Danos Group
04 Nov

Card fraud poses a major threat to the finance industry. It has been recently reported that criminals stole more than £1.2 billion through fraud and scams in the UK in 2018 alone(1). These crimes can have a devastating impact on victims. And even if the customer gets their money back from their finance provider, the organised criminal gangs which perpetrate these frauds still profit from the proceeds. This money may go on to fund illicit acts which damage our society – crimes such as terrorism, drug trafficking and people smuggling.

The financial industry is committed to tackling fraud and scams, and the banking industry is proactively using technology in the fight against fraud. In September 2019 we saw the introduction of two-factor authentication, a Strong Customer Authentication (SCA) requirement for most electronic payments made within the European Economic Area (EEA). Under the new rules, customers making certain transactions online will now require a second level of security, such as a passcode sent via text message, or biometrics.

Biometrics is emerging as a formidable solution to support secure payment and banking options. Biometric fingerprint readers have grown in popularity and are now used in many major areas including banking, mobile phone security and as broader security controls.

Biometrics are currently being used to verify people through:

  • Facial Recognition
  • Fingerprints
  • Retinal Scans
  • Signatures
  • Voice Analysis
  • Palm Vein Identification
  • Hand Geometry

These techniques are also available but have not yet been as widely adopted:

  • Brain Waves
  • Walk Style
  • DNA
  • Heartbeat
  • Iris Scan

Using biometrics to verify identity is popular because it is convenient and reliable.

Biometric identification is in the palm of every modern smart phone users’ hands. People can unlock their devices with their face, eyes or fingerprints. But, as a result, this opens people and organisations to cyber risk and the possibility of biometric data being hacked and stolen.

Biometric data security, storage, compliance and regulation are concerns that negatively impact adoption of biometrics by consumers. With increasing numbers of data breaches year by year, people are afraid of what could happen if hackers steal their biometric data. Since a person’s biometrics cannot be changed if stolen, like a password could be, fear of losing biometric data holds back some acceptance of this technology.

The evolution of the payment and banking industries are driven by three key factors: technological innovation, regulation, and consumer adoption. In the case of biometric payment authentication replacing passwords, the technology and regulation is in place to allow for the new era of card-not-present transactions, but research suggests that consumers are not ready to relinquish their dependence on password authentication(2).

Biometrics could play an important role in the fight against financial fraud, with their uniqueness and technology ease, however the financial services industry will need to install consumer confidence by eliminating risks related to data security, usage and storage, as well as defining and implementing regulation compliance. Having the right talent who understand compliance and risk and can work alongside data scientists to drive technology innovation is paramount.

Danos Associates has over 15 years’ experience in the Payment and Fintech sectors internationally covering Compliance, Financial crime, Risk, and Legal. We leverage our knowledge of firms and individuals to help connect individuals to solve technical and regulatory issues and provide succession planning or search to fill team gaps. If you would like to discuss this article or your team, please do get in touch.

Paul Geist
Associate Partner, Compliance

Tel: +44 (0) 20 3908 4806
Email: pgeist@danosassociates.com

Ruaridh Brown-Hovelt

Associate Partner, Head of Risk and Quant Practice

Tel: +44 (0) 20 3889 5757
Email: rbh@danosassociates.com

References:

  • Fraud The Facts 2019
  • Lost in Transaction – Paysafe Group

01 Nov

Diverse and inclusive companies are more profitable and more appealing to work for than companies lacking these. Research shows that diversity will boost your reputation, your brand and your productivity.

A multi-cultural organisation will be better placed to service and satisfy clients. A one-size-fits-all approach doesn’t fit today’s world; being able to relate to a global market is important.

According to a landmark 2018 study from McKinsey, companies who boast gender, or racial and ethnic diversity are more likely to have financial returns above their national industry medians.

Companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians, while companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective industry medians.

From our perspective, it’s clear that firms with more diverse workforces tend be able to attract more top talent. It’s a point that many candidates ask about when discussing a potential firm, and it will only become more important to candidates as this way of thinking becomes commonplace.

Diverse and inclusive workforces lead to higher employee satisfaction and, in turn, a much better chance of retaining talent once hired. Diverse groups are a clear sign of a healthy and inclusive culture, where employees feel comfortable, valued and respected in their workplace.

