Operational Risk - Risk Management IT Set for Increased Spending

Financial institutions worldwide will increase spending on technology related to risk management, according to three new reports released by Chartis Research. The spending increase is, in part, attributable to financial institutions' responses to the financial crisis, regulatory changes and a desire to combat financial crime.

"Financial institutions realise they must continue to invest in strong risk management IT systems," says Peyman Mestchian, managing partner at London-based Chartis. "One of the main lessons learned from the financial crisis was that risk management systems weren't up to the job."

Chartis' research reveals the key areas in risk management IT where financial services firms will continue to invest. The three new Chartis reports, "Financial Crime Risk Management Systems 2010", "Market for Solvency II Technology 2010" and "Market Risk Technology Solutions 2010" provide in-depth discussions of these markets and forecast how and where growth in IT spending will occur. The Chartis reports also identify demand-side trends, best practices, leading software vendors and competitive landscapes. They can be downloaded at www.chartis-research.com.

"Financial Crime Risk Management Systems 2010" gives a detailed account of the increase in the occurrence and complexity of financial crime and predicts that the global recession will increase the frequency of internal fraud, security breaches and false accounting. Financial services firms, according to the report, are particularly troubled by insider fraud, because of the reputational damage it brings. The paper also discusses the proliferation of identity theft and Internet-based frauds, like phishing, which are impacting financial services firms. Accordingly, firms are devoting more resources to fighting all kinds of fraud. Chartis forecasts the global market for financial crime risk management technology will grow to $4.19 billion by 2013, at a compound annual growth rate of 15%.

"Market for Solvency II Technology 2010" forecasts that expenditure will grow to $1.67 billion by 2013 at a compound annual growth rate of 19.2%. "The rate of growth reflects the growing cost and complexity of implementing Solvency II technology projects," says Mestchian, "For example, hiring and retaining staff able to manage sophisticated Solvency II projects has become a greater cost than anticipated."

"Market Risk Technology Solutions 2010" forecasts the global spend for market risk software and technology will be $1.28 billion in 2010 growing to $1.8 billion by 2014, reflecting a compound annual growth rate of 8.9%. "The EMEA region represents most of the spend this year, however, Asia Pacific will provide most of the growth over the next five years," says Chartis' Mestchian.

Mobile phones and banks, banking transactions future trends

Futurist Dr Patrick Dixon shares some ideas and concepts. Should banks be worried? Judge for yourself.

Remittance inflows to Kenya drop because of Euro problems

Remittances from the Kenyan diaspora will maintain a downward trend as the debt crisis spreads among European nations, market analysts have said.

“There has been a significant drop in remittances from the European area in the last few months, we don’t know when the trend will reverse,” said Frida Nzilani of Sky Forex Bureau.

Europe, which accounts for 27 per cent of the total remittances from Kenyans working abroad, is reeling under the weight of huge domestic debts.

“Investment instruments like mortgages are going to be affected due to reduction in incomes and job losses”, said Mr. Karisa Yaa, treasury manager at Kenya Commercial Bank.

An earlier report by the Central Bank had indicated a decline of three per cent, but market analysts warn the trend may dive further even as most Euro zone nations adopt austerity measures to curtail spending hence shrinking growth.

“Economies already in a crisis like Greece, Spain and Britain will see taxes hiked, an issue that will prompt layoffs and salary cuts” said Mr. Chris Muiga, a trader with Kenya Commercial Bank in an interview with the Business Daily.

“The decline of Greece into her current economic woes has sent jitters across the Euro zone creating a lull in what would have been otherwise a resurgent economic growth, ” said Karisa.

Kenya has been experiencing growth in the value of remittances from the diaspora for the last five years owing to the increasing number of skilled Kenyans abroad. They were, however, hit by the last global financial crisis, a resurgent upward trend has again come under pressure from the euro zone debt crisis.

The annual aggregate figures have maintained a steady upward trend from $338 million in 2004 to $609 million in 2009 except between 2008 and 2009 when there was a lag arising from the global financial crisis.

The decrease in remittances from $611 million in 2008 down to $609 million in 2009, a three per cent decline, arose from job losses and the liquidity crisis occasioned by the subprime mortgage crisis that hit Europe and North America.

Industry players attributed the persistent long run increase in cash inflows to the increasing number of Kenyans looking for employment abroad.

Philippine remittances rise 7% to $4.34 billion in March

Remittances grew seven percent year-on-year in the first three months of the year to $4.34 billion, the central bank (Bangko Sentral ng Pilipinas (BSP)) reported today.

For the month of March, overseas Filipinos sent home $1.55 billion, up from $1.41 billion in February. It was also 5.44 percent higher compared to March 2009 of $1.47 billion. BSP said remittances from land-based and sea-based workers increased by six percent and 11 percent, respectively.

In a statement, BSP Governor Amando M. Tetangco Jr. said prospects for more Filipinos finding more work abroad is "positive" in the next months, particularly in Hong Kong, Qatar, Taiwan, Kuwait, United Arab Emirates and Saudi Arabia.

