shortcomings in how they manage ESG risks. This ensures that companies know that their ESG performance is factored into decisions on whether their short-term debt issuance is eligible for purchase by the fund. Doing so aims to increase the focus on better management of ESG risks and achieve more sustainable outcomes.

The climate change-orientated engagement programme will focus on the emissions trajectory of bank issuers. It will advocate for their participation in the Net Zero Banking Alliance and urge them to improve the quality and availability of their scope 3 carbon data. The reasoning behind this approach is that any improvement HSBC AM can achieve will ultimately enhance the assessment of climate risk on portfolios.

“The fund has resonated strongly with investors seeking to align their cash investment activity with their organisation’s overall sustainability objectives,” said Jonathan Curry, Global Liquidity CIO, HSBC AM. “By expanding the currencies we offer, we can reach a more diverse group of global investors and enable them to invest in issuers that better manage ESG risks. Through our investment influence, we anticipate issuers of short-term debt will improve their ESG practices.”

HSBC AM currently manages liquidity assets in 11 global currencies and, at the end of December 2022, had US$146bn in liquidity strategies.


62% of UK asset managers still using fax machines - Calastone

Calastone has released its Global Funds Automation Report, revealing that manual processes and antiquated technology like fax machines remain the backbone of many asset managers’ operations, despite the industry’s desire to transform.

UK asset managers who are not embracing technology are being held back from achieving their priorities (including enhanced customer service and profitability) and are at serious risk of losing out to the competition.

The research reveals a stark gap in the perception of automation:

  • Just 41% of UK asset managers believe their organisation to be mostly or fully automated, with 62% admitting to still using fax machines, revealing that many manual areas of the transaction chain require attention as they can create unnecessary costs and increase risk for the industry.
  • The continued use of legacy technology and inefficient and costly manual processes contradicts the priorities of UK asset managers, who identified client service (80%), operational cost reduction (75%), and regulation (53%) as the key drivers of their automation strategies.
  • The UK’s highest technology priorities to help deliver automation included using digital forms (49%) and business processes and workplace management (45%), highlighting the industry’s understanding of the value in automating simple but time-consuming tasks in the name of efficiency.

These technologies, however, only scratch the surface regarding what is available to help asset managers in their digital transformation programs. In contrast to the UK, Singaporean asset management firms cited more advanced technologies, including DLT (46%) and machine learning & AI (54%), as most important in their automation strategies.

In this new era of frictionless fund management, automation, immediacy, and personalisation will be at the forefront of the investor experience. The inefficiencies associated with manual processes will not be acceptable to many – especially with a new generation of tech-first investors entering the space. Many technologies are available for fund firms to leverage; it will be critical for all market participants to utilise the entire array of technologies to achieve a full digital transformation and for the UK asset management industry to stay competitive.


Mastercard acquires Baffin Bay Networks, promises AI ‘cyber shield’

Mastercard has acquired cloud-based cybersecurity company Baffin Bay Networks to help businesses better deal with the increasingly challenging nature of cyberattacks.

Baffin Bay Networks, based in Sweden, adds to Mastercard’s multi-layered approach to cybersecurity and helps to stop attacks while mitigating exposure to risk across the ecosystem. The acquisition should strengthen Mastercard’s broader service offerings and value beyond the payment transaction.

Today’s increasingly digital world has delivered greater convenience and increased opportunities for people, businesses and governments. At the same time, it has exposed the need to strengthen protection against criminals who exploit this technology through malware, ransomware and distributed denial of service (DDOS) attacks. For example, in 2022 alone, DDoS attacks rose by 22%.

To counter these threats, Mastercard will integrate its solutions into a single cyber service available to all its customers worldwide. Its existing RiskRecon data analytics enables organisations to identify vulnerabilities in advance. Baffin Bay’s automated Threat Protection service will help to stop attackers from penetrating or taking down cyber systems.

“The addition of Baffin Bay Network’s instantaneous, predictive and cloud-based AI technology to our existing analytical capabilities will deliver a leading, singular cyber solution,” said Ajay Bhalla, president of Cyber and Intelligence at Mastercard. “This will enable us to provide our customers across the world with faster, smarter and more effective protection from cyber risk.”

Baffin Bay Networks’ cloud-based solution uses the latest AI technology to filter and counteract malicious internet traffic automatically. It has a track record of mitigating or preventing costly and potentially catastrophic breach cyber events.


NatWest deal with OneID brings digital ID service to businesses

NatWest Group has signed a deal with identity service provider OneID to help make its new Customer Attribute Sharing service available to businesses as an embedded digital ID solution. Use cases for the solution include e-document signing and digital onboarding.

Through the bank’s APIs, Customer Attribute Sharing enables customers to consent to businesses accessing bank-held data that will help speed up their online experiences – for example, when signing up for new services or buying goods online. It lets customers digitally verify their details when buying age-restricted services, such as car hire.

Customers can also grant permission for businesses to be instantly notified when they update their details, such as their address, to help ensure their delivery details are kept up to date. This can reduce the need for customers to fill in lengthy online forms or scan and upload documents, helping them save time and reducing the risk of manual error.

