Will new anti-money laundering legislation be a help or hindrance?

The sanctions and anti-money laundering bill sets out the framework by which UK anti-money laundering measures would be governed post-Brexit. When presented to parliament on October 19, 2017 the bill was described as a purely technical piece of legislation, a necessary step to put the government in a position to honour its international commitments and safeguard a broad range of national interests.

But if adopted as proposed, the bill would have significant implications for the regulation of the UK’s financial and professional services, as well as for the general conduct of business in the UK, both directly and indirectly.

The bill could dramatically increase the compliance burden currently imposed on the private sector by existing sanctions and anti-money laundering legislation, and create further uncertainty in already-grey areas. It would also substantially water down conventional methods of preventing the inappropriate use of executive power.

The threat money laundering poses to the stability of the UK economy and its status as an international financial centre is clear from the government’s most recent national risk assessment, published in the wake of the bill. The risk posed by large-scale money laundering through UK businesses is substantial, with laundering through capital markets on the increase. The authorities are cracking down on such criminal action, as demonstrated by the £163m ($218m) fine imposed on Deutsche Bank in January 2017, the largest money laundering fine levied by the Financial Conduct Authority to date.

The bill could dramatically increase the compliance burden currently imposed on the private sector by existing sanctions and anti-money laundering legislation

A number of recent initiatives, notably the Criminal Finances Act 2017, have strengthened both the criminal and civil asset recovery powers available to UK law enforcement. The bill complements these efforts, addressing the parallel preventative regime which is designed to stop criminal property from passing through the financial system. These obligations are currently carried out on an EU-wide basis in the EU money laundering directive; further amendments are expected to be made before the UK leaves the EU.

Compliance is complicated
The proposals in the bill that deal specifically with money laundering and terrorist financing would allow ministers to define the scope of their preventive obligations, which include conducting risk assessments, taking prescribed measures in relation to customers and maintaining registers and records. They would also be able to dictate the mechanisms for their enforcement. Ministers would be free to extend these obligations beyond the private sector, as well as being permitted to deal with activities undertaken outside the UK by British citizens.

The purpose of these broad powers is not limited to combating money laundering and terrorist financing, but includes any other threats to the integrity of the international financial system.

While it is notoriously difficult to assess the effectiveness of measures adopted to prevent money laundering and terrorist financing, the effectiveness of financial and trade sanctions can be more readily demonstrated, provided they are carefully calibrated so as to limit collateral effects. The key to their success is their scope: an asset freeze, for example, prevents third parties from conferring any further value on the person in question.

Sanctions have broad extraterritorial reach and can be breached directly or indirectly, as well as through knowing participation in activities which, whilst formally compliant, aim to circumvent restrictions. Finally, the obligation to comply with sanctions is not confined to particular segments of the private sector, but applies to everyone. When coupled with the swiftness with which sanctions can be amended, compliance becomes a devilishly complex – and costly – exercise.

The advantage of the proposed approach is flexibility, which may well be required in order to respond to global political developments

A flexible framework
Under the framework proposed by the bill, financial and trade sanctions would continue to be largely governed by regime-specific regulations. Powers to adopt sanctions would, however, be broadened beyond the government’s current powers. Ministers would be free to adopt financial and trade sanctions of any form, for a broad range of purposes, and they themselves would determine the circumstances in which unsanctioned activities might be licenced, and on what grounds. They would decide what information provision requirements apply to whom, and the penalties for non-compliance, subject only to an upper limit of ten years for any criminal penalty.

The advantage of the proposed approach is flexibility, which may well be required in order to respond to global political developments as well as local threats to national interests. The importance of sanctions and measures to prevent money laundering should not, however, detract from the importance of safeguards ensuring sanctions aren’t abused and that the compliance burden assumed by the private sector is proportionate.

Although it remains to be seen whether the bill will survive parliamentary scrutiny in its present form, it is clear that we can expect to see a greater appetite for adopting sanctions and imposing preventative obligations on the private sector from the UK Government. We can also expect an increase in activity that aims to preserve the perceived integrity of the UK’s capital markets. Anyone doing business in or with the UK should brace for further changes to the prevention of financial crime in the UK.

The Bank of Montreal Group is embracing collaboration in the digital era

Canada’s banking industry is expanding at a remarkable pace. In particular, the sector is under constant pressure to adapt in order to meet growing customer demand for mobile and digital banking experiences. On top of this, the need for improvements in back-office efficiency and automation is becoming increasingly critical, and there are some key regulatory shifts on the horizon.

One of the most striking trends, however, is that the pace of new entrants into the market has increased exponentially, with fintech companies carving out an increasingly prominent position in the industry. Indeed, many major players now feel under threat due to the emergence of such non-traditional entities.
Rather than working against these disrupters, however, the Bank of Montreal Group (BMO) has embraced a strategy of collaboration.

Indeed, from our perspective, a combination of strategic partnerships and investments in technology is vital if the sector is to effectively welcome innovation. Crucially, our experience demonstrates that such partnerships are beneficial for both established banks and budding fintech companies, because both parties have complementary strengths.

For BMO, strategic partnerships can help to drive innovation and accelerate business outcomes across the company. Meanwhile, start-ups are able to benefit from BMO’s regulatory know-how and solid customer base. In fact, by partnering with fintech companies, it’s possible to pursue innovations that will benefit customers and businesses across Canada.

Strategic partnerships
Recent examples of BMO partnerships include working with payment services such as Apple Pay and Android Pay. Beyond this, we have also supported the 1871-BMO Harris mentorship programme, and have partnered with the innovative blockchain consortium R3.

One particularly exciting partnership has seen BMO join forces with Toronto-based business incubator DMZ. Together, we help start-ups expand by providing coaching, capital, and the network of experts and entrepreneurs that budding businesses need to get off the ground. Ultimately, we aim to find Canada’s most innovative fintech companies that are ready for market exposure, and provide them with the opportunity to pilot their technology with BMO.

Our clients benefit from a partnership with a bank that knows its business and industry

The partnership has already yielded results for us. For example, the technology developed by one of DMZ’s leading start-ups, FormHero, is now live on BMO’s website. FormHero’s innovation allows PDFs to be replaced with an intuitive customer interface that automatically finds and fills the right documents.
BMO has also worked with the Vector Institute, a new independent research facility for artificial intelligence (AI).

The institute, also based in Toronto, is dedicated to pioneering research in AI, with a particular focus on the potentially transformative fields of deep learning and machine learning. Its aim is to lead the adoption and commercialisation of AI technologies across the country through collaborations with academic institutions, incubators, accelerators, start-ups, scale-ups and established companies.

Complementary strengths
It’s important to note that our partnership strategy has a clear focus: we actively seek out and execute strategic partnerships in which both parties have complementary strengths that can improve the overall customer experience.

The start-ups we work with bring many advantages to the table, such as agility, data focus, customer focus and a digital-first mindset. BMO, meanwhile, can offer key strengths, such as a respected brand, trust, great customer relationships, scale distribution, and regulatory and compliance know-how.

Regulatory expertise is particularly important in the current climate, as new regulations are set to become a key challenge for the sector over the next few years. More specifically, recent modifications to regulations related to housing, mutual fund fees and interchange fees, among others, are requiring banks to make far-reaching changes to the ways that they conduct business.

Fortunately, at BMO we have a robust level of regulatory engagement that puts us in a position to compete.

Our continued effort towards greater specialisation within the industry is a key strength that is likely to be useful from our partners’ point of view. First and foremost, it ensures we are constantly developing the industry knowledge needed to meet the evolving needs of Canadian businesses. In particular, we know that our clients benefit from a partnership with a bank that knows its business and industry.

This is why we remain fiercely local. Our relationship managers live and work in the same communities where our clients do business. What’s more, many of our employees have joined us from the same industries that our clients operate in, bringing with them a depth of expertise in each area, such as insurance, healthcare and agriculture.

Others have developed their skills and knowledge through long-term relationships with their clients. In each case, our employees’ deep industry knowledge leads to stronger partnerships with our clients, which ultimately helps them achieve better business outcomes.

Ahead of the curve
Banking industry players are constantly striving to put the customer at the centre of investments and day-to-day operations. Strategic partnerships can be an important tool in improving the overall client experience, which is becoming gradually more digitally focused.

