News roundup: February 2019

Regulatory pressures spark hiring drive in corporate compliance wings. Plus, EU regulators agree framework for sharing money-laundering info

Corporates ramp up compliance staff as regulatory burden swells

More than half (55%) of corporates have grown their compliance teams to contend with the mounting regulatory pressures of the past five years, according to a poll of 500 executives. Commissioned by global administrative services firm Intertrust, the poll showed that almost 40% of corporates have invested in new technologies to assist with compliance, with the same proportion making greater use of external advisors and consultants. Just 17% said that they have simplified their business operations to ease regulatory burdens: the vast majority of firms have chosen to harness extra resources to achieve compliance.

As corporates adopt a range of measures to respond to an increasingly complex regulatory environment, respondents believe that, going forward, technology will play an ever more pivotal role in compliance work. Indeed, 87% of the firms polled predict that demand for regtech solutions – software tools designed to help companies meet their compliance goals – will intensify over the next two years.

Intertrust global head of corporate services Jan Willem van Drimmelen said: “Disruptive technology is playing an increasingly significant role in the development of corporates across all sectors for both compliance and day-to-day business operations. This presents a number of challenges for corporates that must decide how best to adapt to a changing environment and acquire the necessary technology and skills through M&A, off-the-shelf products, research and development or external support.”

EU authorities strike AML info-sharing deal, while tech firm calls for global solution

A breakthrough has emerged in Europe’s fight against money laundering, with news of efforts between EU regulators and Member States to enhance their sharing of relevant data.

As announced on 10 January, the three European Supervisory Authorities, together with all competent authorities at national level, have settled upon a practical framework for more effective exchange of money-laundering information, with the details enshrined in a multilateral agreement. As well as setting out terms for the types of data that will be exchanged and the underlying processes for sharing it, the agreement outlines provisions for areas such as confidentiality, data protection, scenarios in which information requests can be refused and dispute resolution.

Following the agreement’s release, identity verification specialists Trulioo called for a more global, tech-driven approach to money laundering within the financial services industry. In the UK alone, it noted, the Financial Intelligence Unit has received more than 634,000 suspicious-activity reports over the past two years. According to Trulioo general manager Zac Cohen, the globalisation of financial services is making money laundering more widespread. “If proper anti-money laundering procedures aren’t in place,” he said, “institutions face major consequences, such as large fines or even imprisonment – and a rise in fraudulent activity.”

He added: “In order to transmit counterfeit funds through banks, bad actors are turning to more sophisticated techniques such as under or over-invoicing, falsifying documents and misrepresenting financial transactions. Using state-of-the-art digital tools – such as automated systems and artificial intelligence-driven technology – helps to streamline the process of checking and verifying the ultimate beneficial owners of a business. This, in turn, can isolate the source of the funds and ensure compliance [with] regulations.”

Find the full, European multilateral agreement here.

Skills barriers holding treasurers back from tech adoption

Corporate finance teams lack the required skill sets to embrace sophisticated, new technologies, according to a new report – with almost 90% of them yet to deploy artificial intelligence (AI) tools. Published by the Association of International Certified Professional Accountants (AICPA) in partnership with Oracle, the report stresses that 46% of tech-savvy finance leaders report positive revenue growth, compared with just 29% of their ‘tech-challenged’ counterparts.

According to the research partners, only 11% of the 700 global finance leaders surveyed have implemented AI in their departments, while nine out of 10 say that their team doesn’t have the necessary skills to support wholesale digital transformation programmes. AICPA chief executive of management accounting Andrew Harding said: “Businesses are missing out on huge growth potential by failing to give finance teams the tools and training they need to make better corporate decisions.”

He added: “Cloud and emerging technologies such as AI and blockchain drive efficiency and improve insight and accuracy, enabling finance leaders to step into a more strategic role in the business and improve the organisation’s data-driven decision-making. To make the most of these new technologies, finance teams need to simultaneously evolve the competencies of their staff in areas such as analytical thinking, decision-making and business partnering.”

Click here to download the full AICPA-Oracle report Agile Finance Unleashed: the Key Traits of Digital Finance Leaders.

Third of UK accountants recommend invoice finance over loans

Some 36% of UK-based accountants are advising their business clients to explore invoice finance ahead of conventional loans, according to research from consultants MarketInvoice. In a poll of almost 2,000 accountants, the business-finance specialists found that 66% are routinely referring their clients to a broad range of external funding sources. But the prominence of invoice finance suggests that a sea change is under way in the profession.

Among the accountants who do not currently refer their clients to external providers, 36% cited a lack of understanding of the available options as the primary reason behind their reluctance. Almost a fifth of that segment highlighted the time and cost burdens of sourcing the relevant options, while 18% raised concerns over the potential administrative stress of managing the relationship between their clients and potential lenders.

Despite those hurdles, MarketInvoice head of strategic partnerships Tom Davenport said that the figures show accountants are stepping up for their clients and keeping them informed about the full array of opportunities. “Additionally,” he said, “we have observed that forward-looking, strategic accountancy practices also have in-house business-finance specialists advising clients on funding options.”

Davenport added: “This research also dispels the myth that invoice finance is a last resort for businesses. Accountants are clearly acknowledging the vital role it can play in helping companies manage their cash-flow needs.”

Warning of Brexit-fuelled supply chain hurt amid rise in business insolvencies

Strained relations between UK corporates and their smaller suppliers are driving a rise in business bankruptcies, according to a prominent expert. Speaking as new figures from the Insolvency Service showed that 10% more firms went bust last year than in 2017, Brian Johnson – business recovery partner with accountants HW Fisher & Company – said that Brexit uncertainty is stalling deals and blighting cash flow.

“Large companies are withholding investment decisions, which is already having a significant, detrimental impact on smaller companies further down the supply chain,” Johnson noted. “There is plenty of evidence of this happening in both the retail and construction sectors. Moreover, a lot of larger retailers and construction firms are stretching payment terms to the limit, heaping even more pressure on their suppliers. A disorderly Brexit will only exacerbate these issues, meaning more companies are bound to go to the wall.”

Turning to other points from the Insolvency Service figures, Johnson said the increase in Company Voluntary Arrangements (CVA) is also a significant concern, “with the rise in CVAs likely to have been driven by the retail sector last year, which faced a perfect storm of reduced consumer spending, internet shopping, an interest rates rise and minimum wage increase.” An 11% annual rise in compulsory business insolvencies, he added, “highlights just how many companies were on life support throughout the past couple of years. The ‘zombie companies’ – so often spoken about over the past few years – are now being washed out of the economic system.”

Find the full figures here.

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