Tetangco said employment opportunities "are expected to rise along with clearer signs of global economic recovery." He quoted a report from the Philippine Overseas Employment Administration that in the first quarter this year, job orders totaled 155,334, of which 20.2 percent or 45,393 were job orders for service, professional, technical, and production-related work.

Tetangco also attributed banks expanded remittance network in the continued expansion of fund transfer volume. As of the end of March, the BSP noted that these networks increased to 4,483 from end-2009 of 4,192. These networks include tieups, remittance centers and local banks representative offices or branches abroad.

BSP earlier increased its remittances forecast to eight percent this year, from six percent. In dollar terms, remittances are expected to amount to $18.7 billion this year from $17.3 billion at the end of 2009. The previous projection was six percent or $18.35 billion.

Mobile Banking – Re-launch of ZPESA in Zanzibar

Zantel has the re-launched its mobile banking service ZPesa for its customers in Zanzibar in an effort to revamp its mobile banking services by adding more services that are people-centric.

Zantel was the first mobile company in Tanzania to launch mobile banking services three years ago and has spread throughout the country.

Zantel Chief Executive, Noel Herrity said that the new rebranded ZPesa service with additional services will enable Zantel subscribers in Zanzibar to pay for various utility bills. Some of the utilities which have partnered with Zantel are electricity, water, DSTV and cable TV, and the purchase of airtime. This is in addition to the sending and receiving of money.

He said that the company is constantly enhancing the ZPesa service by signing agreements with other service providers that deliver value in order to enable Zantel customers pay bills and do other payments via their mobile phones..

He reiterated the importance of bringing banking services closer to the reach of majority of the population who are unbanked but have access to mobile phones.

"We are known for being an innovative brand that is always striving to enable Tanzanians to access affordable means of communication and in this case quick and reliable banking services to all our subscribers especially those that do not have access to banking services," said Mr. Herrity.

The ZPesa relaunch exercise has also been integrated with the SIM card registration exercise to enable more Zantel subscribers to register their numbers before the end of June deadline.

Zantel subscribers who register for ZPesa services will have automatically registered their numbers and are entitled to receive bonuses which they can redeem either as cash or as airtime at any ZPesa cash points and outlets, he said. He said that the redeemable amount in cash is 300Sh or 1,000 Sh worth of airtime.

According to Zantel Chief Commercial Officer Norman Moyo Zantel has engaged a lot of businesses, organizations and societies in Zanzibar and across the country who have membership in different parts of the country to be ZPesa vendors and agents.

"Zantel is empowering local businesses to get productive through appointing and equipping them to work as vendors or agents and in turn increase their income and allow them to expand their services to untapped areas," he said.

Operational Risk - SEC proposes consolidated audit trail system to better track market trades

The Securities and Exchange Commission has proposed a new rule that would require the self-regulatory organizations (SROs) to establish a consolidated audit trail system that would enable regulators to track information related to trading orders received and executed across the securities markets.

A consolidated audit trail system would help regulators keep pace with new technology and trading patterns in the markets. Currently, there is no single database of comprehensive and readily accessible data regarding orders and executions. Stock market regulators tracking suspicious market activity or reconstructing an unusual event must obtain and merge an immense volume of disparate data from a number of different markets and market participants. Regulators are seeking more efficient access to data through a far more robust and effective cross-market order and execution tracking system.

“If adopted, this consolidated audit trail would, for the first time ever, allow the SEC and other market regulators to track trade data across multiple markets, products and participants in real time,” said SEC Chairman Mary L. Schapiro. “It would allow us to rapidly reconstruct trading activity and quickly analyze both suspicious trading behavior and unusual market events.”

Last year, the SEC set up an agency-wide task force to carry out the audit trail initiative and begin the process of developing the rulemaking proposal recommended to the Commission today.

The SEC’s proposal seeks public comment and data on a broad range of issues relating to a consolidated audit trail. Public comments on the proposal should be received by the Commission within 60 days of its publication in the Federal Register.

Operations Risk - The end of the fax?

The US Commodity Futures Trading Commission is ready to bin the fax as it tries to get to grip with tech-driven markets

The US Commodity Futures Trading Commission is to establish a technology advisory committee after admitting that it struggles to keep pace with technological advances and that it continues to use faxes and manual entry forms for reviewing trading account data.

In a statement, CFTC Commissioner Scott O'Malia said the agency will vote to re-establish the CFTC Technology Advisory Committee. The Committee - which will include representatives from academia, exchanges, clearinghouses, trade repositories, and other groups - will hold its first hearing on July 14 to discuss high-frequency trading. Other issues on the agenda will be co-location, trade repositories, surveillance and security systems, and swap execution facilities.

In a surprisingly frank assessment of the CFTC's own lack of technological savvy, O'Malia said that regulatory bodies must understand and embrace technology in order to be truly effective.

"Unfortunately, here at the Commission, we struggle to keep pace with technological advances as we continue to receive account data via facsimile and enter that data manually," he said.

With Congress expected to provide new authorities to the Commission oversee the OTC market, O'Malia said the agency is about to be hit with a "tsunami" of trade data.

"The fax machine will not provide any assistance whatsoever," he said. "We must do a better job to automate all our forms and systems to handle the massive volume of trade data that will be sent to the Commission."