Crucially, at BMO we aim to constantly push forward our digital banking abilities so our clients can bank when and where they want. This is because we know that the needs of our customers have changed and will continue to change: they want a simple, seamless service, wherever and whenever they choose to bank with us.

With the increase in digital adoption and the subsequent migration of service transactions to self-service channels, our digital strategy is transforming the way we do business. Technology is a fundamental pillar of our company’s strategy. We are always looking for new ways to engage with our customers and make things more convenient for them.

Through our digital strategy, we’re enhancing BMO’s technological capabilities to deliver more personalised, intuitive applications that are built to respond in the moment and provide a more unified experience across all channels, products, services and geographies.

We have already made the self-serve banking experience easier through initiatives such as touchscreen ATMs, digital imaging, and improved mobile and online banking functionality for our customers. For instance, our customers can now deposit cheques remotely using our seamless and secure cheque-scanning feature, BMO DepositEdge.

We were also the first Canadian bank to deploy tablets to branches for employees to use with customers, featuring e-signature and e-form technology. What’s more, BMO recently launched its new ‘smart branches’ in Canada and the US, which are small-format branches with enhanced technological capabilities.

Beyond capital
Ultimately, our strategy will always be to strive to improve the overall client experience, which serves as the basis for everything we do. From our product strategy to our sales model and compensation structure, we are constantly asking ourselves whether our decisions are providing better outcomes for our clients.

We believe that the choice of bank is one of the most consequential a business owner can make. Our view is that if we are just providing capital, we’re doing our clients a disservice. As a powerful business partner, we go beyond providing capital by helping clients manage challenges and opportunities at every stage, from building and growing a business to selling it.

It is this customer-centric approach that separates us from the competition. As our clients need change, we ensure we continue to find ways to impress, both in our strategy and product development. For example, we recently launched a new free e-business plan that is perfectly suited to small business clients who conduct most of their transactions electronically.

We recognise that clients want to bank in a way that works for them – it’s our job to bring the right resources at the right time so that they can emerge stronger.

South Korea moves to tax bitcoin

South Korea, one of the world’s liveliest bitcoin hubs, is set to introduce a new tax on bitcoin trading. A number of steep new proposals were announced on December 12, following an emergency meeting of financial regulators and ministers.

Measures include a capital gains tax and a rule preventing companies from holding or investing in cryptocurrencies. Bitcoin exchanges will also be more closely regulated, with a new requirement for those with large profits and over a million users to obtain certification.

The announcement was made by the country’s Office for Government Policy Coordination, but proposals were not accompanied with a time frame for implementation.

The crackdown was prompted by fears that bitcoin trading could be causing addictive behaviour and other dangerous psychological effects for South Koreans, who are among the most energetic bitcoin traders in the world. South Korean Prime Minister Lee Nak-yeon recently aired concerns that increased trading volumes would “lead to some serious distorted or pathological phenomenon”.

he crackdown was prompted by fears that bitcoin trading could be leading to addictive behaviour

The government has also announced a ban on trading by under-18s in a bid to quell the craze among school students.

According to CNBC, back in November, Prime Minister Lee commented: “There are cases in which young Koreans, including students, are jumping in to make quick money and virtual currencies are used in illegal activities like drug dealing or multi-level marketing for frauds.”

Despite South Korean authorities making the relatively cautious move of banning initial coin offerings in September, bitcoin trading in the country has been expanding at breakneck pace. South Korean trading volumes exceed those of the US, and account for around 20 percent of global trading.

Since the beginning of the year, a surge in interest in bitcoin around the world has seen its value grow by around 1,500 percent, but its outsized popularity in South Korea means that it often trades at a higher price in local exchanges. This has come to be known as the ‘kimchi premium’ among local traders.

The measures mark one of the strictest regulatory responses to the cryptocurrency yet, but there are signs that it could have gone much further. According to Fortune, before the meeting, the chief of the country’s financial regulator said that multiple Ministry of Justice officials have been calling for an outright ban on all cryptocurrency trading.

The significant impact that body language has on how one is perceived

The spotlight of leadership is often accompanied by a reminder of the powerful impact of body language. In today’s world, both political and business leaders are increasingly finding themselves on display. Modern leaders will frequently find themselves the focal figure in video interviews, news broadcasts and conferences, as well as endless face-to-face meetings.

In all such scenarios, their use of body language will inevitably – if unconsciously – be scrutinised. Signals conveyed through the body can change the way someone is perceived, alter the balance of power in a room, or even reveal what is really on someone’s mind.

In the realm of body language, much is purely instinctual. Angela Merkel, for example, doesn’t logically mull it over before scratching her eye when faced with an exasperating remark from another leader. Individuals don’t make a conscious decision to commit more to memory when someone’s speech is accompanied with hand gestures, or choose to perceive someone as better informed if they are standing in a more dominant pose.

German Chancellor Angela Merkel is known to touch her eye instinctively when she is annoyed
German Chancellor Angela Merkel is known to touch her eye instinctively when she is annoyed

Neither do we logically resolve to feel particularly trusting of people with broad, slow hand gestures. What’s more, few people are aware of smiling excessively or tilting their head when they’re the submissive party in an interaction.

Dominant force
Those in leadership positions must, in particular, grapple with the subtleties of body language that go hand in hand with dominance and authority. In addition to being an age-old way of establishing social hierarchies, the nature of someone’s body language can also influence how often they get interrupted and how long people will allow them to speak.

Giving an impression of being in control can raise someone’s influence and increase the impact of their words and ideas on an audience, or alter the power dynamic in a negotiation.

Authority and dominance can be conveyed in a number of ways. “You need to look confident and in control,” said Peter Bull, Professor of Psychology at the University of Salford. “Twitchy and nervous gestures will make you look as if you’re not in control.”

It is generally accepted that the key to conveying dominance is to adopt a stance that opens up the body and takes up a large amount of space. Holding one’s head straight and keeping someone’s gaze can also signal authority.

In a recent study by Richard Newman Research, published in the journal Psychology, respondents were shown videos of various actors presenting a speech, and were then asked to rate the speakers on how confident, inspiring and convincing they were. While the speech itself was always the same, the actors shifted their body language from video to video.

Those in leadership positions must grapple with the subtleties of body language that go hand in hand with authority

Newman found that, when the speakers took on a more dominant stance – with their feet apart and their palms facing downward – they were rated higher on all three attributes than those that didn’t. Notably, those employing a confident stance were also judged to be more knowledgeable, demonstrating how body language can influence the way people process a verbal message.

Natural tendencies
“We are a species that cares about dominance and position, and we are a species that conveys that through non-verbal language,” said Geoffrey Beattie, academic psychologist and author of Rethinking Body Language.

This dates back to our evolutionary beginnings, and the fact our ancestors once relied on the intricacies of body language to make survival decisions. It is not surprising, therefore, that the standing positions, or ‘power poses’, people adopt today to signify authority often mirror those used by primates.

Indeed, in evolutionary terms, the spoken voice is a relatively recent addition to the human communication toolkit. The result is people have an intricate system of receptors that allow us to make snap decisions and subliminal judgments based solely on non-verbal cues. So, when leaders employ dominance cues, they are utilising an ancient language of authority and power that taps into our very biology.

Displays of dominance employed to convey authority can be observed throughout history. Holbein’s famous painting of King Henry VIII displays many of the same body signals that psychologists explore in leaders today.

According to Bull: “The painting is a classic display of dominance: Henry’s arms are akimbo, his fists are clenched, and his legs are pitched wide apart. The whole picture is of a man that wants to look really dominant. He is also occupying a lot of space because this makes him look bigger, and he comes over as very large. All those are signs of dominance.”

Interestingly, this process doesn’t just influence how others perceive us; it also actively intervenes in our own brain chemistry. A study by Amy Cuddy from Harvard University revealed a direct link between the poses people hold and the levels of various hormones in the body.

She conducted an experiment that put one group in ‘power poses’, including leaning forwards against a desk with arms wide, or sitting with feet perched on a desk. A separate group was placed in constrictive positions, with shoulders rolled forwards and face pointing downwards.

After holding the pose for just two minutes, participants in the dominant position saw raised levels of testosterone – a hormone linked to risk-taking and aggression – while those in submissive positions saw elevated levels of cortisol, which is a hormone associated with stress.

