Barriers How Much Attention Should Investors Pay to Country Groupings Such As the Brics? Page 12

Securities & INVESTMENT APRIL 2012

REVIEWthe members’ magazine of the chartered institute for securities & investment cisi.org/s&ir

Border barriers How much attention should investors pay to country groupings such as the BRICs? page 12

Mission possible? Why regulators are struggling to reform the rating agencies, p16

Turning the tables Changing trends in outsourcing are good news for the UK, p20

CISI.indb 1 26/03/2012 12:22 CISI.indb 2 26/03/2012 12:22 Securities & Investment april 2012 REVIEW Editor Louise Reip Commissioning Editor Hugo Cox 6 Senior Designer 12 Pip Atkinson Art Director Steven Gibbon Publisher David Poulton Production Director John Faulkner Managing Director Claire Oldfield Chief Executive Martin MacConnol Advertising Sales Yanina Stachura +44 20 7010 0945 [email protected] Cover illustration Clara Terne for Agency Rush Published on behalf of the 16 Chartered Institute for Securities & Investment by Wardour, 5th Floor, Drury House 34–43 Russell Street Yan Ling Angela Lua, London WC2B 5HA a double winner at Telephone: +44 20 7010 0999 this year’s CISI Fax: +44 20 7010 0900 Annual Awards www.wardour.co.uk ISSN: 1357-7069

Communications Editor, Chartered Institute for Securities & Investment Contents Richard Mitchell 8 Eastcheap, London EC3M 1AE Features Members’ features Regulars Telephone: +44 20 7645 0749 12 blurring the boundaries 22 cpd: recognising 5 city view Email: [email protected] Dan Barnes examines the standards Both the numbers and Editorial panel many and varied categories for Gary Wright describes anecdotal evidence hint at a Nick Seaward, Supervision Services emerging markets – and why the benefits of legal global economic recovery Chartered FCSI, Chairman Partnership Suren Chellappah FCSI Sanford C Bernstein portfolio managers should not entity identifiers Moorad Choudhry FCSI Royal Bank of Scotland take them at face value Simon Culhane, Chartered Institute for 6 upfront Chartered FCSI Securities & Investment 24 keeping mum News and views from Scott Dobbie FCSI(Hon) Deutsche Bank 16 the credit conundrum This month’s Grey Matters Mike Gould FCSI Russell Investments members of the CISI, Victoria Hoskins, Barclays Wealth It is widely accepted that the dilemma considers when including our regular back Chartered FCSI credit-rating industry needs to blow the whistle Peter Land, Chartered FCSI Brewin Dolphin story by Clay ‘Mudlark’ Harris Gregor Logan MCSI reform, but the solution Paul Loughlin, Rathbone Investment is eluding regulators. 26 need to read Chartered MCSI Management 11 first person Hugo Cox reports Catch up with this Robert Merrifield FCSI Legal & General Christopher Adams asks Richard Mitchell Chartered Institute for month’s essential reading Securities & Investment whether doubts should be Frank Reardon, JM Finn 20 coming home cast on predictions for China’s Chartered FCSI Dan Barnes looks into how 27 diary Patricia Robertson, Westport Global continued ascendancy Chartered FCSI shifting trends in outsourcing CISI events and new Jeremy Robinson, Charles Stanley member admissions Chartered FCSI will benefit the UK – but not Hamish Rowan-Hamilton TheCityUK its capital 18 profile: puranam Markus Ruetimann FCSI Schroder Investment 30 people: community spirit h ravikumar Management Nimrod Schwarzmann FCSI RBS Global Markets John Garbutt FCSI explains The Executive Chairman Arjuna Sittampalam, Sage & Hermes his role as a Justice of the of SKS, the leading Indian Chartered MCSI Nigel Sydenham, BPP Professional Education Peace and Alderman in the microfinance firm, talks Chartered MCSI City of London to Hugo Cox Alan Yarrow, Chartered Institute for Chartered FCSI(Hon) Securities & Investment

Average audited circulation: 17,886 for period July 2010 – June 2011 © The Chartered Institute for Securities & Investment (CISI). All rights reserved. Reproduction in whole or part prohibited without prior permission of the CISI. The CISI and Wardour accept no responsibility for the views expressed by contributors to the Securities & Investment Review; or for unsolicited manuscripts, photographs or illustrations; or for errors in articles or advertisements in the Securities & Investment Review. The views expressed in the Securities & Investment Review are not necessarily those held by the CISI or its members.

CISI.indb 3 26/03/2012 12:22 CISI.indb 4 26/03/2012 12:22 city view

cisi opinion Four years after the crisis, there are signs that economies are looking up – at home and abroad Reasons to be cheerful

