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August 12, 2025Announcement ISO AccreditationsWe are excited to share that our firm has achieved certification in four internationally recognised ISO standards:
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March 18, 2025Carbon Reduction PlanNew Link Consulting LLP is committed to achieving Net Zero by 2040. Our 2024 emissions report highlights improved data tracking, revealing a more accurate carbon footprint. With strategic reduction targets, enhanced sustainability policies, and a dedicated steering committee, we’re driving meaningful environmental impact while maintaining business excellence. Read more in our full report.
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October 23, 2024Artificial Intelligence Compliance: The Next Big Challenge for Risk Managers.Financial services firms have been leading the charge in the development of artificial intelligence systems to improve service, reduce costs, mitigate risks, and drive through efficiencies. Until now, AI systems have been largely developed in a legal and regulatory vacuum but the European AI Act, which will impact many UK firms in the same way as GDPR did, is set to change all that. New Link Consulting summarises here the key provisions of the Act and offers practical advice regarding what firms should be doing now to get ahead of the game.
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July 23, 2024FCA urges financial firms to improve treatment of politically exposed personsOn July 18th, after completing a multi-firm review, the Financial Conduct Authority (FCA) released its assessment of how well firms are following its current guidance on the treatment of Politically Exposed Persons (PEPs) and their Relatives and Close Associates (RCAs) for anti-money laundering purposes. The following post provides a summary of how well firms have performed.
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April 23, 2024New Link Consulting receives Financial Services Qualification System (FSQS) from HelliosNew Link Consulting is please to announce that it is now registered with the Hellios Financial Services Qualification System (FSQS), a single standard for managing the increasing complexity of third-party information needed to demonstrate compliance to regulators, policies and governance controls.
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December 5, 2023Avoiding Fines & Catching Baddies: All You Need to Know About Money Laundering in Real EstatePeter Brooke tackles the growing threat of money laundering in real estate, highlighting the targeted risk on real estate agencies.
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November 6, 2023The Road to Basel IV: Wholesale Credit RiskThe Basel Accords, issued since the late 1970s by the Basel Committee on Banking Supervision, have continuously evolved, leading to the final Basel IV standards, also known as Basel 3.1, published in December 2017. New Link Consulting kicks off a series of articles exploring the journey from Basel I to Basel IV, addressing potential regulatory divergence and major impacts on the financial industry.
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October 2, 2023EMIR REFIT – Trade ReportingFurther to the introduction of the European Market Infrastructure Regulation (EMIR) in 2012 and subsequent revisions in 2015 and 2017, the REFIT program (Regulatory Fitness and Performance Program) was instigated. The purpose of the REFIT for Trade Reporting, which commenced in 2019, has been to review the issues identified in the years since reporting obligations were introduced and to use these findings to enhance the accuracy of Trade Reporting, through improved data quality and industry standardisation.
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September 1, 2023Farage and Debanking UpdateIn this article we will try to unravel the key developments and assess their potential impacts on banks and financial institutions. We believe this is more than a storm in a teacup and firms will need to follow developments closely over the coming months, as well as take a long hard look at their current policies and procedures – and previous debanking decisions. It is important to note that this is not just about account closures: firms need to also take a close look at how on-boarding decisions are made.
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August 20, 2023Summary of the PSD3 ProposalOn 28 June 2023, the European Commission published a proposed legislative package that seeks to modernise and harmonise the existing regulatory framework for electronic payments throughout the European Union (EU) and European Economic Area (EEA), currently regulated by the Second Payment Service Directive (PSD2).
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July 21, 2023When Reputational Risk Management Causes Reputational HarmThe current media interest in the banking arrangements of Nigel Farage has highlighted some of the challenges faced by financial institutions when deciding which new customers to take on and which customers to keep.
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July 5, 2023FCA Consumer Duty - Next StepsWith the Consumer Duty coming into force on 31st July it is important for impacted firms to not see this as the finishing line, but rather the start of a continuous process to support and enhance customer outcomes.
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June 16, 2023Compliance Risk AssessmentsUnderstanding where compliance risks are lurking in your business, and whether or not the controls in the first and second lines of defence are effectively mitigating those risks is of critical importance to Compliance Heads and Senior Management.
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December 1, 2022Client Transitions: Navigating Tricky WatersNavigating the tricky waters of migrating clients from one platform to another is a difficult yet frequent undertaking in Financial Services.
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November 25, 2022Client Transitions / Data MigrationAn in depth insight review into the challenges of client transitions between platforms and the services offered by New Link Consulting.
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June 24, 2022Sanctions and KYC following the Russian Invasion of Ukraine“Businesses need to take basic steps to investigate their own potential links to sanctioned Russian businesses and individuals, or else face the potential for what should be an avoidable worst-case scenario…You are supposed to be screening absolutely everyone you do business with — suppliers, customers and partners. This is a strict liability, and it doesn’t matter if you didn’t know.” Doreen Edelman, Partner & Chair of Lowenstein Sandler’s Global Trade and National Security Practice. The UK has, at the time of writing, sanctioned 1,279 Russian individuals and 151 Russian entities [1], with a significant proportion of these coming into force within the last three months. The equivalent numbers for Belarus are 108 individuals and 16 entities. The heavy burden of implementing these ever more complex sanctions falls largely on private sector firms, of which are predominantly banks. Sanctions are increasingly difficult to interpret and sanctions and financial crime teams, together with their legal teams, are being stretched to capacity. In May 2022, the FCA encouraged firms and individuals to report any information about sanctions evasion or weaknesses in sanction controls. The effectiveness of sanctions controls will clearly be an area of focus for the FCA, as well as other regulators. Furthermore, the legal framework for UK sanctions has just been beefed up significantly. From 15th June 2022 the Economic Crime (Transparency and Enforcement) Act 2022 introduced major changes to the enforcement of UK sanctions laws that mirror enforcement powers held by the Office of Foreign Assets Control (‘OFAC’) in the US. The two major developments introduced by the Act include the introduction of a strict liability test and the power to publish breaches. Up until now, the UK’s Office of Financial Sanctions Implementation (‘OFSI’) had to prove that a person had knowledge or reasonable cause to suspect that they were in breach of financial sanctions. Now the OFSI just needs to establish that a UK sanction was breached. The OFSI now also has the ability to publish details of financial sanctions breaches where a monetary penalty has not been imposed. Publication will be considered on a case-by-case basis for breaches committed after 15th June 2022. The publication of such breaches will include a summary of the case. These are significant new powers that will focus minds. At senior management level sanctions compliance is now seen as a critical issue because if they get it wrong, from the US side in particular, the impacts can be very significant. Aside from potential financial penalties, the reputational risks of failure to comply with sanctions are much greater than ever before. An endless list of global brands including McDonalds, Nike, and Starbucks are now also ‘self-sanctioning’ against Russian individuals and entities and exiting business in Russia altogether to avoid potential regulatory action and reputational damage. Where Next for Sanctions? The European Commission has estimated that Russia was the 11th largest foreign investor in the EU between 2015 and 2021. The 2020 EU data indicates that Russian individuals or entities control approximately 17,000 companies in the EU and UK, have potentially controlling stakes in a further 7,000 entities, and minority stakes in 4,000 [2]. The sectors with the largest exposure to Russian control are wholesale, real estate, professional scientific and technical activities, and finance and insurance. Belarusian individuals and entities control about 1,550 EU and UK companies, have potentially controlling