For businesses, Customer Attribute Sharing can speed up and streamline the online experiences they offer their customers. It can also help reduce the risk of fraud by making it easier to verify that customers are who they claim to be.

The bank says that one e-signature provider using the service has already reduced its document signing process from 5 minutes to 45 seconds, thanks to the speedier customer journey enabled by the solution.

“We recognise that our customers are spending more time on digital platforms and so we’re focusing on embedding our services in our customers’ daily lives,” commented Claire Melling, Head of Bank of APIs at NatWest Group. “Moreover, as a trusted institution, we have a key role to play in the emerging concept of digital identity. Our new Customer Attribute Sharing service will provide our customers with a safe, secure and convenient way to verify their identity online, while enabling businesses to speed up and streamline customers’ online experiences.”


Almost half of Singapore’s SMEs are optimistic about business growth this year

According to DBS’ annual SME Pulse Check survey, almost half of SMEs in Singapore are optimistic about their growth prospects for 2023 (49%). Over 60% cited first-time overseas expansion and exploring additional new markets as key business priorities, compared to 75% who ranked these as the lowest priority last year. The business owners continued to place a high priority on ensuring consistent cash flow and managing costs. They were most concerned about rising global interest rates, labour costs and availability, and inflation.

With the persistent challenging business environment, ‘ensuring consistent cash flow and managing cost’ (62%) remained the SMEs’ top business priority. Exploring additional new markets for their businesses (33%) and first-time overseas expansion (31%) were ranked next, encouraged by the reopening of borders along with support from government schemes such as the enhanced Enterprise Financing Scheme announced at Budget 2023. This was followed by ‘hiring, retaining and upskilling manpower’ (29%), sustainability and greening their businesses (25%) and digital transformation and innovating new business models (21%).

A majority of SMEs polled (58%) ranked a ‘trusted and reliable banking partner with a long track record of supporting businesses’, as the most important to growth. Only 1% of SMEs preferred a ‘purely digital banking partner’. The banking partner’s presence and infrastructure were ranked most important (42%) for SMEs’ expansion into new markets.

The SMEs ranked ‘rising global interest rates’ (50%) and ‘labour costs and availability’ (43%) as their top concerns, followed by ‘inflation’ (36%), GST hike (26%) and ‘supply chain disruptions’ (25%).

The main challenge in building a sustainable or green business is the return on sustainability (35%), followed by 27% and 19% who cited ‘cost of deployment’ and ‘lack of government incentives/ funding’, respectively. 16% of the SMEs said they did not know how to start building a sustainable/ green business, and only a small number do not intend to build a sustainable/ green business (4%).

DBS ran its regular SME Pulse Check Survey with 116 SMEs across a broad spectrum of industries to better understand the needs and concerns of the SME community.


Large-value payment system EURO1 successfully migrates to ISO 20022

EBA Clearing has announced that its systemically important payment system EURO1 has successfully migrated to ISO 20022. The changeover to ISO 20022 was executed in cooperation with the EURO1 community and EBA Clearing's technology partner Swift, in alignment with the Eurosystem’s T2/T2S Consolidation project.

The EURO1 migration is part of an ongoing industry-wide shift towards ISO 20022, which will have far-reaching benefits for the payments industry. These include greater interoperability between various payment systems and increased transaction processing efficiency and fraud detection. EURO1 participants can offer services to their corporate clients, which will benefit from better structured and faster information and reconciliation, greater transparency and more payer-to-payee information.

This move also completes the implementation of the EURO1 future positioning programme, which EBA Clearing started to develop and implement with its service users in 2017. Aside from introducing the data-rich ISO 20022 standard for EURO1, EBA Clearing now provides its service users with extended system opening hours and central monitoring and steering capabilities for their payment and liquidity flows across the different payment services operated by the Company. The future positioning programme also ensures full alignment of EURO1 with TARGET, which allows the continued possibility to switch payment flows between the two systems and enables EURO1 users to rely on the system as a non-similar backup for T2 RTGS.

“The ISO 20022 migration concludes an important chapter in the success story of EURO1 and opens the door to a wide range of new opportunities that our users can leverage for their customers,” said Jette Bennett, Team Leader EURO1/STEP1 Services, EBA Clearing. “A big thank-you goes to our EURO1 participants for their great guidance, efforts and commitment throughout this journey as well as to Swift for their relentless support as critical service provider for EURO1.”


Standard Chartered sees a future in London

Standard Chartered says it has demonstrated its continued commitment to the City of London, having agreed on a long-term reversionary lease on its global headquarters at 1 Basinghall Avenue, EC2V 5DD.

As part of the lease restructure, the landlord, Zeno Capital and Asset Managers, Oxygen, will work in partnership with the FTSE-listed global bank to undertake a complete refurbishment project to deliver enhanced employee amenities and wellbeing facilities alongside new office technology. The building upgrade project will begin this year, with the bank saying the works will be completed by 2026. 

“The planned refurbishment will create an energising, inspiring and modern workplace that aligns with our hybrid working model and encourages seamless collaboration and communication, benefitting our clients and employees,” commented Andy Halford, Group Chief Financial Officer, Standard Chartered.

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