“april is the cruellest month,” wrote the delicate balance between debt Lloyds banker (and poet) TS Eliot, 90 years reduction and injecting cash to keep ago. But does spring this year bring us reasons demand buoyant. British to be cheerful? In alphabetical economist Ian Harwood, of Redburn, is order – as is appropriate when considering the equally positive. The chances of a near-term best ideas – in the month running up to the UK American recession, he reckons, are pretty Chancellor’s Budget: Citigroup predicted that much zero – bar the unpredictable impact of the FTSE 100 could double in value over the a large-scale shock such as a war with Iran. wealthier pockets of the Middle East have never next decade, fuelling a boom in mergers and Across the world in Asia, optimism felt more empowered – or energetic. Their new- acquisitions; Jupiter reported net inflows of reigns. In markets on China’s eastern seaboard found optimism might just become infectious. £700m into its funds (“We think that there has in particular, Lehman’s demise – still an open The British can be relied on to been a bit of a firming of the tone in February wound in the old world – is as distant in local spot a cloud near the most gleamingly silver and March ... it is a change in trend to the memory as Barings’ self-destruction last lining. But even as we enter Eliot’s “cruellest positive,” Chief Executive Edward Bonham century is in London. China’s supposedly new month”, the signs are promising. In the real Carter told the Financial Times); Manpower, the 7.5% target growth rate caused much hand- economy, two other pieces of news cheered up recruitment firm, identified, from a survey of in mid-March. Nissan announced that it would more than 2,000 businesses, a new willingness be investing £125m and creating 2,000 new jobs by UK employers to hire; and Rathbone saw a The banks are recovering, at its north-east England plant, to build its new 30% rise in pre-tax profits, driven by its highly small hatchback. Sunderland was chosen over successful wealth-management business. and the UK retains Nissan’s plant in Chennai (formerly known There is also anecdotal evidence of as Madras) because of the UK factory’s strong an upturn. David Wighton, in The Times, writes world-leading companies productivity record. Tesco – Britain’s largest that London’s taxi drivers, those traditional fonts in aerospace, defence, private-sector employer – announced plans to of economic wisdom, have reported more people hire 20,000 more staff over the next two years. asking for receipts – a suggestion, perhaps, that pharmaceuticals and Brits have focused for decades on “the squeeze on expenses is loosening” and less- their country’s perceived strengths in financial austere times lie ahead. high-end cars and other services, so the thumping taken by the financial world in recent years has knocked Global positivity wringing when the outgoing government made the stuffing out of many people’s optimism. Beyond the London cabbie circuit, the US, the announcement in March. But it is consistent But the banks are recovering and the country the world’s dominant economy, shows signs with the 2011–15 five-year plan. No economy has retains world-leading companies in a number of of robust economic recovery – its labour ever expanded at rates approaching 10% forever. non-service sectors, notably aerospace, defence, market has generated more than 200,000 new Growing at 7.5% is still good by any standards. pharmaceuticals and high-end cars. A country jobs each month since December. Ray Dalio, In the Middle East, Iran is a major that can sell ever-growing numbers of Bentleys, who last year overtook George Soros as the worry. Added to that, the overdue reform BMWs, Jaguars, Land Rovers, Lotuses, world’s most successful hedge fund manager, process by conservative regimes will take time McLarens and Rolls-Royces to the wealthy of describes America’s economy as “the most to creak into action and the humanitarian the BRIC countries and the Gulf should allow beautiful deleveraging yet seen”. His take is crisis in Syria is a disgrace. But there is much itself some springtime optimism, and share that the policy-makers have managed well the underlying good news. Young people in the some of that with its global partners.

CISI.indb 5 26/03/2012 12:22 News and views from the CISI Upfront

qualifications Principal event sponsor

Yan Ling Maria William Morgan Jamal Abdel Sheila Tina Robert Benjamin Angela Lua Mathew Blomfield Lavanchy Jabbar McIntyre Robinson Bramham Hasan Annual awards have an international flavour The global reach of the CISI was highlighted at Operations Certificate (IOC) from more than Jordan (International Certificate in Investment its biggest-ever Annual Awards, where more 5,700 candidates who gained the qualification. Management) and Mark Elliott ACSI, Director than 100 top exam performers were recognised. The other joint overall winner for the IOC, of Operations, QInvest, Qatar (Advanced Global Of prizewinners honoured at a ceremony at formerly known as the Investment Administration Securities Operations). UK regional winners London’s Mansion House, 15 were from outside Qualification, wasScott Sutherland, Embedded included Sheila McIntyre, Director, Corporate the UK, including four from India and three from Risk Manager – Markets, National Australia Bank, Banking, Clydesdale Bank, Aberdeen. She was Singapore. For the first time there were award London. Angela said: “The IOC has helped me to joint winner of the Overall Certificate in Corporate recipients from Australia and Jordan. gain an in-depth understanding of the financial Finance and Corporate Finance Regulation. It was the Institute’s 19th Annual Awards services industry from an operations perspective. Tina Robinson MCSI, Investment Manager, ceremony and prizes were given in a record 56 It has laid a strong foundation in building my Brewin Dolphin, Penrith, Cumbria, won the categories. Winners were selected from takers of career.” Angela jointly secured the Operational highest accolade, the Overall Masters in nearly 33,000 exams in more than 70 countries. Risk award with two other candidates, including Wealth Management, and the Applied Wealth There was also a strong UK regional flavour, Maria Mathew, Associate Manager, Accenture Management Award. Robert Bramham TD led by Scotland, which provided six winners. Services, Mumbai. MCSI, Investment Manager at Brewin Dolphin’s CISI Managing Director Ruth Martin said: Diplomat William Blomfield, an Executive Leeds office, was the first winner of the new “Each year as we celebrate the success of Officer in the Australian Department of Foreign Compliance Institute Award for Regulation & outstanding individuals at the awards ceremony, Affairs and Trade, achieved the joint top score Compliance. The Compliance Institute merged we also celebrate the importance of continually for the International Introduction to Securities & with the CISI last year. encouraging entrants to our industry to aspire to Investment. William, based in Canberra, said the Other new awards included a prize for the achieve they very best they can in exams.” qualification had been “important in gaining a Investment Advice Diploma. It was won by The principal sponsor of the awards was BPP better sense” of global financial difficulties. James Birch ACSI, Dealing Floor Manager, City Professional Education. Morgan Lavanchy, Head Legal & Compliance, Equities, London, who also gained an award for Swissquote Bank Ltd, Gland, Switzerland won FSA Regulation & Professional Integrity. Award winners the the UAE Rules & Regulations award. He said A prize was also introduced for the highest- Yan Ling Angela Lua became the first winner Swissquote was developing its presence in Dubai scoring student in the Certificate for Introduction from outside the UK of an overall award for and the exam provides “an excellent opportunity to Securities & Investment, a CISI qualification a globally established CISI qualification for to delve into and gain an in-depth understanding for schools. The winner was Benjamin Hasan administration and operations staff. Angela, of the Dubai regulations”. from Langley Park School in Beckenham, Kent. Operations Officer at Deutsche Bank in Other winners from around the world Singapore, was placed joint top for the Investment included: Jamal Abdel Jabbar ACSI from For a full list of award winners, see page 28.