stakes in another 600, and minority stakes in 400. There are many more potential targets for sanctions in this group alone. Of course, some of these investments may be perfectly legitimate and involve individuals with no political exposure and who are not oligarchs or kleptocrats. As the situation in Ukraine continues to deteriorate, and sanctions are ratcheted up, it is highly likely that more individuals, entities, and jurisdictions will come within their scope. For example, if Moscow pressurises the countries of the Collective Security Treaty Organisation (CSTO) – a Russian-led military alliance that includes Armenia, Kazakhstan, Kyrgyzstan, and Tajikistan alongside Belarus – to support its war efforts, will western governments make it clear that any direct or indirect assistance to Moscow for its war will be met with primary sanctions applied directly to those countries? What about other countries? Dubai has emerged as a haven for wealthy Russians fleeing the impact of western sanctions over the war in Ukraine. Russian billionaires and entrepreneurs have been arriving in the United Arab Emirates in unprecedented numbers, according to the BBC [3]. Property purchases in Dubai by Russians are said to have surged by 67% in the first three months of 2022. The UAE has not placed sanctions on Russia or criticised its invasion of Ukraine. It is also providing visas to non-sanctioned Russians while many Western countries have restricted them. Could action be taken against the UAE for potentially undermining US, EU and UK sanctions? KYC Considerations The other theme that needs to be carefully considered alongside sanctions compliance is the question of how well banks know their individual customers and the ultimate beneficial owners of customer entities. How confident are they that they understand (and have documented) beneficial ownership and the source of wealth and funds involved in the client relationships? Firms should continue to focus on KYC for new customers but, perhaps more importantly, the information they hold about existing customers. Senior Management Self-Assessment Checklist New Link Consulting recommends that senior management and financial crime teams consider the following critical questions: Are we confident that we have adequate resources, both in terms of numbers and knowledge/experience, to manage the significant increase in sanctions compliance work? Systems and Controls. Are we confident that we have robust systems and controls to identify sanctioned individuals and entities, and PEPs, when we on-board them? And how do we know? Identifying Targets. Are we sure that we can identify individuals and entities (and their beneficial owners) as soon they are added to the sanctions lists? Again, how do we know? Has there been a recent audit of existing sanctions compliance procedures to identify risks, weaknesses, and potential exposures? Hidden Ownership. The situation is more complicated for firms with corporate customers. How do we deal with a situation in which a sanctioned company or individual (or an oligarch or kleptocrat) is hiding under several ownership layers in a corporate structure? Do our procedures adequately mitigate these risks? Ongoing Screening. Do we have a robust approach to ongoing monitoring, screening, and periodic reviews – for sanctions, PEPs, and adverse media? Prioritising Periodic Reviews. Should compliance teams prioritise and perform full KYC reviews of business clients, regardless of what review date had been previously set? Risk Categorisation. Have we reviewed the rationale for the risk categorisation of existing clients in the light of the current situation in Ukraine? Does our definition of ‘high’ and ‘higher risk’ customers reflect the changing geopolitical backdrop? Data Quality. Are we confident that the quality of our client data will enable us to identify sanctioned subjects without delay – and to discount ‘false positive’ matches? Potential Exposure to Future Sanctions. Do we understand our exposure to the current sanctions lists – and to those jurisdictions and individuals that might be added to sanctions lists? Source of Wealth. Do our current (and historic) KYC requirements enable us to identify clients with exposure to higher risk jurisdictions and to robustly assess the source of wealth of higher value clients? Adverse Media. Do we have clear systems and controls to identify adverse media concerning our clients? Managing Sanctions Hits. Are client and payment screening platforms able to detect relevant risks? Once detected, are they able to manage these risks? For example, blocking transactions and/or freezing funds when required. Training and Communications. Do we provide appropriate training and guidance for compliance and other staff to help them understand the latest sanctions measures, how to handle affected clients and/or transactions, along with updated communications as the situation changes? Clients’ Russian Exposure. Can we identify clients that might still have significant business dealings with Russia to determine whether to apply enhanced monitoring to transactions of those clients? Do our clients have any exposure to deals in the energy, transport and construction sectors where clients may have a deal in place with a Russian counterpart? Potential Russian Ownership and Control. Can we identify entities that may not be directly sanctioned but are owned and/or controlled by a sanctioned entity / person? Our Anti-Financial Crime practice comprises seasoned practitioners with extensive global experience across a wide variety of jurisdictions. If you would value an exploratory conversation with us to find out how we can help you address your key priorities, please email our practice lead, Peter Brooke, at pbrooke@new-linkconsulting.com. References: [1] Consolidated List of Financial Sanctions Targets in the UK – Updated 16/06/2022 [2] Communication From the European Commission – Guidance to the Member States concerning foreign direct investment from Russia and Belarus in view of the military aggression against Ukraine and the restrictive measures laid down in recent Council Regulations on sanctions April 2022 [3] https://www.bbc.co.uk/news/business-61257448
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September 30, 2020The FinCEN Files – Our PerspectiveOver 2,100 Suspicious Activity Reports (‘SARs’) that were filed with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) between 2011 and 2017, have been leaked to BuzzFeed News and investigated by a team of reporters from the International Consortium of Investigative Journalists (‘ICIJ’). There has been no question regarding the authenticity of the documents. The ICIJ is drip-feeding the results of its investigations, which have involved many major global banks, so we can expect more revelations over the coming weeks and maybe even months. The documents in the FinCEN files cover about $2tn of transactions and they are only a tiny proportion of the SARs submitted over the period. In this blog we do not propose to look into the rights and wrongs of the leak itself and the daily news stories that have followed. We recognise that many banks have made huge investments in the prevention of financial crime and we clearly observe the commitment, even passion, of many financial crime practitioners to identify and root out the bad actors. Rather, we would like to focus attention upon the practical response banks should be considering now. Whilst some commentators have dismissed the recent revelations in the so-called ‘FinCEN Files’, as old news, and some of the subsequent reporting has undoubtedly been somewhat sensational, many of the banks involved saw a sudden and direct impact on their share price immediately after publication, mostly attributed directly to the leaks. In addition, a number of prominent politicians and watchdogs in many jurisdictions are apparently using the FinCEN Files to support calls for regulatory reform. In the UK, the Chairman of the Treasury Committee has asked Chris Woolard (interim CEO of the FCA) what action the FCA will be taking following the publication of the FinCEN Files. The FinCEN Files question was raised at the FCA Annual Public Meeting on 24th September, and Mark Steward confirmed that the FCA are taking the leaks in the FinCEN Files very seriously. The FCA will be expecting all banks to take some action in response to the FinCEN Files, regardless of whether they are directly implicated. Our view is that the FinCEN Files should serve as a timely reminder to banks, if one was needed, of some basic challenges and that there is always room for improvement. KYC standards can always be improved The fact that suspicions were identified by the banks, and reported to FinCEN, should be a big tick for the banks involved. However, in doing so, the banks have had to acknowledge that, in many cases, they didn’t really know who their clients were. The ICJI found that: “In half of the FinCEN Files reports, banks didn’t have information about one or more entities behind the transaction”. The reports suggest that, in many cases, the banks had failed to identify the ultimate beneficial owners of the entities in question at the start of the relationship or through their ongoing due diligence, periodic reviews or batch screening. This should be a concern as many of the subjects will have been listed as Politically Exposed Persons (PEPs), Specially Designated Nationals (SDNs) or subject to adverse media, that should have triggered an investigation. Suspicious Activity Reports (SARs) need to be better FinCEN received more than 2 million SARs last year (a twofold increase over the last decade) and the UK equivalent body, the National Crime Agency (NCA), received nearly 480,000 in their last reporting year. Of course, these numbers represent only a small percentage of internal reports that are made and investigated by banks. Suspicious activity reporting is a massive effort on the part of