Notably, the combination of low cortisol and high testosterone is linked to grace under pressure and confidence. This implies that, by simply adopting a dominant pose, people can trigger a feedback loop that boosts their leadership qualities.

Trump shake
Of course, leaders must achieve a much more delicate balance with their body language than simply presenting themselves as dominant. Authority and power is just one aspect of the body language of good leaders, and it can certainly be taken too far. This is what lets down Donald Trump in his now-infamous approach to handshakes.

While the US president has clearly acknowledged the power of body language, his efforts to appear dominant have tipped the balance much closer to embarrassing caricature than authoritative leader.

Watching Trump’s handshakes, in which he employs what Bull describes as a “clasp-and-yank technique”, it is difficult not to feel uncomfortable. “His power signals have gone so badly wrong. What he does with his handshake is to literally pull people around – he pulls them into his bodily zone,” said Beattie.

Trump’s mistake is failing to realise body language must be subtle to have an effect. “Once you get to the stage where people comment on your power signals and are consciously aware of them, they cease to work,” said Beattie.

A good leader will be flexible with their body language, striking the right balance between establishing dominance on the one hand, and conveying empathy and openness on the other. Indeed, when looking to a leader, people are unconsciously looking out » for this full range of nonverbal cues. While dominance can inspire confidence, approachability is also crucial.

The most interesting leakage tell is when there is a mismatch between what someone’s saying and what they’re doing with their hands

A good example of this was recently demonstrated by Oscar Munoz, CEO of United Airlines. In April, United fell into crisis mode when a video depicting a customer being brutally forced off one of their planes went viral. Faced with a drop in the company’s share value and repeated calls for his resignation, the pressure was on Munoz.

Joe Navarro, former FBI agent and author of What Every Body is Saying, said: “I saw the video of Munoz apologising by first playing it with no sound. What stands out is that he is in the mode where he is supposed to be: he expresses that this is an emotional event. One of the great traits of leadership is when you can convey strength with kindness and empathy, and they are not mutually exclusive.”

In this instance, Munoz was convincing as a result of his ability to appear sincere; his body matched his words. In stark contrast, Trump noticeably struggled to appear authentic in the awkward apology he issued following his own video scandal, in which he was caught making obscene remarks about women.

Emotions laid bare
Another crucial dimension to body language for leaders is what they might accidentally be giving away. Indeed, even the most skilful can slip up and allow their bodies to display something they would rather be kept secret.

“If you watch President Obama in the early years, any time Vice President Biden said something that he shouldn’t have said, you would immediately see Obama compress his lips together. That was his way of showing displeasure,” said Navarro.

The shapes people pull with their lips are among the most telling giveaways to their state of mind. Notice, for instance, that in the infamous footage in which George Bush is surreptitiously informed of the 9/11 attacks, his reaction is to purse his lips and twist them to one side before carrying on as if nothing had happened.

Another classic example of emotional leakage is Angela Merkel’s aforementioned unconscious habit of reaching to touch around her eye when she disapproves of something that has been said. Navarro noted: “It’s called a blocking gesture. It is just something that we do that helps us to either distance ourselves or psychologically block what we just saw or heard.”

According to Navarro, Merkel had a particular penchant for this tell when she spent time around former French President Nicolas Sarkozy. “Any time he says something really stupid – which he often did – watch how she would immediately cover her eye. That was an immediate tell that he had just said something he shouldn’t have,” said Navarro.

Often, it is the quick flash of emotion that can give away people’s true thoughts. “There is evidence that suggests that people can leak through the face through very brief expressions,” said Bull. For instance, in a scenario where someone attempts to suppress a reaction of anger or surprise, it will often leak out through a momentary lapse in composure.

Yet, according to Beattie, the most interesting leakage tell is when there is a mismatch between what someone is saying in their speech and what they are doing with their hand gestures. “When you are saying one thing verbally and your gestures don’t match, your gestures are always a better indicator of your underlying thinking,” he said.

When this kind of mismatch occurs, people often intuitively distrust the speaker, as they instinctively react to the non-verbal communication rather than what is being said.

Leaders, like everyone else, are good at editing and being aware of their voice, but are often unaware of their accompanying bodily movements. While many understand how influential body language can be, and so have an intuitive grasp on what works best, we all give away a little more than we might like to.

European finance chiefs critique Trump’s tax plan

As it moves towards its final stages, Donald Trump’s tax plan has run into a new potential obstacle: Europe. The finance ministers of five of the largest EU economies have signed an open letter to the White House and US Treasury, arguing that certain aspects of the planned US tax overhaul amount to ‘America first’ trade discrimination. The strongly worded critique also held that the proposed tax rules risk “having a major distorting impact on international trade”.

By wading into the tax debate, the finance chiefs acknowledged tax policy as one of “the essential pillars of a state’s sovereignty”. Despite this, they argued that, in its current form, the plan embodies unfair and illegal international trade dimensions.

In its current form, Trump’s tax plan embodies unfair and illegal international trade dimensions.

“It is important that the US Government’s rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed-up,” the letter said.

The main focus of the finance ministers’ critique is the way in which the US plans to tax multinational and foreign companies. Specifically, they fear that the proposed framework to shore up base erosion, which would protect the US tax base from the use of tax havens, could step on the toes of European business. The ministers outlined: “We have strong concerns if [US action to protect its tax base] is done via measures that are not targeted on abusive arrangements as this would impact on genuine business activities.”

Another key sticking point is the proposed rule that US exporters would be taxed less heavily if their profits were based on intangible assets like brands. Hinting at the possibility of European retaliation, the letter said that this provision could “face challenges as an illegal export subsidy”.

The attack from European ministers is not the only international resistance the bill has faced. China is the process of drawing up a contingency plan to combat the problems the bill might cause the Chinese economy. The Wall Street Journal quoted one Chinese official who speculated: “We’ll likely have some tough battles in the first quarter.”

How to invest smartly in the cryptocurrency boom

Cryptocurrencies are based on blockchain, a decentralised, distributed, public ledger payments technology. Should blockchain prove to be as efficient, scalable and secure as its advocates claim, it could seriously disrupt the legacy payment systems currently operated by banks, much in the same way the internet disrupted traditional media, communication and advertising.

The central idea of blockchain is that previously powerful intermediaries become redundant in making transactions and deals. As a result, it’s no longer necessary to use a bank or other payment service provider to transfer funds. Instead, both companies and individuals can trade in cryptocurrencies, bypassing the traditional route altogether for a system that is more efficient, and arguably safer too.

Today, there are four principal ways to invest in the cryptocurrencies that are growing in popularity with each passing quarter. Here, we take a look at each option:

1. Mining
Many cryptocurrencies work on the ‘proof-of-work’ principle. This means they need miners that can verify cryptocurrency transactions on their cryptocurrency networks.

Acquiring the necessary experience and knowledge can see miners earn a regular income in bitcoin – or, indeed, any other cryptocurrency

To start mining, you need to acquire hardware with high-performance processors capable of making the necessary calculations. When choosing hardware, pay attention to issues such as performance, price and electricity consumption. It is also possible to mine using cloud mining pools.

It is not easy to start mining from scratch, but acquiring the necessary experience and knowledge can see miners earn a regular income in bitcoin – or, indeed, any other cryptocurrency.

2. Initial Coin Offerings
Initial Coin Offerings (ICO) sound similar to the Initial Public Offerings (IPOs) of company shares, but they are markedly different. Unlike an IPO, an ICO offers no legal rights or claims to underlying assets.

With an IPO, an investor either has part ownership in a company through shareholdings or they can buy coins, which can appreciate in value should the business prove successful.

However, due to the fact projects funded through ICOs are typically early-stage start-ups, many of them have no minimum viable product. This means there is always a high risk the company will fail and investors will lose their money. Additionally, as ICOs are not regulated, there is no redress if money has been unwittingly lent to a fraudulent business.

Nevertheless, ICOs have attracted a lot of money (over $3bn) through 234 issues in 2017 to date, according to coinschedule.com.

3. Trading on cryptocurrency markets
To start trading you need to choose a crypto market, of which there are many all over the world. Equipped with a crypto wallet, participants can buy and sell real cryptocurrencies.