letters online

Postbag Letters to the S&IR can be sent by post to Richard Mitchell, S&IR digital revamp Communications Editor, Chartered Institute for Securities & Investment, 8 Eastcheap, London EC3M 1AE, or to A new magazine format has been information will be available soon. [email protected] launched for the online S&IR. Reading the S&IR counts as CPD for From your computer you can read the members. Anyone accessing the online Dear S&IR, current issue of the S&IR and previous edition or the app version has CPD hours I congratulate Hugo Cox on his excellent interview with editions as if you had the printed version automatically added to their CISI CPD Sharon Bowles, Chair of the European Parliament’s in front of you. You can easily navigate log. If you prefer to read the S&IR online, Economic and Monetary Affairs Committee (S&IR, March). around the magazine, zoom in on you can opt out of receiving the hard Almost unknown in the UK, Sharon is a very famous articles and be directed to websites of copy of the magazine at cisi.org/mycisi figure in Brussels, where she does a critical job making interest by clicking on live links. You may search each edition or the extensive View the online sure that the UK tradition of free markets and competition S&IR at cisi.org/s&ir. is not overridden by some of our European partners’ more archive for relevant terms, as well as To download the interventionist preferences. She deserves greater recognition download and print PDF copies. latest version to your for her work and it is appropriate that the S&IR should have The Institute is also redesigning the smartphone or tablet, use chosen to highlight it. CISI mobile app to make it more suitable the CISI app installation instructions available at and user friendly for smartphones cisi.org/app Jonathan Price FCSI, Partner, Variable Pitch Partners LLP, London and tablets, such as the iPad. More

6 April 2012 cisi.org

CISI.indb 6 26/03/2012 12:22 The number of exclusive money-saving deals currently offered to members through the CISI Select Benefits scheme. These range from discounts on eye care to cut-price 39 holidays. To see all the offers available, visit Select Benefits at cisi.org/mycisi ➳

membership New integrity requirement 60-second interview Douglas Croft, Chartered FCSI, The CISI is introducing Subsequently, as of 1 April 2013, aged 62, has been issued by the CISI with new membership existing MCSIs and FCSIs will be required a Statement of Professional Standing. requirements for voting to take and pass with an A grade the This is the certificate of competence that members. This is in line IntegrityMatters test by the end of the retail investment advisers must attain by with its commitment 2013/14 subscription year. 31 December 2012 in order to continue in to championing the There is a different requirement for business. Douglas, a partner at Andrews Gwynne, a wealth management firm in Leeds, highest standards of new members entering at MCSI level, has worked in the sector for about 40 years. Chris Harris-Deans, ethical behaviour within including those upgrading from ACSI. Chartered FCSI financial services. They need to pass IntegrityMatters at Eventually, all members at MCSI and grade A before 31 March 2013. This will How did you feel about the need FCSI level must obtain a grade-A pass mean that new members meet the same Qto obtain an SPS? in the Institute’s IntegrityMatters online ethics test entry requirements as entrants To any time-served practitioner like ethics test. Nearly 5,800 members have from universities accredited as CISI me, with a string of qualifications already taken the test, which is based centres of excellence. that previously satisfied the FSA, the on ethical dilemmas in the workplace. Chris Harris-Deans, Chartered FCSI, requirements of the Retail Distribution It is already a requirement for personal Chairman of the CISI Membership Review (RDR) looked, initially, like an insult. But burying Chartered status. Committee and Senior Director of my head in the sand was not the answer, and neither For existing MCSI and FCSI Charles Stanley’s Exeter office, said: was walking away – meeting the challenge head on was members who have not already passed “The CISI requires all applicants for the only solution. IntegrityMatters at grade A, the following membership to declare that they will measures will apply. uphold the high standards of the Institute. How challenging was it to obtain the SPS? As a first stage, as of 1 April 2012, they The requirement that all MCSI and FCSI QThe most demanding requirement was to attain will be required to undertake and pass the members must undertake ethics elearning an RDR-appropriate qualification, the CISI Certificate Integrity & Ethics unit of the Institute’s and testing provides tangible support for in Private Client Investment Advice & Management Professional Refresher elearning tool by that declaration.” (PCIAM). When I got the PCIAM workbook, it landed 31 March 2013. Professional Refresher is with a resounding thud, my spirits sank and I wondered provided free of charge to members and For further information, see the Integrity where on earth the study time would come from. studying the module counts as CPD hours. & Ethics section at cisi.org Forward planning was needed, my workload was reorganised and I specified study periods, including evenings and weekends. Suddenly, not only did time Francine Jackson ACSI, Operational Risk Analyst at an investment bank in the appear for study but my work flowed more effectively City, recently passed IntegrityMatters and highlighted the benefits of the test: and efficiently. I studied over the course of four months “With all the recent media attention around the financial services industry, and this put my knowledge into context, added maintaining high personal and professional standards of integrity is very important,” detail and jogged ancient memory. Although writing she said. “The IntegrityMatters workshop and test provide realistic ethical dilemmas essays under exam conditions is not fun, the sense of and have enhanced my moral reasoning and ethical decision-making skills.” achievement certainly is!