banks. The SARs that were leaked from FinCEN were variously described as being: Incomplete. Lacking in details of ownership. Inaccurate. Defensive. Vague – lacking reasons for suspicion. One of the most harmful observations for the banks is that in many cases they apparently continued the relationships long after the submission of the SAR – “Years after concerns first emerged banks continued to move money for fraudsters, drug dealers and allegedly corrupt officials…” Whilst there is ongoing debate about the true value of SARs under the current regimes globally, and extensive pressure for reform of the whole system globally, banks do need to satisfy themselves that the quality of SARs is kept under constant review. Further, they need to ensure that they have systems and controls in place to track closely activity on accounts where a SAR has been submitted. What do banks need to do now? We would expect that senior management in banks are already asking the following questions of their Financial Crime and MLRO teams: Are we named or implicated in the FinCEN Files (or likely to be in subsequent drip-feed releases)? Do we have relationships with any of the individuals or entities featured in the reporting? How confident are we that our SARs are up to scratch? What processes and controls do we have in place to review clients and transactions after the submission of SARs? Do we apply additional scrutiny to clients after a SAR has been submitted? How many clients have we exited following submission of SARs? Does senior management have the right level of information about SARs in both governance forums and management information? How confident are we that we have robust KYC on all relevant parties to transactions? Would our screening solution pick up these names before or during the client relationship? Do we measure the quality of our enhanced due diligence investigations? The FCA, and indeed other regulators, will expect banks to take decisive action upon the ‘revelations’ in the FinCEN Files (even if the bank itself has not been directly impacted by the reporting). We are advising our clients (as many were required to do following the previous revelations in the 2016 ‘Panama Papers’ and the 2017 ‘Paradise Papers’) to initiate a formal project to review the findings in the reports on the FinCEN Files (together with the questions above). Banks should also advise their regulators that a formal FinCEN File review has been initiated. The review should include, but not be limited to: Making sure your organisation is not implicated – either directly or indirectly. Identifying every individual and entity named in the FinCEN File reports. Conducting checks to ensure none of their clients appear in the FinCEN Files. Reviewing KYC files for any possible matches. Conducting deep-dive Enhanced Due Diligence (‘EDD’) where potential concerns are identified through KYC Reviews. Reviewing a sample of SARs to ensure that they cannot be criticised for the short-comings identified above. Reviewing KYC policies and procedures. How can New Link Consulting help? New Link Consulting’s Regulatory and Anti-Financial Crime Practice is run by experienced practitioners. The Head of the Practice has undertaken Skilled Person AML Reviews on behalf the FCA and PRA and the team has worked on numerous regulatory-driven financial crime remediation programmes. Our team has extensive experience and AFC domain expertise and can provide expert independent advice as to whether you have any vulnerabilities in your anti-financial crime systems and controls. We can help you set up and complete a review and support any remedial actions identified, embedding solutions within a cohesive framework of best practice Client Due Diligence. If you do identify specific clients or transactions of potential concern, we can also undertake comprehensive Enhanced Due Diligence (EDD) investigations through a global network of primary sources and calling upon unparalleled insights from leaders in government, business, the media and hard-to-access parts of the dark web. Please feel free to contact us for an initial discussion on your specific requirements. Contact Peter Brooke – Practice Lead – AFC and Regulatory Practice pbrooke@new-linkconsulting.com M: +44 (0)7590 105185 T: +44 (0)203 826 9700 Walter Hogg – Director – AFC and Regulatory Practice whogg@new-linkconsulting.com M: +44 (0)7758 690 261 T: +44 (0)203 826 9700 Andrew Hovell – Director – AFC and Regulatory Practice ahovell@new-linkconsulting.com M: +44 (0)7493 071 823 T: +44 (0)203 826 970
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July 29, 2020Assessing the Effectiveness of a Compliance FunctionWhilst many firms may think that their Compliance arrangements are purring along just nicely thank-you-very-much, there are not many who can say – never mind actually evidence – that their Compliance function is doing everything just right. Compliance departments, in this very changeable world, are not immune to the need to grow, develop, and improve. Senior management will want to gauge, with some objective certainty, the current state of their Compliance arrangements to ensure that the second line of defence is adequate and effective in supporting risk mitigation. If an independent assessment has been done, has it been reviewed recently or is it gathering dust in a bottom drawer? So how can senior management, and indeed the Compliance department itself, get an objective view that Compliance is doing all the right things, in the best way, compared to their peers and the pack leaders? Nothing to See Here….Unless You Look Compliance functions, and indeed the forums into which Compliance traditionally reports, unfortunately often assume that all is probably (fingers crossed) fine. There is always a fine balance to be struck between risk management and cost control and firms have to make difficult decisions on where to invest ….but if firms are honest with themselves they know, and crucially, so do regulators, that things can always be ‘done better’. This doesn’t necessarily mean spending more – but it does invariably mean doing things differently. Is our Compliance function doing well? How do we actually know this is the case and can we demonstrate this to senior management and regulators? Compliance operating models become outdated, regulations change, the business strategy takes a sharp left turn, restructurings happen, regulators come knocking on the door, audits come around every year… The regulatory imperative and (the many!) stakeholder expectations are well established, and these compel Compliance functions to be well run so as to keep pace with industry best practices. Now, more than ever, Compliance functions are being challenged, both internally and externally, to be proactive and pre-emptive in helping the organisation manage regulatory risk. And at the same time they are always being asked to do more with less resource! How Can New Link Consulting Help? The number of triggers for an effectiveness review are varied and numerous and any one of them may leave Compliance function running to keep up. How can firms assess ‘where’ they are in terms of the maturity of their Compliance arrangements, ‘what’ gaps exists, and, the all-important ‘how’ can it be fixed? New Link Consulting has developed an approach to assessing the maturity of a firm’s Compliance arrangements through a Compliance Effectiveness Review (CER) service offering. The CER helps firms understand: Where on the ‘maturity’ scale the Compliance function under review sits, be it ‘Basic’, ‘Mature’, or ‘Advanced’, What gaps exist and where are these gaps presenting, The steps they need to take to move to a more mature state, and How well the Three Lines of Defence Model is working in the firm. New Link Consulting has a set of nine standard themes that we review including governance, organisation, policies and procedures, management information and training, but we can adapt the review to focus on any additional themes that senior management or Compliance require to be reviewed. In summary our approach adopts the following 3-step approach: Information gathering which typically includes a documentation review, interviews with key stakeholders (think Chief Compliance Officer, MLRO, Chief Risk Officer, ‘clients’ of Compliance, senior management, Internal Audit) and workshops for more technical topics (such as financial crime). Reporting of gaps via a detailed, straight-talking and easily digestible written report. This report captures New Link Consulting’s ‘Observations’ and any ‘Recommendations’ for improvement (including ‘quick wins’) and includes our assessment of the current level of maturity observed against New Link Consulting’s assessment of the future level of maturity to which a client should reasonably aspire. Helping develop a ‘Transformation Plan’ which is, in essence, a high-level project plan informed by the gaps noted during the review. This plan is developed by New Link Consulting, in consultation with the client, to assist scope and plan the activities that are necessary to convert the Observations and Recommendations into a practical book of work which addresses those gaps. New Link Consulting works with the client to map out indicative timelines, sequencing, resource requirements, expertise required, dependencies, and other relevant aspects. And What are the Benefits? Benchmarking to Peers and Industry Best Practice Leveraging the expertise within the Regulatory Practice, which has developed across multiple clients – we know what good (and not-so-good) Compliance arrangements look like.