Buying, holding and then selling to crystallise a profit is a similar principle to investing in shares or commodities. However, trading cryptocurrencies involves risks that are not always associated with traditional asset classes; many crypto markets are located in risky jurisdictions, with no regulator to control them and guarantee trader rights. Ultimately, it’s just as possible to lose money trading, as it is to make a profit.

While no one can ever predict market price movements, many people claim there is huge potential for each bitcoin to be worth $100,000 or even more. One of the reasons, they say, is the limited supply, though the recent ‘forking’ of bitcoin to create bitcoin cash slightly undermines confidence this will remain so.

If the rules are to be believed, there can only ever be 21 million true bitcoins, out of which nearly 20 percent are dead bitcoins – or, in other words, they are trapped in lost crypto wallets.

Others say bitcoin has all the signs of a classic bubble, comparing it with silver in the 1980s, dotcom stocks in the late 1990s or tulip mania in Holland in the 1630s. Throughout the centuries, investors have seen markets crash spectacularly as a speculative bubble bursts.

Many claim there is huge potential for each bitcoin to be worth $100,000 or even more

There is little doubt cryptocurrencies are unusually risky compared with more traditional asset classes. For one thing, they are always susceptible to hacking. When the now defunct Mt Gox exchange was hacked in 2014, for example, around 850,000 bitcoins went missing.

The decentralised nature of cryptocurrency can thus be a curse, as well as a blessing.

4. Trading cryptocurrencies using CFDs
When trading contracts for difference (CFDs), you don’t own the cryptocurrency itself, but you can still trade it as prices change, and go either short or long.

Going long means first buying at one price and later selling for a higher price, benefitting from the price increase. Going short, on the other hand, enables investors to benefit from falling prices. First by selling at one price, then closing the circle of the deal, and ultimately making a profit by buying later at a lower price – this can be done using CFDs.

Many brokers provide the opportunity to trade CFDs on cryptocurrencies, but it is important that investors choose a regulated broker. For instance, Capital.com, a CySEC-regulated broker, offers trading in bitcoin, Litecoin, Ethereum and Ripple.

Capital.com is known for having an easy-to-use, intuitive interface platform that is available on desktop, IOS and Android. All that is needed to join the cryptocurrency world is a smartphone.

Capital.com provides leverage for cryptocurrencies of up to 1:5. This means buying CFDs for one bitcoin enables you to trade five bitcoins. Moreover, you can open a position on bitcoin for as little as $20, with trading starting from BTC 0.01. Tight spreads and the absence of trading commissions are also a big plus.

You must remember, however, that you trade at your own risk, as you could lose all of your invested capital once you begin trading. So we will finish with one final tip that is as applicable to cryptocurrency as it is to other assets: do not, under any circumstances, trade with money you cannot afford to lose.

Alvogen thrives in new generic pharma climate

Creating new drugs can take years – a decade, if not more, in fact. Millions of dollars are spent during the process, with numerous obstacles emerging along the way, most notably those of the regulatory kind. Generic drug manufacturers, however, operate in a different manner altogether. As generic pharmaceuticals have already been formulated, developed and approved, they require a smaller initial investment. These cost savings are then passed onto buyers.

Nonetheless, entering the market has always been challenging, and today, those already embedded within the US market are struggling. “This is an industry which requires a high level of investment, has relatively high barriers to entry and superior quality requirements compared to other industries,” said Robert Wessman, CEO and Executive Chairman of generic drug company, Alvogen.

Accustomed to change
Over the past two years, market leaders have started reporting underperformance. “Living in Iceland, I know how quickly the weather can change over the course of a day, so preparing for a sudden shift in market dynamics was something that came naturally to Alvogen,” Wessman explained. “Many analysts and managers in the US pharmaceuticals industry have been taken by surprise at how fast this shift has happened, while others are still in denial and tell themselves that things will soon return to normality.”

With so many sources of products fighting for placement in the market, it is easy to see why generic price erosion is at a level never seen before

“The industry goes in cycles – we have good years, which are followed by bad years, which are then followed by good years again,” Wessman told World Finance. “It is interesting to note, however, that ever since the Great Depression, which took place between 1929 and 1939, our industry has over-performed during any subsequent world crises.”

Market strengthening 
Wessman believes this latest cycle in the global pharmaceuticals industry has come about due to the consolidation in the US of both the customer base and manufacturers, as each side took advantage of economies of scale. But this too is changing. “During the last couple of years, customer consolidation has greatly outpaced manufacturing consolidation. Instead, wholesalers have started teaming up with retailers in joint ventures that allow the combined partnership to act as one unit,” Wessman explained.

At present, there are three material customers in generic pharmaceuticals – WBAD, ClarusOne and Red Oak – which control a whopping 90 percent of the US market. There are also three main players, which process over 75 percent of store-based retail prescriptions: Express Scripts, Caremark and OptumRx. Together, they are applying more pressure up-stream, thereby forcing WBAD, ClarusOne and Red Oak to pass price savings onto them.

“The result has been a similar loss in profitability for WBAD, Clarus One and Red Oak, which in turn has created more pricing pressure on manufacturers,” said Wessman. “However, it is not clear who seeks to benefit from the drastic price erosion in the US market due to the complexity of the US healthcare system.”

Although market consolidation has created giant generics companies, there are still more than 100 generic labels available in the US. According to Wessman, this has occurred due to the influx of investment into generic pharmaceuticals from both private and public sectors. Moreover, establishing a generic pharmaceutical company has fewer barriers to entry than the retail chain.

“It’s hard to imagine anyone creating a pharmacy or wholesale distribution company in the US that could compete with today’s big three. And with so many sources of products fighting for placement in the market, it is easy to see why generic price erosion is at a level never seen before,” Wessman noted.

Despite this unprecedented price erosion, Wessman believes that with all the changes occurring within the industry, new players will emerge, creating a more competitive environment than ever.

For more on the generic pharmaceutical industry, check out the upcoming special report in World Finance magazine.

Bankmed’s upside potential amid unstable Lebanese economy

Large, well-developed and proficiently regulated, the Lebanese banking sector has been driving growth in a country challenged by regional uncertainties. The country’s resilient banking sector played an instrumental role in securing economic growth over the past few years.

The sector was pivotal in weathering external shocks and sustaining Lebanon’s economic stability during the latest political stalemate, which came to an end when the Lebanese parliament finally elected a president in the last quarter of 2016.

The election of a president, the appointment of a new prime minister, the formation of a new cabinet and the passage of a new electoral law brought in positive development to Lebanon’s political and economic outlook.

The country was presented with an opportunity to move beyond its two-and-half-year political impasse. In addition, despite regional tensions and the conflict in Syria, security conditions in Lebanon have been well maintained.

Economic activity recorded a one percent growth rate in 2015/16, and is expected to improve to two percent in 2017. Despite the fact that the country’s debt-to-GDP ratio reached 148 percent, it remains below the peak of 185 percent reached at the end 2006.

In order to boost fiscal sustainability, policies that promote inclusive growth and adequate allocation of government spending to public services and infrastructure are necessary.

A resilient banking sector
As noted, Lebanon’s resilience hinges on the continued health of its macrofinancial structure. Banks in Lebanon operate under the jurisdiction of the Central Bank of Lebanon, Banque du Liban (BDL), and the Banking Control Commission.

Through its sound governance, stringent rules and regulations, and proactive strategies, BDL has shielded the Lebanese banking sector from major financial crises and set forth a solid foundation for prudential banking activity in the country.

In May 2016, BDL administered a financial operation in an attempt to bolster its foreign exchange reserves and strengthen the overall financial position of the country. As a basic step, BDL swapped Lebanese pound government debt for new eurobonds with the Ministry of Finance.

In June 2016, BDL encouraged domestic banks to purchase the newly acquired eurobonds and FX-denominated long-term certificate of deposits. In turn, local banks were offered sizable incentives to take part in the operation and were able to attract foreign currency deposits from outside the country. This enabled banks to recognise an 8.5 percent increase in deposits between June 2016 and June 2017, reaching $167.7bn by the end of June 2017.

