Dodd-Frank dead?

BY Richard Summerfield

Since the financial crisis, banks and other financial institutions have grown accustomed in increased regulatory oversight and scrutiny. However, following calls from president Trump to overhaul the regulatory regime established under former president Obama, the US Treasury Department this week announced a wide ranging plan designed to remake the country's financial regulatory framework.

The nearly 150-page report produced by the Treasury has recommended more than 100 changes, most of which would be made through regulators rather than Congress. The most notable proposal concerned the easing of restrictions big banks now face in their trading operations, lightening the annual stress tests they must undergo and reducing the powers of the Consumer Financial Protection Bureau (CFPB) which has been has been aggressively pursuing financial institutions over their malfeasance.

Regarding the proposed changes, Treasury Secretary Steven Mnuchin said, “We were very focused on, what we can do by executive order and through regulators. We think about 80 percent of the substance in the report can be accomplished by regulatory changes, and about 20 percent by legislation."

The new plan would greatly expand the authority of the Financial Stability Oversight Council, as well as change the way global capital standards are implemented to help US banks compete with overseas rivals. Smaller banks will also stand to benefit from the new plan; those banks with less than $50bn in assets would be less constrained than their larger rivals who would be subject to greater – though reduced – regulatory oversight.

These changes, should they win approval, would be welcomed on Wall Street and by many financial institutions which have long complained that the existing regulatory framework was too overbearing. The promise of lighter capital and liquidity standards and reduced supervision has already helped boost shares of Goldman Sachs and Morgan Stanley.

Away from the US, the Treasury’s report was also critical of international standard-setting bodies including the Basel Committee on Banking Supervision and the Financial Stability Board, noting the bodies had “overlapping objectives” and displayed a lack of transparency in their deliberations.

One of the key tenets of President Trump’s election campaign was the reduction of regulatory oversight in a number of key areas, including financial services. With the publication of the Treasury’s recommendations, the beginning of the end of the Dodd-Frank Act may have begun.

News: U.S. Treasury unveils financial reforms, critics attack

Toshiba invests $3.68bn to complete troubled US nuclear project

BY Fraser Tennant

Providing a much needed injection of capital into the beleaguered US nuclear industry, Toshiba Corporation has announced its intention to pay $3.68bn toward the continued building of two nuclear power plants in the US state of Georgia.

The payment, an agreement between the Japanese conglomerate and Georgia Power (a subsidiary of energy provider Southern Company, will allow for the completion of the Vogtle project – two nuclear reactors known as Vogtle Units 3 and 4 that were originally under construction by Toshiba’s nuclear unit Westinghouse Electric Company (WEC) in 2013.

However, the future of the reactors had been thrown in doubt after WEC filed for Chapter 11 bankruptcy in March 2017 following difficulties with a number of key projects that cost the nuclear unit billions. As a result of the bankruptcy, project management of the Vogtle nuclear power plant project was assumed by Georgia Power.

"We are pleased with the positive developments with Toshiba and WEC that allow momentum to continue at the project while we transition project management from WEC to Southern Nuclear and Georgia Power," said Paul Bowers, chairman, president and chief executive of Georgia Power. "We are continuing to work with the project's co-owners to complete our full-scale schedule and cost-to-complete analysis and will work with the Georgia Public Service Commission to determine the best path forward for our customers."

In a statement, Toshiba confirmed that the agreement with Georgia Power would see payments begin in October 2017 and continue to January 2021 when the Vogtle project is scheduled to be completed. Toshiba also confirmed that it had set aside loss reserves for the payment and that this would not have an impact on earnings projections.

Struggling to say afloat financially, Toshiba has also announced its intention to sell a significant stake in its highly-regarded memory chips business – considered to be the crown jewel of its semiconductor business operations – to help cover the billions lost due to the cost overruns overseen by WEC.

Thomas A. Fanning, chairman, president and chief executive of Southern Company, concluded: "We are happy to have Toshiba's cooperation in connection with this agreement which provides a strong foundation for the future of these nuclear power plants.

News: Toshiba to pay $3.7 billion to keep building U.S. reactors

Rise of the robots

BY Richard Summerfield

Robotic process automation (RPA) and artificial intelligence (AI) are being increasing harnessed by organisations across a number of different sectors, according to a new report from PEX Network.

The report, which was produced following a survey of over 150 banking, financial services and insurance executives, sets out the key challenges, priorities and strategies for AI and RPA utilisation in 2017.

For the financial services, banking and insurance industries in particular, AI and RPA could have a truly transformative effect over the coming decade. Accordingly, it is imperative that companies embrace automation and robotics as quickly as possible.

Some companies have begun their implementation process with respect to RPA. Thirty-five percent of respondents have set about integrating RPA and are looking to expand their usage of automation where possible.

However, the firms that have invested thus far have typically only dipped their toe in the water. Around 80 percent of firms have invested less than $1m into RPA thus far. AI investment also remains on the low end of the spectrum, with 60 percent of respondents investing less than £100,000. Just 11 percent of firms have invested £1m and above.

The relative immaturity of RPA may have served as a roadblock to implementation to date. Twenty-six percent of survey respondents cited a lack of process standardisaton before RPA implementation as the main obstacle in implementing an RPA solution, 16 percent of executives cited a lack of resources to allocate to RPA implementation and 13 percent cited a lack of available budget as primary reasons that their firm had not yet implemented an RPA solution.