…and we can help clients get to where they should be. Regulatory Certainty Clients, and their stakeholders, can derive comfort that their Compliance arrangements have been reviewed and are assessed to be in-line, or not, with what regulators would expect …. If there are gaps, it is better to know them and fix them than have a regulator point them out. Objective Assessment of Compliance functions An independent review of a firm’s Compliance arrangements holds more weight when undertaken by a third-party with the credibility and requisite expertise. A CER can be used by clients to get ahead of potential challenges (such as an audit or a supervisory inspection, for instance) and, where gaps are presented, the measures underway by the client in ‘fixing things’…. this may often avert – or at least mitigate – a more serious situation. Not just Observations… Clients don’t just want to know what is wrong, but how problems can be addressed. It’s all too easy to be the ‘Monday morning quarterback’ by merely pointing out problems….but much better is to have real-world, pragmatic recommendations based on, collectively, decades of experience in helping Compliance functions to be better. Why New Link Consulting? As experienced Compliance practitioners, the team have all sat in the proverbial ‘hot seat’, bringing the invaluable perspective of having led Compliance functions before. We have also reviewed the compliance arrangements in firms as ‘Skilled Persons’, reporting to the FCA. The team has extensive practical experience and domain expertise across all facets of Compliance, coupled with the latest regulatory and industry developments and access to New Link Consulting experts in business analysis, process improvement, operating model design and enhancement, ensures that client’s benefit from consultants who speak ‘regulation’ and speak ‘compliance’. Simply put, we don’t do consultant-speak! We are not auditors and our approach is to work collaboratively and constructively with Compliance teams to help them identify how they can be better in all that they do. In summary, we: Assess your current Compliance arrangements against peers and regulatory expectations. Make pragmatic and ‘right-for-you’ recommendations where gaps are observed or improvements can be made. Help you map out what needs to be done to close any gaps. Provide experienced and skilled resources to help you manage any remediation. Contact Peter Brooke – Practice Lead – AFC and Regulatory Practice pbrooke@new-linkconsulting.com M: +44 (0)7590 105185 T: +44 (0)203 826 9700 Walter Hogg – Director – AFC and Regulatory Practice whogg@new-linkconsulting.com M: +44 (0)7758 690 261 T: +44 (0)203 826 9700 Andrew Hovell – Director – AFC and Regulatory Practice ahovell@new-linkconsulting.com M: +44 (0)7493 071 823 T: +44 (0)203 826 9700
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July 22, 2020Transforming CLM OperationsWhilst most of the Client Lifecycle Management (CLM) commentary out there touts technology, automation, robotics and artificial intelligence as the answer to all of your CLM and client on-boarding challenges, New Link Consulting takes the view that many firms should be spending their time fixing some of the more fundamental challenges of CLM before investing in the newest, shiny thing. Automating a poorly designed process, without the right governance model, controls and clear accountabilities usually results in a poor outcome, and so addressing policies, procedures, operating models and roles and responsibilities across the lines of defence is the right place to start. Easily said, not so easily done! New technology is undoubtedly an important part of the longer-term solution, but we advocate fixing the basics first so firms have a solid basis to build upon. A Perfect Storm? We have the perfect CLM storm brewing. The FCA has recently issued a large fine due to CLM shortcomings and backlogs….. at the same time as acknowledging the potential financial crime difficulties and challenges caused by the Covid-19 pandemic. For those who read the FCA’s Final Notices, the recent £38.7m fine imposed on Commerzbank in June 2020[1], sent some shockwaves through the CLM/KYC/ Onboarding community. The FCA described onboarding and periodic reviews in the bank as ‘out of control’ and identified inadequacies with PEP identification, verification of beneficial ownership, sustained and significant backlogs of client refreshes and ‘not fit for purpose’ transaction monitoring. If clients have not yet studied the details of the Notice closely, it makes for an educational read and a very clear case study of what can go wrong… dare we say that we have yet to meet a client who does not have, at least to some level, similar weaknesses in terms of systems and controls. The FCA has acknowledged that Covid-19 has created operational difficulties for firms…no face-to-face meetings…..restrictions on non-essential travel….. which have affected firms’ abilities to use traditional methods to verify a customer’s identity. Thankfully, the FCA has allowed firms to re-prioritise or reasonably delay some activities, including ongoing customer due diligence reviews, or reviews of transaction monitoring alerts[2]. The expectation is, however, that firms have a clear plan to return to the business-as-usual review process as soon as reasonably possible. Many firms are starting to plan to deal with backlogs caused by operational difficulties during the pandemic – of course this means that firms are having a double whammy, both to meet on-going client on-boarding and periodic review volumes, exacerbated with perhaps now playing catch-up (following the Commerzbank fine)…whilst all the while ensuring they keep their eye on the (many!) balls https://www.fca.org.uk/publication/final-notices/commerzbank-ag-2020.pdf http://www.fca.org.uk/firms/financial-crime/financial-crime-systems-controls-during-coronavirus-situation Key Challenges We see firms facing challenges across the lifecycle of the client relationship and the examples set out below give a flavour of some of the main issues raised with us by clients. Onboarding In many firms, onboarding of new clients is slow, with multiple hand-offs and a pretty poor customer (and staff) experience. The respective roles of front office, middle office and compliance are rarely clearly defined and articulated. Policies and procedures and supporting desk-top/operational procedures often fail to meet the FCA’s expectations to be clear, easily understood and readily accessible. Ongoing Due Diligence Many firms have a seemingly never-ending backlog of periodic reviews. By their very nature these will always be required (unless and until the current practices can be replaced by a process of constant refresh). So this one is going nowhere for now. As is the case with on-boarding, policies and procedures are often poor and inaccessible. There is much demand for, and a finite supply of, experienced KYC Analyst contractors to support the peaks of this work. Consistency and quality control are a constant challenge. Screening The sheer numbers of ‘false positives’ is cited by many firms as the biggest challenge arising from customer screening for sanctions, PEPs and adverse media. One cause, but by no means the only one, is poor data quality. To an extent false positives can be reduced by better calibration of screening tools but the problem will remain until the underlying data quality is improved – or smarter screening is deployed. Escalating costs for dealing with hundreds, and sometimes, thousands of alerts. How Can New Link Consulting Help? New Link Consulting’s Regulatory and Anti-Financial Crime Practice, run by experienced practitioners, has designed and tested CLM functions for a range of organisations. The head of the Practice has undertaken Skilled Person AML Reviews on behalf the FCA and the team has worked on numerous regulator-driven remediation programmes. We have extensive experience and AFC domain expertise and can call upon experts in business analysis, process improvement, operating model design and enhancement to help transform due diligence and screening. In particular, we can: Benchmark your CLM model against industry peers – and recommend and deliver enhancements. Test outcomes such as KYC files or alert dispositions. Provide experienced and skilled KYC resources to manage backlogs and on-going challenges with onboarding and periodic review volumes. Prepare you for a regulatory intervention. Working with New Link Consulting will help deliver: Regulatory Certainty Assurance that your current approach meets regulatory expectations and remediation to address any systems and control weaknesses. Enhanced Client Experience Enhance client experience by making it fast, transparent, smart, seamless, consistent, streamlined and compliant. Better Staff Experience Give staff the confidence, skills, training and tools to do their jobs better Effectiveness/Efficiency Drive through efficiencies – reduce errors – drive down cost. Automation For many firms, the due diligence process consists of a series of manual checks completed by operations staff. This creates challenges in term of accuracy, consistency, traceability and provability. Once the basics are in place, New Link Consulting works with solutions experts who can automate the process and drive through efficiencies, from digitisation of paper documents through to one-stop checking for PEPs, sanctions and adverse media using intelligent systems. Operational Resources The AFC Practice has extensive experience in providing expert resources to support firms with support for onboarding and periodic reviews. Contact Peter Brooke – Practice Lead – AFC and Regulatory Practice pbrooke@new-linkconsulting.com M: +44 (0)7590 105185 T: +44 (0)203 826 9700 Walter Hogg – Director – AFC and Regulatory Practice whogg@new-linkconsulting.com M: +44 (0)7758 690 261 T: +44 (0)203 826 9700 Andrew Hovell – Director – AFC and Regulatory Practice ahovell@new-linkconsulting.com M: +44 (0)7493 071 823 T: +44 (0)203 826 9700
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May 22, 2020Transformation from back to front officeCustomers of banks have new expectations, sometimes driven by their own technology. This article discusses the pressure on banks to change their technology quickly.
