News roundup: November 2019

14 November
Illustration of a globe next to screens, with the words ‘NEWS’ lit up

Corporate failures are destroying public faith in UK audit system, says poll. Plus, MPs tipped to intervene on cyber buyouts

Less than a fifth of public trust UK audit system

Only 17% of the UK public trusts the nation’s audit system, according to a Survation poll of 2,000 people for global advisory firm Mazars. The findings reveal strong support for audit reform, with almost two-thirds of respondents (62%) saying that they don’t trust the current system to provide independent, accurate assessments of any given firm’s financial position. Mandatory joint auditing is a highly popular alternative, with 72% of respondents backing the introduction of joint audit in response to the high-profile accounting scandals and corporate failures that have blighted the UK private sector in the past few years.

In a statement, Mazars noted that the recent failures of Carillion and Thomas Cook “are firmly part of the public consciousness”, with large proportions of respondents expressing concern for Carillion’s suppliers (81%) and employees (also 81%). Indeed, in a 23 October tweet, senior adviser at Opus Restructuring Nick Hood slammed the auditing approach to Thomas Cook, writing: “Just get this financial disaster straight. Thomas Cook would have been technically insolvent from at least 2014 if management and auditors hadn’t played fantasy accounting games with billions of worthless goodwill. Utterly irresponsible.”

Mazars partner and global head of audit David Herbinet said: “We have long believed that the public has a real interest in an audit system that makes our economy stronger through improved transparency and accountability, and our research only strengthens this belief. High-profile company collapses are becoming all too common, and impact hard-working people who understandably have grave concerns and are now demanding action.”

He added: “There is insufficient choice and resilience in the audit market. Substantial reform is now critical to the sustainable success of our largest companies and the wider economy. Nearly three out of every four members of the public support the introduction of mandatory joint audit as a remedy, and we see this particular reform as a major opportunity to create an even playing field for challenger firms to compete more fairly in the large corporate market – in which 99% of the audit fees of FTSE 350 companies are currently paid to just four firms. A diverse market is vital for audit quality and for the overall functioning of the economy.”

 

Expert predicts intervention on foreign buyouts of UK cyber firms

Foreign acquisitions of UK cybersecurity firms could gather pace in the coming months to head off the effects of potential interventionist laws, Glafkos Tombolis, corporate partner at tech-sector law firm Kemp Little has said. His assessment follows the 14 October news that US private equity firm Thoma Bravo has offered almost $4bn for leading data protection company Sophos, based in Abingdon near Oxford. In a statement, Tombolis suggested that, as time goes on, lawmakers may seek to prevent purchases of companies that could play a valuable role in UK national security.

He said: “This deal reinforces the notion that, despite a slowdown in high-value M&A transactions, cybersecurity remains a particularly fertile area for PE buyers that want to develop tech platforms, of which cyber forms a critical part.” Nonetheless, he pointed out, “there are potential headwinds, quite apart from general macroeconomic conditions: it’s undeniable that a number of countries – including the UK – are looking to reinforce their national security regimes in a way that could stymie the acquisition of cyber businesses with dual-use capability.

“Indeed, as part of the Queen’s speech… the government proposed legislation that would give it greater powers to block foreign acquisitions of sensitive UK assets.”

Tombolis added: “There are significant doubts about whether this – and indeed any other legislative initiatives proposed by Boris Johnson’s government – will ever become law. But the UK national security regime was tightened last year and the direction of travel is certainly towards a more interventionist approach. This may mean we can expect a rash of cyber M&A deals in order to forestall any incipient legislation.”

 

Treasurers putting their faith in the cloud, says EIU

Cloud computing will be the most important technology to corporate treasurers in the next five years, a poll of 300 senior treasury executives by the Deutsche Bank-backed Economist Intelligence Unit (EIU) has found. In a new report, 44% of the respondents say that the cloud will be treasurers’ most critical tool in the run-up to 2025, with the Top Three rounded out by big data analytics (42%) and artificial intelligence (37%).