What difference will the RDR make to the cpd Qstanding of the sector? The public has learned not to trust financial service providers, and rebuilding trust will take time and effort, China and India in the spotlight so increasing professional standards is a good start. It’s up to all of us to communicate these standards to our The CISI’s London CPD of India, will provide their insights into the clients and provide reassurance. programme will take a world’s biggest democracy. close look at the financial The rest of the CPD programme from What advice would you give to help advisers and economic centres of April to June is more varied than ever. It Qto obtain an SPS? the future in twin events includes round table discussions on the Above all, get started now. Sort out what you need to called ‘The Rivals’. changing face of exchange-traded funds, do, for example by considering any gaps you need to China will be the first pitched at both intermediate and advanced fill through structured learning between the content of John Adams country put under the levels; improving communications with an RDR-transitional qualification, such as PCIAM, and spotlight, on 10 May. The key speaker will clients; some radical transformations new exam standards. Then plan a programme – if you be John Adams, a former senior Bank of in back-office practice brought about need to attend gap-fill study courses and workshops, get England official, senior adviser on China at by Dodd-Frank; and how to obtain UK them booked – and stick to it. the CISI and fluent Chinese speaker. residence visas (legitimately, as part of a Then, on 19 June, India will be put under UK Government programme) for overseas An FSA Accredited Body, the CISI recommends that applications the spotlight. Lord Desai, the eminent investment clients. for an SPS are made to it by 31 October. It guarantees that all correctly Anglo-Indian economist, and Deepak completed applications lodged by that date will be processed before For further details of the London programme, the end-of-year deadline. For further information, see cisi.org/rdrsps Lalwani, Chartered FCSI and close observer see page 27 or visit cisi.org/capitalcpd

CISI.indb 7 26/03/2012 12:22 news review

education regulation Links forged with business school CISI gives input Aston Business School (ABS) in Birmingham membership of the CISI upon enrolment, has signed a memorandum of understanding allowing them access to a range of professional into Finance Bill with the CISI. networking and career development The memorandum commits ABS, part of opportunities. In future, students will have For the first time, the CISI has been invited to Aston University, to future excellence in finance the opportunity to complete professional contribute directly to UK legislation. education in line with the mission of the CISI, qualifications, such as CISI Diplomas, while they The invitation followed the CISI featuring putting it on course to be designated as an are studying. in a Financial Times article about the growing Institute centre of excellence. CISI Managing Director Ruth Martin said: regulatory imbalance between the retail and ABS finance students are given student “We are very much looking forward to working wholesale markets. The article promoted more closely with ABS and greater professionalism for the wholesale developing new initiatives to further sector, suggesting a return to compulsory advance finance education for the exams and the introduction of continuing region and beyond.” professional development, alongside Jim Steeley, Professor of Finance the requirement for higher standards and Head of the Finance and of integrity. This led to an approach from Accounting Group at ABS, said: the Shadow Treasury team, which asked “This partnership will provide the Institute to submit an amendment to students with further opportunities the forthcoming Finance Bill, currently in to gain a professional qualification its third reading. alongside a degree.” He added that The CISI amendment, number 52, was it could only enhance students’ debated by the Treasury Committee on job prospects. 1 March, resulting in some heated debate From left, CISI Managing Director Ruth Martin with Professor Patricia Chelley- The CISI recognises seven UK before eventually being withdrawn following Steeley, Senior Lecturer; Professor John Edwards, Executive Dean; Professor Jim Steeley; and Adele MacKinlay, Chief Operating Officer; all ABS universities as centres of excellence. government opposition.