Through sound governance, stringent rules and regulations, and proactive strategies, BDL has shielded the Lebanese banking sector from major financial crises

Lebanese banks also witnessed growth in their total assets, which increased by 9.3 percent between June 2016 and June 2017 to reach $208.2bn. Lebanese commercial banks therefore remain the chief source of funding to the economy. Moreover, this unconventional financial engineering has strengthened BDL’s gross foreign reserves to reach $53.8bn (including gold reserves) by the end of July 2017.

BDL’s credibility and sound monetary policy, geared at targeting Lebanon’s pegged exchange rate, preserves confidence in the system and supports domestic demand through the accumulation of gross reserves (excluding gold), which reached $42.15bn by the end of July 2017, increasing by 14.7 percent from July 2016.

In addition to the rigorous regulatory framework, the Lebanese banking sector draws its strength from its high liquidity and capital adequacy, which allow the sector to absorb shocks. Banks in Lebanon remain highly liquid, achieving a loans-to-deposits ratio of 31.4 percent as of June 2017. Similarly, high capitalisation also serves as a buffer in mitigating risks within adverse economic conditions.

Lebanese banks have exceeded the requirements of Basel III with a ratio of 16.6 percent recorded in 2016, surpassing the global standard as well as the minimum requirement set by BDL. Hence, banks in Lebanon remain well capitalised, another aspect that underpins the resilience of the Lebanese banking sector.

With assets of more than 350 percent of GDP, total sovereign exposure makes up 60 percent of aggregate banking sector assets, where banks hold more than half of Lebanon’s treasury bills and eurobonds. In turn, banks are primarily funded by core deposits.

An estimated 84.6 percent of total deposits are in account balances greater than $100,000, while 50.2 percent are in accounts with balances greater than $1m, and 3.7 percent are in account balances greater than $100m.

Aggregate private sector deposits in the banking sector have been expanding over the past five years, reaching $167.7bn in June 2017, up by 8.5 percent annually from June 2016. Of this figure, 80 percent are resident deposits and 20 percent are non-resident deposits.

Moreover, much of this growth is attributed to an increase in foreign currency deposits, which reached $111.8bn in June 2017, rising by 11.7 percent from June 2016 (see Fig 1). This draws on Lebanon’s healthy macrofinancial structure, which rests on the banking sector’s ability to attract continued inflows and maintain its fixed exchange-rate.

A sustained performance
With respect to Bankmed, the bank has sustained its performance in the first half of 2017. The bank’s total assets saw an annual increase of 2.7 percent, reaching $16.3bn at the end of June 2017, while loans stood at $4.9bn. As for net profit, it grew by 2.9 percent to reach $79.4m in the first half of 2017.

On the liabilities front, customer deposits witnessed a yearly increase of 3.7 percent to reach $12.3bn at the end of June 2017, and loans-to-deposits ratio stood at 40.7 percent. With regard to the provisions coverage ratio, including collaterals on non-performing loans, it was 111.3 percent, indicating Bankmed’s rigorous strategy in safeguarding its assets.

In terms of liquidity and capitalisation, the bank’s foreign currency liquidity ratio stood at 33.3 percent, surpassing the 10 percent regulatory requirement, while its capital adequacy ratio reached 14.6 percent, also exceeding the requirement set by BDL. As such, high liquidity and strong capitalisation remain among the fundamentals that Bankmed’s management continually focuses on.

Bankmed has sustained its growth, capitalising on a prudent strategy, a balanced approach to risk and sound corporate governance. The bank’s diversified business model, along with the synergy between its local and regional entities, has always served to underpin its growth and operations.

Locally, Bankmed has been expanding its geographic coverage, adding new branches to its network in an aim to access new markets and extend its various distribution channels. Bankmed’s ongoing investment in technology through supporting small companies that are geared towards banking technology and solutions defines its domestic advancement and diversifies its investment opportunities.

Investment banking and the securities trading execution business play a pivotal role in Bankmed’s operations. In 2017, the bank revamped this business line in order to consolidate all investment, hedging and trading activities in one place to better serve its clients and have comprehensive coverage for all asset classes.

Its professional relationship managers will handle all client activity, enabling customers to benefit from fully fledged services in Beirut and equally access BankMed Suisse products and services.

A new unit will be set up to cater for non-resident, high-net-worth and institutional clients. Also, a desk dedicated to sourcing and placing corporate advisory transactions will be expanded. Moving forward, a desk will be established for a mergers and acquisitions advisory team.

On regional and international levels, the bank enjoys a strong presence in the Dubai International Financial Centre, Saudi Arabia, Turkey and Iraq, as well as Cyprus and Switzerland.

While all of Bankmed’s regional entities have been contributing to its sustained growth, the bank’s private banking arm, BankMed Suisse, which has been operating in Geneva for more than 30 years, remains one of the bank’s main business lines.

Capitalising on the expertise of its advisory team, its open structure, and its profound knowledge of both the Middle East and its own clients’ needs, BankMed Suisse offers private banking and wealth management services to high-net-worth individuals, mainly from the Middle East and the Gulf Cooperation Council region. It also provides credit facilities and commercial services for some of its clients.

It is worth noting that Bankmed recently completed the licensing process to establish a subsidiary of its GroupMed reinsurance brokers in the UK in line with its expansionary strategy.

Opportunities for growth
The future carries great promises for the Lebanese banking sector. Having a government that is able to tackle the country’s pending reform agenda has a material impact on confidence and growth by boosting inflows, supporting financial stability and helping Lebanon’s debt dynamics. This could pave the way for enhancing macroeconomic stability and establishing a sound operational environment.

All in all, improvements in political and economic conditions locally and regionally are expected to have a positive effect on the overall economy in Lebanon. Such encouraging developments would attract larger domestic and foreign investment, create job opportunities and place Lebanon on a sustainable growth path. In turn, Bankmed will continue to capitalise on promising opportunities locally and regionally in line with its expansion strategy.

Growth in Turkey hits 11.1 percent

The Turkish Statistical Institute has announced that its third-quarter GDP figures depict a growth rate of 11.1 percent year-on-year. This makes it the fastest-growing country in the G20 by a considerable margin, with China trailing behind with 6.8 percent growth.

The double-digit figure marks a substantial leap from rates seen over the past year, with year-on-year growth coming in at around five percent for the first two quarters of 2017. Notably, it reflects a recovery from the contraction of 1.8 percent that was announced this time last year.

In 2016, the rate of private investment and consumption in Turkey fell in the wake of the failed coup attempt in July. Just a few months on, the economy was once again rocked by a dramatic fall in the value of its currency against the dollar following the election of Donald Trump. In tandem with other emerging markets, this currency volatility left monetary authorities with little room for manoeuvre to enact countercyclical policy. The Central Bank of the Republic Turkey moved to contain the depreciation of the lira by raising interest rates.

The economy has proven resilient to further uncertainty, with growth rates picking up momentum after the third quarter of last year

The economy has proven resilient to further uncertainty, with growth rates picking up momentum after the third quarter of last year. Growth was driven by a 20.7 percent expansion in the services sector, as well as growth of 14.8 percent in the industrial sector and 18.7 percent in construction.

Economic reforms can provide some explanation for the upswing, with increased government spending on both wages and investments.

However, there are questions surrounding whether this kind of demand-driven growth is sustainable. Turkey’s Deputy Prime Minister Mehmet Şimşek said in an interview on state-run television channel TRT that, while third-quarter growth “is an exceptional figure”, more balance is needed. “Turkey needs to carry out more reforms to have a 5.5 percent to 6.5 percent growth sustainable,” he said, as quoted by Bloomberg.

After a decade of growth and political stability, it’s time to invest in Colombia’s future

In 2008, Colombia’s tourist board ran a campaign called ‘Colombia, the only risk is wanting to stay’. The marketing slogan addressed the fact that for much of the outside world, Colombia was viewed as a dangerous country, in the grip of a violent drug war and tackling the longest-running insurgency in the Western Hemisphere.

Almost a decade has passed since then, and Colombia’s reputation has changed markedly, particularly from an economic point of view.

Sustained growth combined with well-established democratic stability is making Colombia an attractive proposition for long-term investments. GDP per capita has doubled since 2005, the national government has invested significantly in infrastructure, and a growing middle class is invigorating the country’s SMB sector.

