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The role of Middlemen!

An important role in the sustained functioning and the ability of revenue generations for the global finance industry, have been played by the middle men. A crucial link operation between the capital providers and the capital end users are in the hands of them. These middle connection plays an effective role and has been pivoting in enabling the financial and monetary systems to operate smooth. As the recent studies show these middlemen are about to be an endangered species. Typically they operate either as a broker or a more important role of bearing the risk and receiving compensation themselves for doing so. But being a broker means the work is to sit between two parties in a transaction facilitating the connection between the buyer and seller.

Pertinent questions raised surrounding the efficiency (or inefficiency) of the global financial system during the Financial Crisis of 2008. And the focus was mainly on the importance and requirement of these intermediaries, whether they were necessary or not. It led to a strong incline towards the disintermediation to emerge in the last few years with the process well underway across several distinct areas within the banking and finance sphere.

According to “Financial Disintermediation in International Markets’ and Global Banks’ Funding Models”, a paper published by José María Serena Garralda of Banco de España, global banks have been reducing their cross-border positions and reversing the build-up observed prior to the crisis, which was attributed to “centralized funding structures”, as well as reducing their wholesale funding (that is financing from non-retail sources, such as interbank loans). “Today, these global banks’ funding structures are shifting in parallel to cross-border bank deleveraging. Wholesale funding is contracting, as part of broader shifts towards more stable funding sources.” she said.

“The disintermediation process is already well engaged in Europe. Investors’ involvement in financing should bring Europe closer to the US model, with financing more equally balanced between banks and institutional investors.” observed Société Générale. And that does not mean that if financial equality being balanced between the banks and the institutional investors take place, he banks will no longer play any role in the funding model, the French bank acknowledged. He also said, “The disintermediation movement is thus a win-win development for the European market, enabling it to adapt to the new regulation and financial paradigm and continue to finance the real economy and economic growth, while combining banks’ historical asset/lending expertise with investors’ long-term funding capacity.”

Banks, play critically important roles with regards to determining the appropriate creditworthiness of borrowers and other counterparties as well as conducting risk management and compliance. Most bank loans are often secured with some form of collaterals whereas this is not the case with disintermediated lending platforms, meaning that borrowers may quickly fall deeply into debt if they fail to pay high interest rates on unsecured loans.

Disintermediation represents an exciting advancement in financial services by providing the most direct, efficient way for transactions to occur but it is unlikely to necessitate a complete transition within the industry. Middle men still have a wide role to play in certain situations and thus the two models of disintermediation and intermediation are to be co-existing and operating side by side. This also gives the market participants a wider range of options to choose from. But the disintermediated products and services are representing an evolution in this sector and the traditional process are to be minimalized. This itself will take the financial industry on a better ride.

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LexisNexis risk solutions study reveals sharp rise of financial crime compliance costs

Decision makers inside banks, investment firms, asset managers and insurance firms identify the drivers impacting financial crime compliance. LexisNexis® Risk Solutions revealed that the results of its annual True Cost of Financial Crime Compliance Study for the U.S. and Canada. The total projected cost of financial crime compliance for the region is approximately $49.9 billion. The survey illustrates the sharp increase in financial crime compliance costs.

The study projects the average annual cost of financial crime compliance for U.S. financial institutions with $10 billion. Pandemic Continues to Spur Growth. The pandemic continues to negatively impact compliance operations. Sixty eight percent of U.S. respondents report longer times required to complete due diligence. Fifty five percent of U.S. respondents report reduced productivity compared.

More U.S. financial institutions now rank real estate and hospitality as top money laundering risk segments. Crime involving digital payments, trade-based money laundering and money mule schemes are on the rise. Digital currency is a growing problem for Canadian firms. Crimes involving digital payments have the greatest impact on compliance costs. Cryptocurrency crimes have the greatest impact on compliance costs for Canadian firms. The survey results demonstrate that financial institutions are battling a broader set of issues.

Survey respondents indicate that a lack of current and extensive data tops the list of Know Your Customer (KYC). Leslie Bailey, vice president of financial crime compliance strategy for LexisNexis Risk Solutions stated that the study shows clear linkages between the pandemic, digital crime and increasing regulations. Hence, financial institutions need to prepare for expanded compliance obligations and risks from emerging financial crime. Bailey added that digital transformation is a game-changer for financial crime compliance operations.

This will require a sophisticated approach that incorporates insight into digital behaviors. This study surveyed 145 decision-makers in the U.S. and Canada. Responses were collected in June 2019, August 2020 and June 2021. Organizations such as banks, investment firms, asset management firms and insurance firms. The total annual cost of compliance across firms was calculated using survey data. The spend amount was generated by multiplying the average percent allocated to financial crime costs.

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COP26 delegates agree on need to deliver on $100 BLN climate finance pledge

Delegates heading to the COP26 U.N. climate summit in Glasgow. These delegates agreed that they must deliver on the $100 billion per year pledge. COP26 president Alok Sharma said that, it is to help most vulnerable nations for tackling the climate change.

After many days of meetings at the pre-COP26 climate event, which happened in Italy, Sharma said that there was a consensus to do more. Which is to keep the 1.5 degrees Celsius target within reach, adding more needed to be done collectively in terms of national climate plans.

The COP26 conference in Glasgow aims to secure more ambitious climate action. This is from nearly 200 countries, those all that have signed the 2015 Paris Agreement for limiting the global warming, well below 2.0 degrees Celsius. And to 1.5 degrees, above pre-industrial levels.

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City’s exposure to Evergrande is very minimal-Hong Kong finance Chief

Hong Kong’s exposure to debt-laden developer China Evergrande Group is very minimal at 0.05%. This is of banking assets, South China Morning Post reported, citing the city’s finance minister. Financial Secretary Paul Chan told the newspaper that it is very minimal and won’t cause them any systemic risks. He added that he had arrived at the conclusion after a recent audit of the local banking sector’s exposure to the company.

Chan also said that the Hong Kong’s stock market was inevitably subject to some volatility. This is amidst a recent mainland crackdown on some industries. But still he believed any setback would be temporary. With liabilities of $305 billion, Evergrande has sparked concerns its cash crunch could spread through China’s financial system. This may reverberate globally and that is a worry that has eased with the Chinese central bank’s vow, to protect homebuyers’ interests. Evergrande has missed two bond interest payments. Bondholders have said this and its offshore debt, amounting to about $20 billion, trades at distressed levels.

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