dinners The percentage of financial Branch events services players that expect raise charity money 67 Greece to leave the euro within An expert from television hit Antiques Roadshow and a a year, a CISI survey shows. To take part in the comedian were guest speakers as two CISI branches held latest survey, visit cisi.org their annual dinners. Cultural historian and broadcaster Lars Tharp provided an insight into Antiques Roadshow online at the East Midlands BEST OF THE BLOGS & Lincoln event at Devonshire Place, tinyurl.com/patrickkingsley and files as “part of a wide-ranging and East Midlands & Lincoln branch President Jonathan Leicester, which was 1Do the three major rating agencies rule ongoing investigation into alleged market Wernick ACSI (left) with Lars Tharp attended by nearly the financial world? Undoubtedly so, is the manipulation”. 70 guests. A collection for Derbyshire, Leicestershire and conclusion Patrick Kingsley reaches in a tinyurl.com/ianverrender Rutland Air Ambulance raised £807, including Gift Aid. recent blog for The Guardian. He believes that, while there are more than 150 agencies 3Credit-rating agencies command little More than 80 guests at the Northern Ireland dinner, worldwide, companies need Standard & respect from Ian Verrender, a senior business held at Belfast Harbour Commissioners, were entertained Poor’s (S&P), Moody’s or Fitch Ratings onside columnist for the Sydney Morning Herald, by funnyman for a credible rating. “The first two firms each who criticises Fitch for downgrading three of Gene Fitzpatrick. control around 40% of the market,” he said. Australia’s four big banks. Pulling no punches, Hilary Morrison “Fitch has about 15%, and is usually engaged he insists that the rating agencies are hell- MCSI, from when S&P and Moody’s disagree significantly bent on proving themselves relevant despite about the creditworthiness of a debt.” failing to predict every major financial crisis or Cunningham collapse in the past 20 years. Verrender also Coates, who has tinyurl.com/BBChughpym denounces as blindingly obvious S&P’s claim more than 60 years’ Europe might be in the financial that Australian banks would suffer greatly Adrian O’Neill, Chartered FCSI, President, CISI 2 Northern Ireland branch; Derek Borthwick, Vice experience in the mire, but rating agencies should perhaps if the Chinese economy collapsed. “There’s President Sales, J.P. Morgan; Gene Fitzpatrick, guest think twice before giving certain governments certain to be more than just our banks speaker; and Richard Bennett, CISI Regional Director industry, also spoke. More than £695, the thumbs down. Writing for BBC News, that will suffer,” he says. “Try our resource economics correspondent Hugh Pym notes companies for starters. Try the global including Gift Aid, was raised for the Northern Ireland Italy’s reaction after S&P downgraded the economy for seconds.” Cancer Fund for Children. country’s sovereign debt last August – a At the dinners, the branch Presidents, Jonathan Wernick move that many believed would push up See page 16 for more on rating agencies. ACSI (East Midlands & Lincoln) and Adrian O’Neill, the Italian Government’s borrowing costs. Chartered FCSI (Northern Ireland), gave updates on local In January this year, the Italian financial Do you have a blog recommendation? activities. CISI Regional Director Richard Bennett spoke at police carried out a dawn raid on the Milan Please send it to the Editor: office of S&P, taking away documents [email protected] both events about developments within the Institute.

8 April 2012 cisi.org

CISI.indb 8 26/03/2012 12:22 ➳ CLAY ‘MUDLARK’ HARRIS Back story on Martin Watkins, Chartered FCSI, Euroclear Group The world of technology in the securities in Business Studies, with distinction. accountability for whether [the training] industry can be a carousel. As it revolves, “The ‘distinction’ was very important to worked or not,” he says. the same faces show up again and again, me,” he says. “I wanted to show that I In addition to trainer, he acted as agent, often in new arrangements. could get the highest possible grade negotiating with sponsors and media. He That sums up the last two decades for available.” He also did ICSA chartered- took no money himself, reinvesting all Martin Watkins, Chartered FCSI, now secretary training courses, without proceeds into the athletes themselves Director, Global Sourcing, for Euroclear intending to sit exams, in order to learn – either for expenses or as salaries. He Group. There are few names – individual about business finance and business law. considered trying to make a business of Martin Watkins, or corporate – in the sector with whom His next job, found through a local it, but concluded that he would need at Chartered FCSI he has not worked in one way or another, advert, was as a UK representative for the least six world-class athletes, all Director, Global often more than once. computer-technology division of competing, to make it pay. Sourcing, It’s enough to make your head spin, Kongsberg, the Norwegian defence Martin moved from Kongsberg to Euroclear Group and vertigo of the literal sort was a contractor. Martin’s work produced 16% Sysdeco, the Norwegian software group, hazard at his first job, as a management which was introducing its products to the Do you have a back-office story? apprentice at PSC Freyssinet, a French Lloyd’s insurance market. He then went civil-engineering firm. “I wanted to demonstrate to CityMax, where he set up an insurance mudlarklives@ hotmail.co.uk Its projects included lowering huge that I could get the highest business unit and managed Cazenove’s seals into the Thames Barrier as it was preparation for the introduction of being built. Martin had to climb down a possible grade available” CREST on an extremely tight schedule. ladder deep into the piles. A single “It went live, on time, to spec and on electric cable supplied light and, being of turnover at its UK subsidiary. budget. It was a huge effort, but very below the riverbed, there was inevitably His boss in Norway employed an satisfying,” Martin says. some water seepage. unusual technique to teach Martin to ski. From then on, it was a whirl on the Martin had left grammar school at 16 His first lesson was in thick fog on, carousel. Martin worked at Cap Gemini, and became an apprentice two years Martin learned only at the end, a ‘black’ leading its technology partnership with younger than the usual age. He was there slope for experts. Martin was no stranger Liffe, and then headed Atos Euronext’s for five years, but management prospects to training methods. For nearly 20 years, clearing division in Paris with 100 staff. receded as Freyssinet reduced its UK as a sideline, he trained international In 2006, he became Head of presence in the recession of the early athletes. His goal was to “take talent to its Operations at what is now Euroclear 1980s. “They got a good deal out of it; I got optimum”. At 18, he had become the UK and Ireland. He now focuses on a good deal out of it; but it was time to youngest qualified Assistant Coach in global sourcing for Euroclear and plays move on,” he says. British athletics. His brightest star was an active role in the CISI, as Deputy At Freyssinet he studied on day release Mark Richardson, once world number Chairman of the IT forum and a member and earned a Higher National Certificate two in the 400m. “I always took the of the Membership Committee. Illustration: Luke Wilson Luke Illustration:

recognition CISI honours high-profile industry figures

Three prominent figures within the financial Honorary Fellowship, which carries the services industry have each been awarded designatory letters FCSI(Hon), is awarded by the Honorary Fellowship of the CISI. Institute Board to those who have contributed They are Xavier Rolet, Chief Executive of the with distinction to financial services and to London Stock Exchange (LSE); Andy Pomfret, the CISI. The Institute now has 48 Honorary Chief Executive of Rathbone Brothers, and Fellows out of a membership of more than Abdulla Al Turifi, Chief Executive Officer of the 40,000 worldwide. Securities and Commodities Authority (SCA), Xavier Rolet worked in investment banking the United Arab Emirates (UAE) regulator. for 24 years before taking up his current role at the LSE in 2009. The Stock Exchange was the birthplace of the Institute and Xavier has played a CISI Chairman Alan Yarrow, Chartered FCSI(Hon), left, key part in keeping that unique relationship alive. awarding Abdulla Al Turifi FCSI(Hon) his Honorary Fellowship during a visit to the Gulf Andy Pomfret began his career as a chartered accountant. He then spent 13 years with UAE’s financial sector. The focus for these efforts Kleinwort Benson before joining Rathbone is a mandatory licensing regime, drawn up and Brothers in 1999, rising to Chief Executive in administered in co-operation with the CISI. 2004. Andy has been a strong supporter of the Alderman Alan Yarrow, Chartered FCSI(Hon), Institute and its values since becoming a member CISI Chairman and Sheriff of the City of London, 15 years ago. said that the Institute Board felt it was “entirely Abdulla Al Turifi’s Honorary Fellowship was the fitting” that it should give these three valued first to be awarded outside the UK by the CISI. supporters its highest accolade. CISI Chairman Alan Yarrow, Chartered FCSI(Hon), centre, with Andy Pomfret, Chartered FCSI(Hon), left, and Xavier Rolet He joined SCA in 2003 and has played a key “I am delighted to welcome them to our elite FCSI(Hon) at an Institute lunch in London for its Honorary Fellows role in improving professional standards in the group of ambassadors,” he said.

CISI.indb 9 26/03/2012 12:22 news review Chris Cummings Chief Executive, professional interest forums TheCityUK Ask the experts... Risk events look London as an offshore Renminbi trading centre to the horizon In January, UK Chancellor George although it is hard to predict when it will What is likely to happen in the financial Osborne announced that the UK had become either fully convertible or a reserve services market, and what are the risks agreed to partner with Hong Kong to currency. The Chinese authorities enforce involved in an ever-changing industry? develop the City of London as an offshore strict controls on the RMB. However, as Those are questions that will trading centre for the Chinese currency, China’s economy expands, it is expected be considered as the CISI’s risk the renminbi (RMB). that restrictions on the RMB’s flows and professional interest forum (PIF) value will continue to be gradually relaxed. Trevor Williams holds its annual Investment Horizons Why London? This will benefit London, as trading will event on 17 May. At the event, a As well as being the leading global financial increasingly flow to the UK capital. line-up of senior industry experts will services centre, London is also by far the The Hong Kong Monetary Authority make predictions for the investment largest foreign-exchange market in the (HKMA) plans to extend the hours of sector for the coming year. Panellists world, accounting for 37%* of trading. The the RMB payment system in June to give will include Trevor Williams, Chief UK is therefore ideally placed to join Hong European-based trading firms more time Economist, Lloyds Bank. Kong as a major international offshore to settle offshore RMB payments through Forum Chairman Dennis Cox FCSI, centre for the trading of China’s currency. Hong Kong. The move will keep the Martyn Brush Chief Executive Officer, Risk Reward The breadth of financial and system open until 17:30 UK time, giving Ltd, will chair the panel. Dennis said: “By having a panel professional services based in the UK London another trading advantage. of experts with differing perspectives, delegates will supports this ambition and means that In 2011, the Chinese authorities get a unique insight into the key drivers of performance the expertise is already here to develop announced their support for the UK as and the uncertainties that will arise. I’m sure that the market. Added to that are the the first offshore RMB trading hub in the anyone attending this event will find it both enjoyable ‘natural’ advantages of our time zone western time zone. In January, following and stimulating.” – which means that our trading day talks between George Osborne and On 12 July, the risk forum will discuss tools and naturally follows on from that of the the Chief Executive of the HKMA, the techniques for portfolio management, covering some Asian markets – and English being the launch of a joint private-sector forum was practical issues and dilemmas faced by CISI members. universal business language. announced. This forum, comprising major Martyn Brush, Head of Market Risk at RBS Global UK-based banks and the Bank of China, Banking and Markets, will speak at the event. Why China? will enhance co-operation between the UK China’s GDP is £5,824bn, having grown and Hong Kong. At its first meeting in May To join the 400 members already signed up to the mailing at 11% a year, on average, over the past five it will focus on settlement systems, market list of the risk PIF, or to book a place at one of its events, please email [email protected] years. What is more, China’s growth is set liquidity and the development of new to continue. The International Monetary RMB-denominated products and services Fund predicts that China will contribute in London. The risk forum is one of seven PIFs run by the more than one-third of global growth by This initiative will generate jobs and CISI. The others cover corporate finance, Islamic 2015. The importance of mainland China to growth for the UK economy, and ensures finance, IT, operations, compliance and wealth the global economic and financial system that the UK is open for business with Asia. management. Each of these discussion groups will increase accordingly. meets at least once a quarter in London to debate Thus, China’s economic growth and the *Source: TheCityUK’s City Indicators Bulletin, current issues and hear presentations from industry internationalisation of the RMB offer real February 2012 speakers. Fellows, Members, Associates and opportunities for London’s financial and Do you have a question Affiliates of the Institute can attend meetings for related professional services. about anything from tax to free as a CPD benefit. Students may attend one Settlement in RMB is growing and the virtual trading? event of each forum annually. For more information currency will gradually internationalise, [email protected] about forthcoming meetings, visit cisi.org/pifs