Regionally, Colombia also offers a number of advantages over its neighbours. In 2017, the country ranked second in the World Bank’s Doing Business report for Latin America, and further legislation is looking to bolster these market-friendly conditions.

The economy has also proved remarkably resilient even in challenging times. The financial struggles of a number of Colombia’s neighbouring countries and key trading partners are causes of concern, but the nation has emerged today in a position of strength. Here at BTG Pactual, we share the positive outlook for Colombia’s economy and are keen to develop our operations in the country further.

A maturing market
One of the most exciting developments in Colombia’s financial sector is its maturing mergers and acquisitions market. This is being driven by the increasingly active role played by financial sponsors and leading investment banking divisions, which has enabled high-net-worth individuals and corporate clients to acquire and divest assets with greater confidence.

Cross-border buyers looking to consolidate their portfolio across a number of different sectors have also strengthened the mergers and acquisitions market.

Regional investment banks like BTG Pactual play a leading role in developing the investment sector. A professional team possessing local knowledge and experience, particularly concerning regulatory practices, is vital if potential clients are to receive the assurances they need to invest. Similarly, our networking capabilities help existing investors to expand their operations both domestically and abroad.

With international investors showing an interest in acquiring Colombian companies, our challenge is not necessarily sourcing investors, but closing the gap between value expectations and corporate governance

In Colombia, BTG Pactual has conducted a number of important mergers and acquisitions, most notably playing an advisory role in the purchase of Odinsa, the leading concessionaire in the country. This transaction began in April 2015, with Grupo acquiring 24.5 percent of Odinsa, and closed in December 2016 after several operations took this figure above 98 percent.

The total investment was around $670m and was the first purchase involving a payment in shares through the stock exchange in more than 20 years. Of course, investments do not take place in a vacuum, and international activity often accompanies movement in domestic markets.

The entry of Bovespa into the stock exchanges of Peru, Colombia, Chile and Mexico in 2016, as well as the takeover of Digitex by the Carlyle Group, demonstrates the importance of choosing an asset manager with knowledge of both regional and international markets.

Businesses large and small
An increasingly dynamic investment sector provides a huge opportunity for businesses in Colombia, regardless of their size. The country’s expanding middle class is boosting growth in all sectors, particularly for companies with exposure to consumer goods, healthcare and infrastructure.

The latter also enhances the development of Colombia’s numerous family-owned companies, which start to think about expansion and growth through strategic or financial partners, equity capital, and debt capital markets (DCM).

Where expansion is being considered, organisations in Colombia are increasingly looking at opportunities within international markets. Businesses that have reached a significant scale and share of the market actively seek investments in the Pacific Alliance, driving further growth from international operations and diversifying geographical risk.

There are great management capabilities in Colombian companies such as Nutresa, Argos, Sura, Bancolombia, Aval, Davivienda, ISA and Empresa de Energia de Bogotá (EEB), which have shown impressive leadership and commitment within the country. They are constantly looking for new challenges and ways of expanding.

While markets usually focus on blue-chip companies and conglomerates such as Colombian multilatinas, at BTG Pactual we are also interested in family-owned companies with existing international operations seeking new regional opportunities.

Facilitating growth can be difficult, however, if the right sources of investment cannot be found. It’s for this reason that many companies are looking at foreign investment to bolster growth and enhance corporate governance. As well as improving access to capital, companies will also gain the ability to execute their growth plans and target new markets.

With international investors showing a consistent interest in acquiring Colombian companies, our challenge as advisors is not necessarily sourcing investors, but closing the gap between value expectations and corporate governance structures so that a transaction can be effectively finalised.

Furthermore, family-owned companies, given their nature, are challenging targets for due diligence, which can lead to deal fatigue that decreases the
probability of success.

BTG Pactual is focused on dynamising the market and providing opportunities for companies in Colombia. In order to achieve this, we have created stronger links between international investors and domestic companies.

This was the case with Biomax, one of the country’s largest gas station retailers, as well as the Carlyle-Digitex transaction, which was considered one of the most important business process outsourcings in the country. In addition, we have supported companies in their internationalisation process, as was the case with ProCaps Laboratories, which acquired a pharmaceutical company in El Salvador.

After Colombia opened its economy in the 1990s, a new generation of managers became more willing to expand their businesses in Latin America and the wider world.

They became open to new partnerships and sharing decisions at board level, resulting in mergers and acquisitions, equity capital market (ECM) and DCM activities becoming more popular. This has brought economic benefits not just to those particular managers, but to all the country’s businesses, no matter how large or small.

For 2018 and beyond
Colombia and other Latin American nations represent great opportunities for managers interested in buying at a good price. Devaluation is already assimilated and, consequently, we expect that they will turn to equity markets for money.

There are also state-owned companies of a large enough size that the government is willing to sell a percentage and use those proceeds to invest in social or infrastructure programmes. This is the case with the city of Bogotá, which is currently selling 20 percent of the public energy firm EEB.

With regard to ECMs in 2018, we expect to see between three and four issuers in Colombia (IPOs or FOs) if the market is as open as it is today. Most of these companies have reached a significant size and are weighing up the possibility of accessing local and international ECMs, which could provide a potential exit strategy for financial sponsors.

This was the case with the recent Grupo Biotoscana IPO, a company with an important presence in Colombia, Brazil and Argentina.

In Colombia, BTG Pactual is acting as a leading advisor to the EEB democratisation which, with an estimated size of $1.2bn, will bring renewed dynamism and further liquidity to local markets.

In the last three years, there has not been an active local ECM, even though international investors are showing a particular interest in Colombia and its companies. This is certainly a potential growth area that could be exploited in the years to come.

It is also worth noting that Colombia will be a different country in terms of infrastructure in five years. The Colombian Government has earmarked $70bn to spend on boosting regional and international connectivity between now and 2035. The Fourth Generation (4G) road infrastructure programme is an ambitious proposal, the largest of its kind in Latin America today, and will deliver 8,000km of roadway and connect 18 major city regions.

In addition to road improvements, developments to ports, pipelines, airports, rivers and railways will help make the nation’s businesses more competitive.
At BTG Pactual, we have been advising four highway development projects that form part of the 4G programme, with funding in excess of $1.2bn.

We expect that this will boost regional development and help the country realise its full growth potential. The companies participating in this project may also provide added dynamism to ECMs since they will turn to this mechanism as a source of capital.

Infrastructural developments, of course, will provide wider benefits to the country’s economy. Improvements to transport links enable more efficient movement of goods and services, which will foster the expansion of existing businesses as well as the creation of new ones. Economic development will, in turn, encourage further investment into the country.

While no investment is without risk, the economic climate in Colombia can now be viewed with confidence, rather than trepidation. At BTG Pactual, we aim to be at the forefront of the country’s financial services sector for years to come, offering support to businesses in any industry and from all areas of the country.

It is only through investing in the Colombia of today that we can build a better tomorrow.

Crédito Real’s acquisitions strategy brings stability and higher yields

Crédito Real has 25 years of experience providing credit facilities in Mexico. The business focuses on clients who are underserved by the traditional banking sector; a potential base of more than 50 million people. Over the last few years the business has grown this base with some key acquisitions, including Instacredit in Costa Rica, and Don Carro in the US. Deputy CEO and CFO Carlos Ochoa explains the strategic benefits of these latest acquisitions, and their performance so far. He also touches on the company’s risk management and corporate governance credentials, and points towards more inorganic growth in the future.

World Finance: Carlos, thanks for coming in; talk me through these acquisitions, first Instacredit. What made it an attractive asset, and how has it performed so far?

Carlos Ochoa: Instacredit is based on Costa Rica, and it has operations in Nicaragua and Panama as well. It was attractive because these three countries are very stable economies, especially at the time when, in Mexico, things didn’t look so certain, you know, given all the political changes, both in Mexico or in the US.

So, by having Instacredit we were able to grow 30 percent in a year. That was a key element. And also we gained access to these stable markets, with stable currencies; and more importantly with high yield financial products.

So in a time in which Mexico, the interest rates were hiking; adding this particular product to our mix provided us some comfort.

World Finance: And Don Carro in the US; what’s the strategic benefit there?

Carlos Ochoa: Well, Don Carro provides credit facilities for the acquisition of cars to the hispanic community.