A diverse and inclusive culture is imperative for a business to continue to thrive because it puts its people at the heart of its operation.

Danos Associates is a leading provider of Compliance, Risk and Legal recruitment services in the financial services arena across the Americas, EMEA and APAC.

We approach every search with an aim towards diversity and inclusion. While skillset and experience remain a focal point in our selection process, we strive to ensure that each shortlist reflects a diverse range of experience, culture, and backgrounds.

We take the time to meet and get to know each candidate before putting them forward for your roles. We feel that we are uniquely placed to ensure we are doing our part to find diverse candidates and, in turn, the strongest candidates for each job.

We pride ourselves on being able to match talent not just to the requirements of the role, but also to the style of the organisation.

Get in touch with us today to discuss your diversity and inclusion efforts and how we can assist you with your search and selection.

31 Oct

In this report you will find Average Compensation Levels for In-House Legal roles within:

  • Financial Regulatory
  • Asset / Investment Management
  • Derivatives / Structured Products
  • Capital Markets

The report also highlights some key insights, including:

  • ‘Near-shoring’ is affecting legal salaries in New York.
  • National unemployment for Management, Business, and Financial Operations has increased slightly.
  • Flexible working is becoming increasingly common in-house.

Contact Adam for your free copy of the report and to discuss your search and selection requirements – ashilling@danosassociates.com

16 Oct

In this report you will find salary breakdowns for:

  • FinTech
  • Investment Banking
  • Asset Management
  • Financial Crime Compliance / AML

The report also highlights some key insights, including:

  • New York compliance market overall is buoyant.
  • “Near-shoring” is playing out in most tier one investment banks.  
  • Perennial need for strong Financial Crime Compliance experts across the board.

Contact Jordan for your copy of the report and to discuss your search and selection requirements – jlocke@danosassociates.com

19 Dec

In response to the global financial crisis of 2008, The Basel Committee on Banking Supervision has been working with global regulators to create new guidelines that ensure the banking sector has stronger capital standards for market risk and is more resilient in the face of any future crises.

The new standards include a more defined boundary between banking and trading books, a ‘Standardized Approach’ to risk metrics and a trading desk-level model approval process for ‘Internal Model Approaches’.

Despite the FRTB’s good intentions, it has faced scepticism and criticism as banks have been working to implement and test the new methods ahead of the deadline of 31st December next year.

Is it worth the cost?

No:

Some are struggling with the financial impact of FRTB where the costs involved in the complex implementation and maintenance are high and the capital requirements and new rules on managing trades could impact profitability.

There are reports of significant reductions in inter-bank trading and the number of banks with active trading books. Some suggest that the costs inflicted by FRTB are a result of panic and not relative to the scale of the issue, suggesting there are quicker and cheaper fixes.

Yes:

The Bank of England has estimated at its most conservative figure, the financial crisis cost in excess of $20 trillion. The knock on, global effect is significantly higher. Some consider the cost of changes that protect against a global economic disaster to be completely insignificant and totally justified.

John Beckwith and Sanjay Sharma, authors of ‘The FRTB: Concepts, Implications and Implementation’, even believe that FRTB can be adopted at a ‘reasonable cost’. FRTB can be more cost effective than existing methods such as stress testing and operationally, a lot of the work required in the implementation would have needed to have been carried out anyway as technological development leans more on data integration and model alignment.

Has FRTB been rendered obsolete before it’s even begun?

Yes:

The trading world, going into 2019 is much different to 2010 when FTRB was first discussed. Since then other regulatory models such as Basel 2.5, stress tests, VaR, IRC, leverage ratios, resolution planning and capital buffers have significantly reduced risk. Value at Risks (VaRs) are now only a third of what they were back in 2007.

No:

Beckwith and Sharma strongly believe that FRTB plays a critical role in the future protection of our financial services, correcting areas that are currently left exposed.

While they appreciate that regulation brought in since the financial crisis has made important steps forward, they don’t address the vulnerabilities that allowed it to happen in the first place. They say that weaknesses in market risk frameworks have been identified but not addressed which leaves ‘global markets and banking systems…prone to systemic shocks.’