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May 22, 2020ClearCompress AnnouncementTullett Prebon announces collaboration with ClearCompress London , December 1, 2017: Tullett Prebon, part of TP ICAP Group, the world’s largest interdealer broker, is pleased to announce that it has agreed a collaboration with ClearCompress to extend its OTC portfolio compre ssion service for financial products , i nitially targeting cleared trades. Portfolio compression refers to the process by which market participa nts reduce both the notional and number of trades in their portfolios with minimal change to the ir risk profile. Levels of compression activity have increased significantly since the start of 2014, driven by new regulations and higher capital requirements. ClearCompress provides a light – touch compression service, which can be run in under an hour, therefore removin g the need for clients to ring – fence portfolios for several days at a time. The Clear Compress process generates a new transaction set for each participant that mirrors existing portfolio line items and leaves risk, mark – to – market and funding consideration s unchanged at a highly granular level. This enables clients to subsequently bilaterally compress those offsetting transactions with a clearing house as part of their regular daily process. In addition to their client relationships at all business levels, Tullett Prebon brings the specific expertise and experience of its Risk Management Solutions division to manage the submission, interpretation and resolution of complex data sets to provide the optimal outcome for clients. ClearCompress will work alongside Tullett Prebon’s Risk Management Solutions (RMS) division to offer clients access to a secure, cloud-based portal to upload risk positions and to download the new balancing portfolio file details. Paul Ribbins, Managing Director of Tullett Prebon’s RMS division , said: “We are delighted to be partnering with ClearCompress to provide a unique and cost effective offering for our clients. ClearCompress offers a significant leap forward in compression solutions by addressing many of the weaknesses in existing processes in its use of existing transactional infrastructure, its ‘on-demand’ service capability and its pre-trade cost transparency. The underlying risk algorithms have produced impressive results to date and we look forward to helping Clear Compress apply the technology to other industry challenges over time.” David Hill, CEO of ClearCompress, said: “This collaboration is highly complementary to our respective client bases. The industry is demanding a modernised approach to compression and our nimble, unobtrusive and highly efficient service offers clients significant compression opportunities on their terms and in a cost effective manner. This collaboration will considerably simplify adoption of our services within the global Interest Rate Swap dealing community and we look forward to working alongside Tullett Prebon, which already has an excellent Risk Management Services proposition. I am confident that ClearCompress can add significant value to this.”
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March 9, 2020IWD 2020: Strength Through DiversityInternational Women’s Day celebrates the social, economic, cultural and political achievements of women. The day also marks a call to action for accelerating women’s equality. New Link Consulting holds the values of gender equality and diversity as a central part of the fabric of our organization. We consider it a crucial aspect of our culture and success. In recent years, the gap in gender equality in the workplace within the UK has slowly improved with one in three board positions of FTSE 100 companies now being held by women. Nevertheless, another research group ranked the UK at 11th out of 18 developed countries that include the USA and Sweden in terms of gender diversity (based on pay, board level representation and overall ratios to male staff). The combined view suggests progress can still be made. Beyond quotas and statistics, diversity is a real sign of strength in business. Three pillars of strength through diversity are outlined below: 1. A diverse workforce signals an attractive work environment for talent. There’s lots of evidence to suggest that young jobseekers specifically look for employers with an inclusive culture. Having a balanced executive board creates a positive image that is both inspiring and attractive. Further to bringing in top talent, companies with a fair representation at the top can expect to retain their employees for longer. Male-dominant management can be demoralising for employees who see a bias, club-like culture. 2. When you value diversity, you encourage innovation. Significant research has shown that diverse teams can develop more innovative ideas. When people from different contexts work together, their unique perspectives often lead to greater creativity. Diverse teams are also more likely to have some common experiences with customers or end users which is an essential enabler for relationship building. With this advantage, teams will also be able to create better products. 3. Diversity drives better decision making and business success. “Diversity results in better decision-making and plays an essential role in a company’s long-term success,” said Chris Cummings, CEO of the Investment Association. Compared to individual decision makers, all-male teams make better business decisions 58% of the time, while gender diverse teams do so 73% of the time. This figure rises to 87% when age, race and different geographies are also factored in.