Our core business relies on finding those segments of the population underserved traditionally by the banks. Don Carro is a good example of that, and was our entry point to one of the largest markets in the world.

There are about 54-55 million hispanic people living in the US. They could make seven, eight times more what they make in their native countries. So that’s the potential that we see in the US.

World Finance: But with the recent anti-immigration sentiment in the US, it must expose you to a certain political risk.

Carlos Ochoa: Yes… I mean, we see that potential risk, but the market would still be enormous. I mean, even if a lot of people get deported, you would still have many millions to serve.

World Finance: Other risks you’re exposed to include currency fluctuations and the risk of increasing interest rates; how are you controlling and mitigating these?

Carlos Ochoa: Well, we have no forex risk; most of the debt that we have issued on the international markets is hedged into dollars, or into the local currencies that we work in. On the other hand, what we did in order to cope with interest rates hike exposure which we lived in Mexico, especially in the last couple of years, is we’ve been increasing the fixed part of our debt to over half of it.

World Finance: The Mexican Stock Exchange has rewarded your strong corporate governance; what measures have you taken to achieve this?

Carlos Ochoa: The most important element is transparency. We have an active board with a very active executive committee, and they are committed to transparency with all their stakeholders. And we have a very active IR team – I mean, we attend conferences all over the world, and that’s the way we communicate with them.

World Finance: And what does the future hold for Crédito Real? Are you targeting new markets?

Carlos Ochoa: There are a couple of large opportunities; and the US is going to be an important driver of growth in the years to come.

But also, if you see Mexico as an emerging market, as an emerging country, it is one of the most under-penetrated, financially. So the growth opportunities are also there.

World Finance: Carlos, thank you very much.

Carlos Ochoa: Thank you.

As customer expectations change, Banca Mifel’s financial services get personal

In a post-crisis financial environment, customers’ expectations have changed, and they are looking for new ways to satisfy their unique money management needs.

Not only has there been demand for greater regulation, but there has also been a need for innovation that could offer more customised products and services.

This shift in demand has initiated a significant change, creating a more personal, customer-centric approach to finance. As the focus on customer satisfaction increases, it is paramount that the finance industry adapts to keep up with evolving expectations.

The finance industry’s main objective nowadays is to gain trust and build loyalty with the public by creating a cohesive, simple and personalised customer experience.

With a direct link between customer satisfaction and financial success, the banking industry is constantly adapting and finding new ways to please customers.

Banca Mifel has accepted this approach wholeheartedly, anticipating the growing demands of our customers and responding by creating, adapting and designing a range of innovative products and services.

As an institution, we have been defined by our customer-centric approach from the very beginning, and we are now embracing new services that are committed to giving the customised care and personal touch needed to meet the customers’ financial needs.

Transforming trends
Finance is like any other business sector when it comes to the changing nature of customer service trends. Before the era of mass consumerism, companies typically had a very close relationship with their customers.

Knowing them on an individual level, the companies understood what their customers wanted. The benefits were that there was more trust and loyalty between customers and companies.

The disadvantage, however, was that this type of customer care was costly and inefficient, driving the price of service much higher. As mass marketing and consumerism evolved, however, attitudes shifted and customers began trading personalised service for anonymity and lower prices.

Today, there no longer has to be a choice between the two. In recent years, customers have been able to reap the benefits of having a personalised service at a low price.

The personalisation of financial services can be improved without compromising an institution’s cost efficiency. Quality customer services and profitability can now work parallel with each other, meaning companies are eager to build on customer satisfaction.

More than 60 years ago, Banca Mifel started with the same principles as many businesses did before mass consumerism – to be a caring company committed to providing a positive experience for its customers.

The growth of digitalisation within society is forcing financial firms to evolve. any institutions unable or unwilling to do so are getting
left behind

The origins of Banca Mifel date back to 1953 as a currency exchange in Mexico City, offering financial alternatives for the population. As a financial bank, its first branch began operations in June 1994.

Banca Mifel now has 64 offices in Mexico and, under my leadership as CEO of Grupo Financiero Mifel and chairman since 2003, it gained access to the international market.

As Banca Mifel grew, the institution never deviated from its core principles. Since the beginning, our commitment to customers’ needs has been consistent, resulting in a solid reputation and loyal customers.

A long way to go
Unfortunately for some financial firms, the potential for adapting a solid customer-centric approach has not been fully recognised. According to a report sponsored by Deluxe and published in January 2017 entitled Improving the Customer Experience in Banking, the objective of delivering a positive customer experience has become secondary to other priorities.

Considering that more than 70 percent of customer defection in financial services is credited to dissatisfaction with the quality of service, it seems highly irrational not to focus on customer service objectives.

Where some financial institutions may be too stubborn to implement improved customer services, others simply may not understand the factors that hinder greater customer satisfaction.

In the 2016 Digital Banking Report, The Power of Personalisation in Banking, there are certain target areas that banks needs to focus on in order to deliver on the ‘personalisation promise’.

The report notes that customers concerned about their finances look to their primary financial institution for personalised solutions and advice.

Even with a strong relationship between bank and customer, new fintech players and non-financial firms are upping the ante with highly customised digital solutions.

Institutions often overestimate how customers view their relationship with their bank, creating a false sense of confidence about customer loyalty. The report also highlights how the majority of financial institutions of all sizes are unprepared to provide personalised advice, communication and offers.

The issue in its simplest form is that dissatisfied customers are most likely to defect from the institution, and satisfied customers will stay for future business.

The institutions able to identify this link are placing increased emphasis on customer satisfaction to enhance customer loyalty for long-term profitability and success.

Banca Mifel has realised the potential for excellent service and customer satisfaction, and is continually pushing to find new ways to improve them. As a result, the firm has achieved great quality assistance and service, which in turn has accomplished lasting loyalty and long-term relationships with its customers.

Evolving products and services
In a highly competitive market, the quality and quantity of what is offered is paramount to attracting and keeping new customers. If an alternative firm offers more products, better services and a more personalised experience, even the most loyal and satisfied customers will defect.

The greater the variety of products and services available, the more unique and customised the overall service is for each individual. There is a direct correlation between products offered and customer satisfaction, and therefore it is imperative to offer multiple products and services through different delivery channels.

Constantly adapting and delivering new ideas, Banca Mifel has a vast range of products and services satisfying its customers’ needs. With a portfolio boasting more than 50 products and services, the bank has something for everyone, in both personal and private spheres.

In the personal banking segment, Banca Mifel largely focuses on savings products, such as time deposits and accounts, investment products, insurance, personal and mortgage loans, and credit cards. As a preferential service bank, these products offer customers the ability to manage their finances at ease.

In the private banking segment, Banca Mifel provides financial solutions through lines of credit, investments in multiple instalments with personalised advice, factoring, payroll dispersion and POS terminal services. All of these are used as instruments to nurture the growth and revenue of the businesses that place their trust in the institution.

The digital age
Technology is arguably one of the biggest factors impacting the banking sector. The growth of digitalisation within society is forcing financial firms to evolve; any institutions unable or unwilling to do so are getting left behind.

Although face-to-face communication is still a large part of customer service, institutions are no longer the centre of interaction – web banking, mobile clients, social networks, email and other digital communications are taking over.

The emergence of innovative banking services has created an anytime, anywhere banking dynamic, intensifying the need for further innovation in banking technologies.
The application of internet services has proven to be an effective way to reduce the cost of operations for financial institutions. Adept use of technology also provides better connectivity for customers.

Along with many other benefits, the digital age in banking allows for improved relationships between customers and institutions. For the first time, technology has made it possible to achieve both personalised customer services and cost efficiency.

Witnessing the positive impact technology can have in finance, Banca Mifel has embraced the digitalisation of banking, creating several different digital platforms.

Mifel.net, Mifel Movil and Contacto Mifel allow users to perform multiple transactions, view their account statements and set up direct billing. The best practices and newest technology are constantly updated to these platforms, offering users an easy, quick and safe navigation that can manage financial transactions at any time.

In fact, the website was renovated just this year, offering a new navigation style and an optimal user experience. On top of that, Banca Mifel generates further human communication through its digital campaigns, keeping in touch with customers and showcasing more product offers provided by the firm.