FRTB goes beyond existing new capital calculations and is designed to, ‘transform the measurement and management of trading activities into robust processes that are sensitive to the observability and suitability of risk-factor sensitivities as they change over time’.

Addressing capital requirements is not enough when existing rules are open to manipulation by creative traders. Illiquid securities were ultimately responsible for the financial crisis and FRTB allows banks to attribute additional capital to risk factors as liquidity in trading assets decline.

Banks currently testing Internal Model Approaches (IMA) are experiencing failure rates of up to 79% when reconciling forecasted and actual losses, which shows that there is a need for tighter controls.

Some question that with so much focus on past activity, how adept FRTB will be at protecting the future but an under-recognised benefit of FRTB is that it is the market forces that drive the trading parameters, not the subsequent regulation after an incident has occurred.  The new framework captures emerging threats in specific risk factors and securities in real-time.

Are banks going to meet the deadline next year?

Yes:

FRTB has been on the table since 2012 and banks appear to have been making good progress with their impact assessments and initial implementation this year.  They have the whole of 2019 to test the new risk models and are steadily working towards meeting the deadline at the end of next year as required.

No:

While banks within the European Union are further ahead, many experts believe that full implementation of FRTB won’t be in place until 2025. In December 2016 the draft European legislation published by the EU in relation to FRTB said that the proposed amendments would start in 2019 ‘at the earliest’, that the date of application would be two years from 2019 and further still there would then be a three year phase-in period.

FRTB brings with it huge operational challenges. One of these is the requirement to source and calibrate 10 years of market data. Risk and finance have typically been separate functions and where the former looks at the future and the latter the past, it could take some time to bring the two together.

Will America ever actually adopt FRTB?

Yes:

David Lynch, Deputy Associate Director with the Fed has been very clear that the US are going to implement FRTB. While admitting that the original version caused capital concerns, he is confident that their data quality and testing is now more on track.

He has said that the Basel Committee will complete its consultation and finalise rules this year, allowing enough time for feedback and adoption to meet the delayed implementation date of 2022.

No:

Shortly after President Trump was elected, he issued an executive order for the US Department of the Treasury to review the American financial regulatory system. The Vice Chairman of the Financial Services Committee in the US House of Representatives had issued warnings on international rules and Congressman Patrick McHenry said that agreements like the Basel III accord ‘unfairly penalised the American financial system’ and that increases in capital requirements had led to slower growth in America.

Following this, a report issued in June 2017 advised US regulators to hold off on FRTB while it was investigated further. Later in December, the Basel committee on Banking Supervision decided to postpone international implementation until 2022. The enquiries and delays have caused people to question the US’s commitment to FRTB which has led some banks to take their attention away from it.

To conclude

We have seen an interesting mix in views. The drive to secure a more resilient banking sector has to be supported but those at the helm are raising important questions. Whatever your view, FRTB is going to be an important part of 2019 and Hiring Managers are building their teams accordingly. If you need support in hiring people with the right skills and experience for this task, please get in touch.

13 Dec

In the 14 years we have been specialising in the compliance sector, we have seen many trends and we’re witnessing a very interesting one now; financial crime in 2018 is mirroring the growth we saw in compliance between 2001 and 2016.

The highly aggressive global regulation on financial crime is driving demand, creating the same impact 9/11 and the credit crunch had on compliance. High profile anti-money laundering (AML) investigations are hitting the headlines on a regular basis, with reports of Deutsche Bank, Danske Bank and UBS all facing huge fines in the last few months.

With such significant scrutiny, financial crime has seen sustained growth in terms of: team numbers, compensation, department sizes, volumes of Managing Directors and therefore budgets allocated to servicing this function. This is exactly what we saw at the start of the rapid acceleration in compliance fifteen years ago.

The drive to protect against ever evolving threats requires talented, dedicated teams and the subsequent demand is pushing up compensation. For a sector that has previously had smaller budgets and less resource, we predict that by the end of 2019, the number of Managing Directors in financial crime and the level of compensation will be on a par with those in compliance at large international banking groups.

Compliance isn’t going anywhere, it still has its own constant supply of regulation to address but it is certainly evolving. The forecast for 2019 shows that it is critical for firms to have a solid financial crime operation and we’re very well placed to help with this. If you’d like to discuss strengthening your function, please get in touch.