We’ve gathered the most exciting highlights from the digital advice innovation landscape as well as the latest news related to balance sheet risk.
Automated Financial Advice
The three European Supervisory Authorities (ESAs) – EBA, EIOPA and ESMA published the results of their monitoring exercise on automation within the wealth management industry. The Report shows that while the phenomenon of automation within financial advisories seems to be slowly growing, the overall number of firms and customers involved is still quite limited. As the identified risks have not materialised and considering the limited growth of the phenomenon, the ESAs believe that no immediate action is necessary. Link
UBS closes its robo-advisory service for new clients in the UK. The intellectual property of UBS’s SmartWealth automated financial advice offering is sold to the US-based FinTech SigFig. The Swiss giant’s offering, unlike those of its low-cost peers, provided its clients with a portfolio consisting of both active and passive funds, which resulted in placing it within the highest price brackets in the market. Link
Tiller, a fresh entrant to the UK robo-advice market, is now trying to lure UBS’s existing customers with a 20 per cent discount on charges for opting out of the Swiss bank’s online wealth management service and transferring their assets to Tiller. Link
The robo-advisories’ assets under management in the UK rose from 1.4 bln pounds last year to about 2.6 bln pounds the current year. Moreover, the number of customers of automated financial advice offerings grew by 119 per cent from 185,000 to 406,000. The average age of a robo advice users is estimated to be 40 years. Link
The FinTech start-ups Plum and Revolut tailor their offerings for millennial customers. Plum, an automated financial planning tool used via Facebook’s Messenger service, now turns its attention to the investment services. It has recently partnered with Vanguard, Standard Life Aberdeen and Legal & General Investment Management. The fast-growing bank Revolut is in the process of acquiring the ETF-trading license, inspired by an example of a successful US-based commission-free ETF-sales app Robinhood. Link
Balance Sheet Risk
Danske Bank has admitted its governance and risk prevention methods were deficient in preventing major money laundering at its Estonian branch. The published report found suspicious payments amounting to €200 billion ($234 billion) flowed through the bank’s Estonian branch between 2007 and 2015. Immediately after the publication of the report, bank’s chief executive Thomas Borgen resigned. Link
Traditionally within the area of expertise in IT departments, cyber defense is increasingly seen as a critical part of operational risk. Due to exacerbating consequences of the companies’ data security breaches as well as the ever-evolving nature of cyber-crimes, the industry participants begin to delegate a part of the cyber defense process to risk management departments. Link
Machine Learning is set to transform the accounting industry, but it will hardly eliminate the need for human accountants. Instead, the automation is expected to diminish human involvement with repetitive tasks, while preserving the advisory roles as predominantly human activities. For instance, a well-configured AI prediction machine can eliminate accounting errors that are normally difficult to find. Link
Libor reform threatens risk modeling under FRTB. Dissonance between these two initiatives is threatening to undermine banks’ efforts to model risk factors and may ultimately result in sizable capital hikes. Link
The upcoming International Financial Reporting Standard 17 (IFRS 17) regulation is certain to unsettle the industry. However, to ignore the bright side would be a big mistake. Achieving compliance is not only for satisfying regulators, it can be a competitive advantage if done well. Link