As technology continues to evolve, it is most likely that the financial industry will follow suit, adapting to current trends and digital platforms. What will remain in the industry, however, is the growing demand and expectations placed on customer services. Building a customer-centric approach will be imperative for financial institutions wishing to thrive.

Robert Wessman: A leader must be able to act when most others don’t

Previously we heard from Robert Wessman – founder, chairman and CEO of generic pharmaceuticals company Alvogen – about the pressures in his industry, and the origins of the business on a restaurant napkin. Now we hear his vision of leadership, which in many ways has its origins in the same place: with the financial markets in ruins, and nothing but a napkin in his hand. He also talks about how he finds good people – and keeps them motivated.

Robert Wessman: A leader must be able to act and do, when most others don’t. And a leader has to also be persistent.

In the early days, I didn’t have any money, I didn’t have anything else, other than a piece of napkin. You have nothing! Empty pockets. You have a handful of colleagues, you have some thoughts, you have the financial markets collapsed. Then you have to believe. And you have to continue and not give up; even though we have a lot of hiccups and headwinds.

I think those two elements are very critical, but of course there are many elements in a good leader.

I motivate people, mainly by being motivated myself. So if I wake up grumpy and I’m not motivated, I’m not going to motivate anything! I’m staying positive. And when we, kind of, hit the end of the tunnel and we didn’t see the light, I was the one to go on the floor, talk to the team, and help to find and create the solutions.

I’m not sure leadership can be in a big scale taught. You can, you know, have tools to help you, and improve. Some people are funny, and it’s not only because they have the DNA saying, you are funny. They are brought up in a certain environment, they go to school which impacts them, they have friends which impact them. They end up being funny people!

And I can learn a few jokes, but I would never be a stand-up comedian. But, it’s the same with leadership.

It’s not what you learn in school, in university, or MBA. It basically starts the day you were born. Your upbringing, your friends, which kind of personality you are yourself. People are at the end of the day, when they start learning about leadership, already they are leaders or not. But they can unfold their leadership by going to school.

World Finance: How do you find great people?

First of all, to find great people, you have to know what you’re looking for. And I look for two things. First of all experience, and reputation in the industry.

The second, and even more important, is the personality. Is the person ambitious? Is the person positive? Is the person able to work within a group? I’m looking for people who are pro-active and find solutions.

Our environment is positive. It’s a hard-working environment; we create our culture within the company from day one. We decided which kind of culture we wanted in the company.

We earn our respect by being respectful; and many, many companies don’t get that, or understand that. And I think that is part of the motivation we bring in people; the fire we manage to bring into everyone’s belly.

That is good leaders do, and that is what I believe in.

Thanks for watching. Click through for our other videos with Robert Wessman, where he talks about the pressures in the generic pharmaceuticals market today, and Alvogen’s origins on a restaurant napkin. And please subscribe for even more international business insights from worldfinance.com

‘I took my napkin, and off we went’: Robert Wessman’s billion dollar vision

In June 2009, Robert Wessman – former CEO of multi-billion dollar pharmaceuticals business Actavis – met with investors in a New York restaurant to discuss his vision for a new pharma business model: Alvogen. He explains how he grabbed a napkin to sketch out his ideas – a napkin he still has to this day, and brings out every couple of years. This year the company has surpassed the $1bn sales target he set himself eight years ago. Watch our other interviews with the Alvogen chairman and CEO, where he discusses his vision of leadership, and the pressures in the generic pharmaceuticals market today.

World Finance: In June 2009, Robert Wessman – former CEO of multi-billion dollar pharmaceuticals business Actavis – met with investors in a New York restaurant to discuss his vision for a new pharma business model: Alvogen. And by discuss, I mean: draw on a napkin.

So basically I grabbed this napkin – and I’m quite fond of this napkin. So you cannot borrow it, by the way.

So just reading from the napkin, my vision was, I wanted to create a leading company in the world. So, no lack of ambition there! I wanted to see a company with over a billion dollar sales, here. And we will exceed that this year.

I wanted to go into emerging markets – meaning central and eastern Europe, Asia-Pacific. And I wanted to also include the US, being the biggest market in the world.

I wanted to make sure that we could produce our products. So, wanted to have a CMO, our own facility. Which we did, in the US. I wanted to open a CRO, so we could do our own clinical trials. I wanted to then open up my own biosimilars, which we did four years back with Alvotech. And I wanted to cover not only prescription drugs, but also OTC.

I wanted to hire the best in class people to join us. I wanted to build the best portfolio, knowing that the industry would consolidate. So we would have a product which our customers want.

I wanted to make sure that we would build up the best quality systems. And we wanted to build up the best service. So Alvogen today operates over 99 percent service level on a global scale. Which I think don’t think any other generic company is doing.

So I took my nice napkin, and off we went. I signed up with a US company, I bought a half developed portfolio: 21 products, which I wanted to use as a base for my new venture. A year later, those products were advanced in the development, and I didn’t have any production side.

So I went to a meeting in upstate New York with a company called Norwich. And met with the owners of Norwich: they had manufacturing plants only. I came with 21 products I needed someone to produce. And I explained my napkin.

So, they were inspired. They thought it would be a good idea to combine products and plant. And a few months later we had a contract where we combined forces.

So from that day we started a journey to build up our portfolio, to build up our research and development, our business development. We expanded into 35 countries in only 24 months. And we basically took this small company with $37m revenues, loss making; into what is now Alvogen. A global business with over a billion dollar sales.

So since then, this has been our strategic roadmap. I’m always a little bit proud when I take a look at my napkin, which I only do every second year. So, I kind of preserve it well, and make sure that nobody uses it by mistake.

World Finance: Quite a story; thank you very much.

Robert Wessman: Thanks.

Thanks for watching. Click through to our other videos with Robert Wessman, where he talks about his vision of leadership, and the pressures in the generic pharmaceuticals market today. And please subscribe for even more international business insights from worldfinance.com

Alvogen founder: Generic drug price wars will drive consolidation

Generic pharmaceuticals has become big business in recent years, as the drug industry has ricocheted down a series of patent cliffs over the last decade. You’d think it would be triples all round for investors; but in the US, publicly listed generics companies have actually seen their market capitalisation drop 57 percent since January 2016. Robert Wessman, founder of Alvogen, explains that customer consolidation and over-leveraging to acquire assets has changed the industry permanently. Watch our other interviews with the Alvogen chairman and CEO, where he discusses the company’s origins on a restaurant napkin, and his vision of leadership.

Robert Wessman: There are two main reasons: one being consolidation of customers in the US, and the second being the massive acquisition spree the industry went into the last couple of years.

The US market is half of all global sales. What we have seen in the last couple of years is the wholesalers teaming up with retailers. So today, we have three groups controlling 90 percent of the entire market. The purchasing power of those three groups is two times the purchasing power of the entire European Union. So for us as a generics company, we are among 100 companies fighting for shelf space with those three big groups. And that has led to intense price wars in the last 18 months.

The main issue when it comes to acquisitions: our industry is cyclical, it was at its peak in 2015. Many of those companies, to maintain growth, had to enter into acquisitions to buy growth. And those companies were willing to over pay just to secure the assets and continue to grow. Most of those acquisitions were funded by debt; then, when we saw the pricing start to erode, those companies became over-leveraged, which impacted for sure the market cap of those companies.

Those changes have changed the industry permanently. My prediction is there will be a massive consolidation in the industry, because we cannot have 100 generic companies serving three customers. So I think we will see many companies merging, we will see many companies fighting off their debt by selling off assets. Most likely we will see 10-15 companies emerge out of that.

So, I think we will have a very exciting time, an interesting time, in the coming 24-36 months in the industry.

In my opinion, companies that have access to cash today are in a much better position. And also companies which did put an effort and investment into research and development in the past, into novel and difficult-to-make products, will be able to fuel their growth going forward.

At the same time, companies that have invested into bio-similars – because the industry will be at a crossroads only five years from now, when biotech products will become the bigger portion of the global market.

Alvogen is well-positioned today. We have been spending about $60-70m on our research and development for the last five years, every year. We have a very strong portfolio to continue to grow the business.

At the same time, we went out. We raised funds before we saw the crash coming, now. So the company has over $600m sitting on the balance sheet, waiting to take advantage of assets that come for sale, and hopefully will be at much more reasonable prices than we’ve seen in the past.