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What is SFTR?NewsAugust 2, 2019What is SFTR?Following the financial crisis, both securities lending and repurchase transactions came under increased scrutiny as they were perceived to have contributed to the build-up of hidden leverage in the market. Regulators sought to introduce Securities Financing Transaction Regulation (SFTR), covering three key requirements: transaction reporting, disclosure obligations and collateral reuse obligations. SFTR is a sweeping mandatory change for the securities financing industry and is part of a wider initiative on shadow banking, with the aim of improving transparency and monitoring in securities financing transactions (SFTs). What are SFTs? SFTs are transactions where securities are used to borrow cash, or vice versa. They include repurchase agreements (repos), securities lending activities and sell/buy-back transactions. In each type of transaction, ownership of securities is exchanged temporarily for cash. Once an SFT is concluded, the change of ownership reverts and both parties are left with their original holding, plus or minus a small fee depending on the purpose of the transaction. SFTR Timeline Reporting go-live will be phased in over a transitional period, with the first go-live for investment firms and credit institutions on 11th April 2020. Given the regulatory timelines, organisations, particularly credit institutions and investment firms must use the next few months to define the roadmap, and work towards having the correct operating model in place to ensure they are set-up for the reporting go-live. Q2 2020 (11th April 2020)– Credit Institutions and Investment Firms Q3 2020 (11th July 2020)– Central Counterparties (CCPs) and Central Securities Depositories (CSDs) Q4 2020 (11th October 2020) – Other FCs including Pension Funds and UCITS Q1 2021 (11th January 2020) – Non-Financial Counterparties (NFCs) Reporting Under SFTR SFTR applies to the following: i) counterparties established in the EU, and all branches of those entities ii) European branches of non-European entities iii) Financial and non-financial firms are required to report Reporting is dual sided, and both parties (if in scope) are accountable for reporting, though responsibility for reporting may be delegated to a third party. Delegate reporting is mandatory for financial counterparties, if the other counterparty is a small non-financial counterparty (NFC-) under SFTR, however this is not mandatory until January 2021. Financial Counterparties must consider this when designing their operating model from a technology, process and people perspective, as delegate reporting can create significant workload and require remediation if it is not done correctly. All transactions must be reported to an ESMA approved repository by T+1, including the collateral if it is known at the point of trade. If collateral is not known at the point of trade, it is reported on Settlement +1. SFTR also introduces pre-matching, where trades are matched at a platform on T0, to resolve any issues before submitting reports to the Trade Repository on T+1. It is important that Financial Counterparties capture the correct matching preference of the other counterparty, to ensure the trades are matched at the same platform. Similarities to EMIR and MiFIR Reporting SFTR is structurally similar to EMIR in many aspects. Firstly, both sides of the trade have to report to a recognised trade repository at T+1, there are similar counterparty classifications and requirement by counterparties to send one report containing the complete data set to ESMA. Counterparties are also required to report new, modified or terminated SFTs, and must maintain records of the transactions for at least five years following termination. As well as having links to EMIR, SFTR is also closely linked to MiFIR reporting. SFTs are exempt from the MiFIR transaction reporting requirements as long as all transactions are reported under SFTR. However, SFTs with European System of Central Banks (ESCB) counterparties do not have an SFTR reporting requirement and therefore these will need to be reported under MiFIR. Key Challenges SFTR presents several challenges that firms needs to overcome: Data sourcing: Under SFTR there are up to 153 reportable attributes. Not all 153 are required to be reported, some are mandatory, optional or conditional. However, it is estimated that firms may have issues sourcing up to 40% of data attributes, and therefore need to decide how to enrich the data they have available. Client outreach: Most firms will need to perform client outreach in order to gather the information they are missing, either for reporting purposes or to obtain the additional information needed to classify clients as in or out of scope. Client outreach exercises can be time consuming, costly and firms also need a method of consuming and storing the data once they have completed the outreach. UTI Generation: Firms will need to have a Unique Trade Identifier in their reports to the TR. This value will be used by the TRs to match separately received reports from each counterpart to an SFT. UTI generation should only be performed by one party to the trade, to ensure that both sides of transaction have the same UTI. LEI’s: Third party to trade identifiers (e.g. brokers, agent lenders, tri-party agents) will need to be on-boarded as counterparty’s and have an LEI reported under SFTR. LEI’s will also need to be stored in Front – End systems (PTSs) to ensure this is captured correctly. Collateral: SFTR reporting must also include any collateral linked to the SFTs. This includes the LEI of the counterparty with whom the collateral was exchanged and the master agreement under which it was agreed. How can New Link help As a practitioner-led consultancy with a proven track record in managing complex regulatory change programmes in the largest investment banks, New Link Consulting is uniquely placed to offer its expertise to ensure firms are able to meet the day one reporting requirements for SFTR. New Link Consulting offer a range of services, and a customised offering for each client driven by their unique requirements. Client Outreach & Documentation SFTR may require new client data to be captured, stored and distributed to the TR. Our consultants are able to assist with client outreach to capture the necessary data needed to meet reporting requirements. Client Classifications Define the business rules to determine the eligible clients in scope client for SFTR reporting. Control Design Assist with the design and implementation of key controls, to ensure data quality and assist with the reporting accurary. Data Governance Assist with the implementation of a data strategy for SFTR, identifying critical data elements and ensuring high levels of data quality. Data Lineage & Data Quality Track data and system lineage from source to end user systems and ensure that the root cause of data quality issues are documented and remediated. Operating Model Design Design and implement strategic Target Operating Models to help generate operational efficiencies, creating a controlled operating environment. Programme Management Deliver strategic programmes to ensure there is a model in place to support future changes to the regulation, without the technical debt on legacy systems. Contact Daniel Wright – Partner : dwright@new-linkconsulting.com Ben Lancaster – Senior Consultant : blancaster@new-linkconsulting.com
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May 14, 2019Another Nudge for Benchmark Reform...IBOR transition in Europe has taken another step forward. On Monday, May 6th, the European Money Markets Institute (EMMI), which is the administrator of both the EONIA and EURIBOR benchmarks, applied to the Belgian Financial Services and Markets Authority (FSMA) for authorisation to compute & publish “reformed” Euribor. EONIA and EURIBOR are two of the main euro-denominated measures of money market lending rates and are widely used as a reference for pricing mortgages, credit cards and other products. According to the ECB, there is an estimated €22 trillion of EONIA-linked derivatives contracts in existence and €109 trillion linked to EURIBOR. But EURIBOR is also referenced by many retail financial services products, such as mortgages and student loans, across millions of customers within Europe. The application is ahead of the 1/1/2022 deadline for benchmark transition set under EU BMR. The challenges for EONIA are fundamental and EMMI has announced that it is not possible to make the benchmark IOSCO/BMR compliant, requiring the benchmark to be replaced. The likely replacement risk free rate is ESTER, administered by the ECB. ESTER will be due for initial publication in October 2019. The ECB Working Group has indicated its preference for EONIA to be modified to ESTER plus a spread for a limited period, expected to be between October 2019 and the end of 2021. Unlike EONIA, which will be replaced by ESTER, EURIBOR is not being replaced, rather it is being reformed away from a quote-based methodology to a hybrid rate based more on underlying transactions. In terms of international alignment, this move brings Europe closer into line with other jurisdictions. In the US, the FRB has been publishing SOFR, its replacement risk-free-rate to USD LIBOR, since April 2018 and in the UK the BoE has been publishing the sterling equivalent risk free rate (SONIA) for a similar timeframe. The ECB is due to start publishing the Euro risk free rate (ESTER) in October 2019. It is expected that LIBOR and EONIA (ESTER+fixed spread) will be replaced fully by 1/1/2022, but reformed Euribor may well live longer than either LIBOR or EONIA. This means that until 1/1/2022 the euro area may have a “hybrid” system, with reformed EURIBOR, amended EONIA and the new ESTER rate co-existing. This contrasts with the US and UK, where regulators are messaging for LIBOR to be fully replaced by the end of 2021.