For those firms looking to automate their services in the future, they must begin by considering which of their processes would be suitable. Also, they must evaluate the forms of AI and FinTech technologies available to them. Fifty-seven percent of firms are considering cognitive RPA, while 53 percent are evaluating machine learning and 50 percent are exploring Big Data.

In the coming decade, technology solutions, including RPA, AI, Big Data and the blockchain, will have a transformative effect on the financial services, banking and insurance sectors. Companies would be wise to embrace these technologies early, when the price points are low and the potential returns are much higher.

Report: 2017 Benchmarking Report: The future of robotic process automation and artificial intelligence

The ‘Brexodus’ begins

BY Richard Summerfield

To date, the UK economy has been surprisingly resistant to Brexit. While in the run up to the referendum some prognosticators forecast that the economy would collapse, and others that the vote would usher in a new era of economic prosperity, with the exception of the fall in the value of sterling, and a recent decline in consumer confidence, nearly a year on from the vote the UK’s economic outlook has remained relatively calm.

One post-Brexit forecast from the pre-election days, however, is coming to pass, with the announcement this week that US financial services mega-power JP Morgan Chase is to move 1000 jobs out of the City of London, relocating them to Dublin, Frankfurt and Luxembourg as part of the firm’s Brexit contingency plans. The UK’s decision to recant from the European Union (EU) was always like to have an impact on the City, given that is the heart of the continent’s financial services sector. By withdrawing from the EU and potentially losing the all-important passporting rights, triggering Article 50 was always going to be transformative. It seems as if several different European cities will now benefit.

“We are going to use the three banks we already have in Europe as the anchors for our operations,” Daniel Pinto, JP Morgan’s head of investment banking, told Bloomberg on Wednesday. “We will have to move hundreds of people in the short term to be ready for day one, when negotiations finish, and then we will look at the longer-term numbers.”

Though JP Morgan is the first firm to solidify its plans, it will not be the only financial services firm fleeing the City. Last week, Richard Gnodde, head of European operations at Goldman Sachs, said his firm would need more people in Madrid, Milan, Paris and other EU centres. Equally, José Viñals, Standard Chartered’s new chairman, told his bank’s AGM that it would be pursuing expansion opportunities in the German city of Frankfurt. “We are looking at setting up a subsidiary in the EU to ensure we’re prepared.”

Deutsche Bank, too, has suggested it could move up to 4000 jobs out of the UK – nearly half its workforce in the country – despite previously maintaining its commitment to the City.

While there is still a great deal of confusion over the Brexit process and the UK’s future relationship with the EU, one thing is becoming very clear – financial services in a post-EU UK will never quite be the same again.

News: J.P. Morgan to Shift Up to 1,000 Jobs Out of London Ahead of Brexit

AI is now the focus for UK FinTech startups, reveals new report

BY Fraser Tennant

FinTech startups in the UK are increasingly focusing on building smarter and faster machines as well as gaining a better understanding of the potential for artificial intelligence (AI) to solve customer problems, according to a new report by PwC and Startupbootcamp.

In ‘Start-up view: a year in FinTech’, based on data from Startupbootcamp’s FinTech accelerator programme and UK FinTech deals in 2016, the report’s authors reveal a major cultural shift over the past 12 months and cite Enterprise Bot – virtual assistants that can be used by banks to improve customer service – as a good example of how AI and machine learning is being used to solve real-life customer issues.

Among its key findings, the report notes that: (i) UK-based FinTech startups made up 34 percent of all applications to Startupbootcamp in 2016 (up from 22 percent from 2015), demonstrating the constant growth of innovation and wealth of talent in the UK; (ii) nine of top 20 UK FinTech deals were completed post-EU referendum, with investment totalling $368m; and (iii) the UK’s FinTech sector has continued to progress following the EU referendum, with FinTech ‘bridges’ being built between London and China, South Korea, Singapore, India and Australia.

“Despite political, economic and financial uncertainty causing people to believe FinTech might be derailed, we have yet to see any real impact," said Francisco Lorca, managing director of Startupbootcamp FinTech London. “This year, we have seen the sector’s entrepreneurs, including the Startupbootcamp FinTech 2016 cohort, consistently proving that they have genuinely transformative ideas to offer – and that these ideas are commercially viable.”

However, despite all the entrepreneurial spirit and transformative ideas, the report does make clear that investors are less keen to focus on this area, with many saying that ‘it remains too soon to invest in smarter, faster machines'.

 “While questions remain on how big players can measure their success in FinTech, the reality is investment in innovation is now necessary for financial services companies to keep pace with competitors both within and outside their own industry," said Steve Davies, EMEA FinTech leader at PwC. “As the UK’s position in Europe post Brexit becomes clearer, startups from across the world will continue to travel here to work with international investors, partner with leading financial firms and develop under a forward thinking regulator.”

Noting that the UK is likely to remain a global FinTech centre despite Brexit, Mr Lorca concluded: “One can only imagine what will come next, but both incumbents and startups should be prepared to embrace change.”

Report: ‘The start-up view: a year in FinTech’