Deutsche Bank global head of cash management Ole Matthiessen said: “Treasury management systems deployed in the cloud offer a host of benefits, including a wider and more dynamic view of financial positions, automatic access to the latest analytical tools and an ability to more easily collaborate with stakeholders, reducing the need for data collection and input by treasury. It has taken some time for risk-averse treasurers to accept the security and robustness of cloud-based solutions – but we are now witnessing a change in mindset.”

Quoted in the report, Kimberly Clarke EMEA treasury manager Takachida Kuhudzai pointed out: “With cloud-based solutions, you are now spending less time trying to consolidate the data and more time analysing it and questioning the assumptions.”

Turning to the high score for big data, Matthiessen added: “Simply ‘owning’ data is not enough. Digital transformation is required in order to extract, aggregate and analyse good-quality data. The journey towards an efficient, data-driven treasury takes time and our survey can help treasurers to identify how far along they are and what steps they need to take next.”

CBI chief: “Every year in 2020s must set new green finance record”

Progressive, global green bond and loan issuance for 2019 has passed $200bn, according to leading specialist advocacy group the Climate Bonds Initiative (CBI). The milestone marks an all-time high for the green market, setting the stage for annual issuance to meet the CBI’s forecast range for the year of between $230bn and $250bn overall. Energy dominates the use-of-proceeds league at 33%, followed by low-carbon buildings (29%), low-carbon transport (20%) and water (9%), with waste and land use on 3% each.

In a 23 October statement, CBI CEO Sean Kidney said: “Based on these figures, 2019 will be another record year for green finance. New sovereigns are entering the market and pioneers like France, Poland and Nigeria are now repeat green issuers. Bond size and diversity of issuers is increasing, and noteworthy is the presence of leading European and Chinese banks among the largest issuers: all positive signs of market maturation.”

However, he stressed, not even issuance of $400bn per year would be enough “to address the climate emergency and provide the capital at the scale urgently required” for large-scale transition, adaptation and resilience. “From here on,” he noted, “every year in the 2020s must be a record year for green finance. The climate challenge for global finance – regulators, banks, insurers and institutional investors – remains.”

He added: “Generating that first $1 trillion in annual green investment by 2021/22 is now critical. It’s the benchmark from which to measure year-on-year growth in climate-based investment towards 2030.”

 

Tradeteq teams up with WUST on supply chain AI project

Digital trade finance platform Tradeteq has joined forces with leading researchers at Wroclaw University of Science and Technology (WUST) to develop new data analysis models based on artificial intelligence (AI). The project aims to enhance Tradeteq’s credit-scoring system for SMEs and corporations, which leverages a broad set of data sources, including details on each firm in its supply chain and each receivable.

With that data in hand, the system’s advanced machine-learning tools apply a sophisticated, evidence-based credit score to each firm. Clients receive early-warning signs when a supplier or counterparty is in distress, or at risk of not fulfilling credit or trade requirements. Tradeteq’s algorithms predict the potential impact of those issues on each relevant business to minimise the risk of interrupted trade flows or payments. Under the new partnership’s terms, a research team from WUST will complement Tradeteq’s London-based AI specialists for six months. The joint unit will explore ways of improving the analysis of company and trade-flow data to sharpen up the supply chain credit scores.

Tradeteq head of AI Michael Boguslavsky PhD explained: “The traditional credit-scoring process is outdated, and remains reliant on a small number of accounting entries. Technology is the key to achieving greater transparency and rigour in the credit-scoring process and minimising the risks associated with global trade flows.

He added: “By partnering with some of the leading academics in the field of graph machine learning, we hope to explore new approaches for data analysis and take a bolder approach to testing new credit-scoring models underpinned by our machine-learning technology. This will allow us to identify new models that unlock intelligent data and introduce greater efficiency, transparency and standardisation for importers and exporters when assessing the risks in their supply chain.”

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