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May 14, 2019Benchmark Transition is Coming...a Brief Guide for Corporate Treasurers1. A Little Context Within the next two and a half years, global financial markets will see lasting changes made to some of their oldest interest rate benchmarks. These benchmarks will be either retired or reformed, replaced either by a series of nearly risk-free rates (RFRs), or reformed benchmarks. We are of course talking about Inter-Bank Offered Rates (IBORs), the most common of which is LIBOR, a rate which has existed for some 70 years as a cornerstone of the loan market. The move away from these benchmarks is partially due to conduct scandals arising from historic abuse of quotation-based benchmarks, but it is primarily due to a dramatic shift away from unsecured overnight borrowing as a main source of funding by banks. Over 18 months have passed since Andrew Bailey, Chief Executive of the FCA, announced the need for financial markets to transition away from LIBOR before 31st December 2021. More recently, during Q1 2019, European regulators deferred the transition timeframes for Euro interest rate benchmarks (EONIA, which is being replaced, and EURIBOR, which is being reformed) to match those of LIBOR. It is easy to view this timeline as being rather distant and hence preparation for it not of immediate priority. However, our view is that this is not the right conclusion to draw for most firms. 2. Why is this Important for Corporates (and other benchmark users)? Potential Value Transfers Each RFRs may differ considerably from the benchmark that it is superseding. Although the impact is likely to be much less with reformed benchmarks (eg EURIBOR), the impact to benchmarks which are being replaced (eg EONIA, LIBOR) are material. Take the case of LIBOR. LIBOR is a forward-looking term rate set at the start of an interest charging period. But it is not a risk free rate; it contains a “credit spread” and a “term premium” to compensate the lending bank for the credit risk of making a loan to another bank over a given term – thus it effectively reflects the funding costs of the lending bank. SONIA (and all other RFRs, see Table 1 above) is an overnight rate determined by looking back across historical data. As it has no term element and no real credit spread, it is a nearly risk free rate and will be lower than LIBOR. There is therefore an economic difference between the two rates which will need to be accommodated within the pricing of future transactions to ensure there are no unfair value transfers from “winners” to “losers”. Transparency in this process will be paramount – this is something that Corporate Treasurers should keep a close eye on and engage with their bankers sooner rather than later. Windscreen vs Rear View Mirror Rates IBORs are forward-looking rates with regular agreed resets: they are “windscreen” rates. These allow borrowers, such as corporates, to have a good view of their future payment obligations and hence the ability to manage cashflow and any associated financing in advance and with a good level of certainty. Conversely, RFRs are “rear view mirror” rates. They are calculated daily and, as such, parties to a trade cannot calculate obligations in advance with certainty. This is of particular importance to corporates who tend to use more cash market products such as loans and bonds, and potentially interest rate derivatives to hedge those positions. Uncertainty of future obligations will almost certainly lead to corporates holding higher levels of liquidity than before. This will need to be baked into cash management processes, controls & systems, along with corresponding interest rate compounding calculations and reports. Regulators are of course aware of these issues and are actively trying to find solutions for them through a series of Working Groups. One approach is compounding the RFRs over an equivalent LIBOR tenor (eg 3 months). In itself this is still a rear view mirror approach. However, it may be possible to adjust the interest rate period slightly so that borrowers such as corporates have a short but feasible period of time in advance of the interest rate payment date where they know their upcoming payment obligations with certainty and can lock in their financing requirements. How might this work in practice? Details are to be agreed, but options include agreeing to fix the rate (say) 1 week before the payments are due, or agreeing to start the reference period (say) one week before the actual interest rate term begins and ending it one week before the actual interest rate term ends. A second approach is to develop a forward-looking term rate based upon RFR derivatives markets. The current problem with this approach is that regulators are fearful that it will be the harbinger of a return to the current situation with term benchmark rates being quoted (and traded) more extensively than the underlying overnight benchmarks. As such, there is emerging “guidance” that any forward-looking term rates will be largely restricted to cash markets and derivative cash product hedges, wider derivatives markets will have to use RFRs. Any fragmentation of the market between RFR overnight rates and RFR-derived term rates introduces basis risk, which is why regulators will allow forward-looking term rates to be used for derivatives with the express purpose of hiding cash positions (i.e. managing risk). A further problem with basis risk is that it may impact hedge accounting treatment. If cash products and their hedges reference different benchmark rates, the hedge may be deemed ineffective. This would mean that businesses cannot use hedge accounting, which may result in larger than desired PnL swings. Of course, differences my also occur across currencies. This will particularly impact multi-currency facilities – scenarios may emerge whereby the same agreement references LIBOR for some currencies and RFRs for others. The general message from these considerations is that corporates should ensure that cash products, and derivatives they use to hedge them, both reference the same benchmarks – unless and until a liquid market in basis risk products evolves. 3. What Major Asset Classes are Impacted? For corporates, the key asset classes are bonds, loans and derivatives hedges. In all of these cases, the key questions are what is the benchmark strategy for new issues and what is the benchmark fall-back strategy for legacy trades, in case publication of the existing benchmark rate ceases? Bonds – there have been several bond & FRN issuances referencing new RFRs, especially SOFR in the US and SONIA in the UK. Most of these were issued by financial institutions and exclusively adopt rear view mirror RFR rates (averages or compounding) over the term of the bond issuances. Although liquidity is building, it remains open whether bond markets will adopt a “compounded RFR” term rate (as per the derivatives markets) or a genuine “forward-looking” term rate (as sought by the loan markets). In terms of legacy trades, there is no single “protocol” to deal with fall-backs. Arrangements are typically bespoke and range from reverting to the last published benchmark fixing (so that the rate in effect becomes “fixed”), to bespoke agreement of amendments to existing contracts to reference a new benchmark rate. The former solution may result in significant value transfers, the latter is difficult and time consuming to implement. Loans – unlike the bond market, there have been no new loans referencing RFRs as a benchmark rate and there is currently no agreement on fall-backs. The loans market more than any other is lobbying for regulatory approval of forward-looking term rates. The focus of Working Groups has bifurcated between (a) proposing definitive fall-backs for immediate inclusion in all legacy loans transactions (this is particularly the line taken by ARRC in the US), and (b) reducing the “consent threshold” required to implement replacement benchmarks if existing benchmarks are discontinued (the line taken by UK & European Working Groups). Derivatives – following regulatory guidance, derivatives trades are already referencing new RFR benchmarks (especially SOFR & SONIA) extensively. Unlike bonds and loans markets, derivatives markets are largely bound into the use of protocols, which greatly facilitates amendments across all participants that have signed up to these protocols. ISDA is currently working to amend the 2006 ISDA Definitions to implement fall-back language for key benchmark rates. 4. What is the Current View of Regulators? The biggest fear that regulators have to a smooth transition to new benchmarks is lack of engagement on the part of market participants, as exemplified by the following two quotes: “We have only a little over 2.5 years until the point at which LIBOR could end. The transition needs to accelerate; the private sector needs to take on this responsibility, and we expect you to do so.” [Randal K. Quarles, Chair, FSB, April 2019] “The biggest obstacle to a smooth transition is inertia – a hope that LIBOR will continue, or that work on transition can be either delayed or ignored.” [Andrew Bailey, FCA, July 2018] In response to these fears, the UK FCA issued a “Dear CEO” letter to major financial institutions in the latter part of 2018, asking them to respond with analysis of their exposure, plans to transition, state of readiness and to appoint a Senior Manager to be accountable for the Benchmark Transition. The responses to this outreach are expected to be released during May 2019. But outside of the large financial institutions, which were catapulted into action by the Dear CEO letter, our experience is that preparations seem to be very immature. From our conversations with Tier 2 and Tier 3 banks, it is clear that not everyone is prepared and ready. Many of the buy side firms, insurers and corporates represented at our own IBOR transition briefings also seem to be treading water – a considerable disparity in the state of readiness clearly exists across the industry landscape. 5. What Should Corporates Do Now? Our sense is that the prevailing attitude of most (but not all) UK corporates is to “wait and see what happens”. This is based on view that a typical UK corporate will have relatively light exposure to LIBOR and it will be simple to deal with when the industry has reached its conclusions and progressed the transition. This is certainly one approach. However, we caution against it and suggest the following steps that your Corporate Treasury function should be carrying out now. There is an inevitable time, effort & cost demand but action now will put your firm in a far stronger and safer position. Firstly, appoint a specific executive with responsibility for leading IBOR transition. It is really important to coordinate activity across the organisation to ensure that transition is managed holistically. Secondly, educate and train. It is really important to be aware of what is coming. Already the transition process is introducing less often-used vocabulary, leading to challenges around transparency and understanding. We recommend research and learning, via the IBOR transition lead, using the regulatory and trade association outputs. What is LIBOR? How is it calculated? What does it impact? Who are the users? Use these materials internally and ensure they are spread through the organisation in a coordinated fashion. Carry out training sessions internally, or seek external help. This will put your firm in a great position where all stakeholders will understand if their activity is driven or affected by IBOR transition. Questions to consider include: What are our current products which may have a tie to an IBOR? How are they financed and funded? Are suppliers or clients be affected and, if so, how? This is a really important foundation as will drive many commercial considerations going forward. Thirdly, carry out an audit. The education and training will allow your firm to put together your laundry list of exposures. What is your exposure to IBORs? What products are impacted? How many clients or suppliers are impacted? How and where is the reference benchmark documented? When do impacted exposures mature? How can we reduce out exposures that do not expire before 2022? If for whatever reason contracts are being amended for other purposes, seek to include benchmark transition provisions at the same time. This step will allow you to assess your impact, and hence how material this transition will be for your organisation. We expect the typical corporate to have low impact and be exposed predominantly through loan facilities where the borrowing rate is linked to an IBOR, and in some cases through derivatives where they have hedged their interest rate risk with a swap. This is the good news but still requires work. What will the new loan product offered by banks look like? IBORs are good in the eyes of a corporate as they are transparent, forward-looking and provide certainty. But new products may have a reference rate that have some or none of these features. It is important to understand what the impact will be for future business, as well as for legacy business if fall-back arrangements have to be invoked. For derivatives we advise that you assess exposures and, if possible, execute now. Pay particular attention to existing accounting hedges and keep up to date with IASB notifications on hedge accounting. We are of the view that as we move closer to the end of 2021, many banks will already have moved to trading RFRs. This will lead to less liquidity in IBOR linked products and higher execution costs, which could have a financial impact on your business. Prudential financial planning is critical and firms should have a view on any potential shocks to revenue to manage the expectations of, and communications with, shareholders, rating agencies and debt holders. Finally, understand what you need to do around systems and technology. This is particularly important in the Finance department and with your loan booking models. Will they be able to change and transition to new rates? What control gaps will arise or what operational risks will be introduced if you rely on spreadsheets or journal entry book-keeping? Above all, keep updated through industry associations such as ACT, LMA and ISDA. Participation brings knowledge, an opportunity to help shape the outcome and a great deal more comfort about the adequacy of your own preparations.
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March 8, 2019International Women's Day 2019: Delivering Growth through DiversityNew Link Consulting holds the values of gender equality and diversity as part of the fabric of our organisation.
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February 21, 2019AFC & NFR Practice AnnouncementWe are thrilled to announce that Peter Brooke has joined us as Practice Lead for our Anti-Financial Crime (AFC) and Non-Financial Risk (NFR) practices.
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December 12, 2018LIBOR Transition Breakfast EventThe first in a series of LIBOR transition breakfast events took place in London on the 27th November 2018.
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November 22, 2018LIBOR Transition RoundtableOn Tuesday 27th November New Link Consulting are hosting the first in a series of events to explore the implications of transitioning away from LIBOR.
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October 29, 2018Claire Lincoln-White spoke at the 1LoD SummitHear our very own Claire Lincoln-White, Managing Partner of New Link Consulting, join a discussion on ‘Culture as a 1st line control’
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May 25, 2018Simon Hirtenstein Speaks at Global Custodian ForumSimon Hirtenstein After the Global Custodian Forum, we are delighted to share with you comments from Simon Hirtenstein, our Asset Servicing Practice Lead. “I attended and spoke at the Global Custodian Forum in the salubrious surroundings of Banking Hall. First of all, many thanks to the event organisers and venue staff who put on a fantastic event. The day was full of stimulating discussion covering a whole range of topics including regulatory matters such as MiFID II, the impact of ETF, data management, outsourcing, talent recruitment, amongst several many more. I was in the panel discussing the role of new technology and how it is more important than ever for asset managers to effectively manage change on an on-going basis. This is not only for commercial advantage, but also to avoid any calamitous ramifications that hurried and ill-prepared technology implementation could potentially lead to. My view is that the industry should adopt a much more stringent attitude to risk. For example, we should consider the 100% non-risk culture of the airline industry. What surprises me is that this same way of thinking is not adopted within the asset management industry when it comes to new technology adoption. It is for this reason that any change initiative needs to be overseen by industry experts who have a proven track record. It was a pleasure to have the platform to share my thoughts and I very much look forward to the next event.” Simon Hirtenstein For more information on our asset servicing practice please click here. You can also contact our asset servicing practice lead Simon Hirtenstein by emailing shirtenstein@new-linkconsulting.com.
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March 1, 2018The Times 2018 Business Transformation ReportIn this comprehensive report from The Times in conjunction with New Link Consulting we consider the subject of Business Transformation.
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The Volcker RuleBlogFebruary 13, 2018The Volcker RuleAn exploration of the potential modifications the OCC will make to the Volcker Rule to reduce the burden on banks whilst still serving its original purpose.
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February 7, 2018New Link Consulting ExpansionIn the competitive world of business consulting, we have long been advocates for the 'collaborate and compete' philosophy. It has enabled us to successfully compete with the largest consulting firms in our specialist Financial Services domain.
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January 18, 2018Closing the Book on Basel IIIA summary of the main points from the final negotiation of this key regulation resulting from the Financial Crisis of 2007-08.
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December 7, 2017The Challenges of FRTBA brief exploration of some of the challenges to implementing the Fundamental Review of the Trading Book (FRTB).
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December 1, 2017ClearCompress CollaborationClearCompress and Tullett Prebon, part of TP ICAP Group, announce exciting collaboration in global compression services.
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GDPR: 6 Months OutBlogNovember 27, 2017GDPR: 6 Months OutWith 6 months until GDPR becomes enforceable, New Link Consulting explores the questions you should be asking of your business to confirm compliance.
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November 17, 2017New Link Consulting @ 1LoD SummitNew Link Consulting were pleased to be an Associate Sponsor of the 1LoD Summit.
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Planning for the Implications of BrexitWhite paperOctober 12, 2017Planning for the Implications of BrexitOn the morning of the 24th June 2016, the EU woke up to the news that voters in the UK had narrowly voted in favour of leaving the European Union.
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Transforming Trade in the EU Derivatives MarketWhite PaperJuly 11, 2017Transforming Trade in the EU Derivatives MarketImplementing Mifid II from regulatory interpretation through to compliance.
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The FX Global CodeInterviewJuly 1, 2017The FX Global CodeAn interview with David Newland, Head of Industry Solutions and Partner at New Link Consulting, to find out what impact the FX Global Code will have on organisations.
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Brexit InsightsWhite paperJune 11, 2017Brexit InsightsAn interview with New Link Consulting Partner Tom Masters discussing the ramifications of Brexit on the Financial Services Industry and preparations firms should make.
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May 11, 2017Trader Controls: Managing Risks and Maintaining ReputationsA discussion on effective control frameworks to mitigate inappropriate activity.
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April 11, 2017The Project Management Office Function: Critical to Programme SuccessInsight into how New Link Consulting can help your business establish an effective PMO function.
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Know Your Customer (KYC)white paperMarch 11, 2017Know Your Customer (KYC)The importance of knowing your customer and how to interpret the regulation.
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STP = Straight-To-Problem?Interview
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