qualifications Training boost for Cyprus The CISI has officially launched its first Pictured at the launch, from exam centre and accredited training provider left, are: Marios Siathas, Director Executive in Cyprus. Education, CIIM; Kevin The training provider, the Cyprus International Moore, Chartered MCSI, Institute of Management (CIIM), hosted an event CISI Director, Global Business Development; at its Nicosia premises to mark it alliance with Charles Charalambous, the Institute. Chartered MCSI, President, Guests from local financial services firms CISI National Advisory Council (NAC) in Cyprus; were given an introduction to the CISI, its range and Petros Florides, of qualifications now available in Cyprus and the of Global Business Development; and Marios Siathas, Chartered FCSI, NAC training opportunities offered. There was also Director Executive Education, CIIM. Vice President a question-and-answer session. Charles said: “This partnership is an important step in Speakers included Charles Charalambous, Chartered MCSI, furthering professionalism within the financial services sector President of the CISI’s National Advisory Council in Cyprus; in Cyprus by enabling practitioners to train for and sit a range Kevin Moore, Chartered MCSI, CISI Director of CISI exams locally.”

10 April 2012 cisi.org

CISI.indb 10 26/03/2012 12:22 first person

Future gazing With a report predicting its ascent to the top of a list of world economies, can China live up to expectations?

I’ve always been a sucker for HSBC’s Karen Ward says that league tables, so a list of the the bears have got it wrong. There is fierce debate world’s top-100 economies Critics, she argues, compare in 2050, however fantastical, China’s rate of investment about how long China can is guaranteed airtime. with the rates seen during the sustain an annual growth In fact, the rather expansion of the Asian ‘tigers’ rate of about 10% chunky report from HSBC, in the 1970s, and claim that is based on the work of Robert it too rapid. Ward says that Barro, a Harvard economics the starting point for these professor, is hardly the stuff comparisons is wrong because rate, even if these reforms of fiction. Here China’s level of development are implemented, to 5.9% by are the headline predictions. is so much lower than that of 2021 and to just 5% by 2026. First, if you’re not fluent in the tigers before their rapid While an enviable growth rate Mandarin, make sure that expansion. Hence, all that by more pedestrian western your children are. China will investment is justified: it is standards, this is hardly the overtake the US to become providing China with essential grand march envisaged by the world’s biggest economy infrastructure. Yet Beijing. Moreover, within the next 40 years, its the challenges facing China the obstacles to reform, namely income per capita rising by an are considerable. HSBC itself vested interests such as the astonishing 800% in that time. admits that its report pays state enterprises that enjoy The US’s status no attention to constraints monopolies in key markets as sole economic superpower, on global resources and the and powerful individuals already on the wane after the upward pressure on commodity with special privileges, worst financial crisis since prices, for example. are significant. Whether the 1930s, will be history, Another report, by the World the next generation of even though its economy is Bank, released in late February, Chinese leaders will projected to double in size to spells out the downside for change that is open to $22,000bn in constant dollar Beijing. As well as debate. The terms. By 2050, the risk of a hard landing in the good news for China is though, the US, will still be a short term, China must contend that even at this lower long way ahead of India, the with an ageing and shrinking rate of growth it will – world’s third-largest economy. workforce, rising inequality probably – still replace In fourth place comes Japan, and growing environmental the US as the world’s Germany follows in fifth and stresses. If it is to avoid a biggest economy the UK ranks sixth, ahead of ‘middle-income trap’ and make sometime before Brazil and Mexico. the transition to a high-income 2050. France and Canada come next, country, Chinese leaders will As for league-table while Italy, just behind, doesn’t have to shift their focus from watchers, anyone even make the theoretical new the quantity of growth to the wanting to hedge group of the ten richest nations. quality of growth, according their bets could China, of course, is to the report. back promising the big story. Its GDP grew by The constraints facing China outsiders for a 9.2% in 2011, down from 10.4% extend well beyond the limits top-20 finish; in 2010; in March it lowered on physical resources – to the the Philippines, its growth target for the first deadening hand of government Malaysia and Egypt, time in eight years (to 7.5%). interference in the economy, the notwithstanding Hedge-fund bears point to the weak rule of law and a lack of current political huge proportion of Chinese innovation. All this turmoil, look gross domestic product that is means that, without sweeping like strong accounted for by investment: economic and political reforms, candidates. n the subtext being cityscapes full the prospect of straight- of empty tower blocks and a line growth of 10% a year is Christopher mountain of debt accumulated slim. The World Adams is the by local authorities under a Bank, for its part, projects Financial Times’ flawed fiscal system. a decline in China’s growth markets editor Illustration: Johanna Ward Johanna Illustration:

CISI.indb 11 26/03/2012 12:22 Blurring the b oundARIES BRIC s, N-11, frontier markets – portfolio managers should not judge country categories simply by their titles, writes Dan Barnes

on 31 january 2012, Brazil, Russia, India markets’ in the investment community must or equities groupings in terms of the level and China were all listed by Jim O’Neill, not be underestimated: funds are sold that of investment risk they pose. Goldman Sachs’ Chief Economist and the track stocks and bonds according to indices ‘Emerging’ and ‘frontier’ started out as originator of their ‘BRIC’ sobriquet, as grouped under these names. The marketing labels used by the International constituent parts of a new group, one he calls idea of building a fund too closely around Finance Corporation (IFC), an independent, ‘growth markets’. In a note titled these groupings is attracting increasing for-profit arm of the World Bank Group that ‘It is time to redefine emerging markets’, he criticism, however. “The problem arranges money lending and business advice added Mexico, South Korea and Turkey to with having a BRICs fund is that it is four for private sector firms in poor countries. the list of countries “most likely to experience countries,” says Mark Beveridge, Global Head “The name [emerging markets] rising productivity coupled with favourable of AXA Framlington, the specialist in equity was designed to give a more uplifting feel demographics and, therefore, a faster growth investment management. “What if everyone to what was originally called the ‘Third rate than the world average”. recognises the growth in one country? World Fund’,” says Antoine van Agtmael, O’Neill’s pronouncement developed an Investors may overestimate how quickly who coined the term in 1981 while working idea proposed by Goldman in 2005 when it companies will grow and stocks will become at the IFC as an investment officer. Farida introduced the Next Eleven (N-11) grouping: over-valued. “As far as regional Khambata, currently head of the IFC’s 11 countries outside the BRICs, including investing goes, I think that less constrained operations in East Asia, South Asia, the Mexico, South Korea and Turkey, that were and broader is better.” Pacific, Latin America and the Caribbean, first deemed to “potentially have a BRIC-like used the term ‘frontier markets’ to describe impact in rivalling the G7”. The background the smaller emerging markets on which the Beyond Goldman’s own investable N-11 The terms ‘developed’, ‘emerging’ and IFC was publishing data in the early 1990s. index, investors showed little interest for ‘frontier’ have become recognised this categorisation. It remains to be seen classifications for index providers. Leading Defining ‘frontier markets’ whether O’Neill’s Growth Markets group firms, which include FTSE, J.P. Morgan and Market definitions of this type vary with the will be more appealing. But the potency MSCI, define a universe of countries for user. The Goldman Sachs N-11 classification

Illustration: Clara Terne for Agency Rush Agency for Terne Clara Illustration: of terms such as ‘BRICs’ and ‘emerging each category around which to base bonds focused on the potential for growth,

12 April 2012 cisi.org

CISI.indb 12 26/03/2012 12:22 cover story

measuring macroeconomic stability, political Country Classification Committee, which maturity, openness of trade and investment then makes recommendations to the FTSE The Middle East policies, and quality of education. Its 2005 policy group, the firm’s top-level committee paper noted that South Korea, “although for ratification. For government The Middle East is a challenging place for overseas classified as an emerging market in financial debt, the J.P. Morgan Government Bond investors. Under the MSCI classification, only terms, is in most respects a developed Index-Emerging Markets (GBI-EM), launched Egypt is ranked above ‘frontier market’, a category economy”. South Korea and Mexico were then in 2005, was the first comprehensive emerging considered off limits to many retail funds. already members of the OECD; N-11 member markets index and is the market leader. If that is not a barrier, foreign stock ownership Bangladesh, by contrast, remains one of the “Most investors follow the J.P. is restricted; the degree varies by country and world’s poorest countries. Among Morgan index,” says Claudia Calich, Head index providers, classification differs from of Emerging Markets and Senior Portfolio company. Qatar restricts ownership in a firm to firm to firm and investors must be aware that Manager for fixed-income asset manager 25%, the United Arab Emirates (UAE) to 49%. commercial considerations may play a role Invesco. “It classifies countries according to Liquidity is low in most markets, and local here. For example, the inclusion of stocks their income levels, with a two-year waiting authorities, supported by natural resources, do from a more stable economy such as South period for movement between categories, so not have strong incentives to create capital Korea should reduce the volatility of an index a country would not move from emerging markets infrastructure. and may make it easier to sell. to developed market in the first year that it “It probably makes more money for an index achieves a high-income status.” Against this backdrop, the UAE and Qatar are provider to have South Korea as an emerging MSCI is dominant in much of the equity both trying to be reclassified by MSCI; the UAE is market than to include it as a developed index world, especially in the US. Many funds already considered a ‘secondary emerging market,” says Beveridge. there use MSCI classifications to define their market’ by FTSE. They will have to convince the Christopher Woods, FTSE Managing Director investment mandates, with no investment index provider that irreversible measures are in for Governance and Policy, explains the allowed in equities that are listed in a country place that will modernise the capital markets firm’s selection process: “Criteria include: ranked below emerging-markets status. Two infrastructure. In total, 18 criteria are considered to the market and the regulatory environment; states in the Middle East, the United Arab custody and settlement; what the dealing Emirates and Qatar, have been working to judge a country, including securities lending and landscape is; whether there is a derivatives achieve emerging-market status with borrowing, short-selling and a delivery versus market; the market capitalisation; and MSCI for several years, so far with no payment (DvP) structure, which involves a the number of companies in the market. success (see box). simultaneous transaction of cash and securities. Creditworthiness is assessed and gross Originally due for review in May 2011, the national income per capita is also monitored.” Differences between providers deadline was extended to December 2011 and has Each country is assessed Categories are not interchangeable between now been pushed to June 2012 as the states make annually, through meetings of the FTSE index providers. South Korea, a ➳ progress. DvP has been introduced and stock lending and short-selling are being considered by the authorities, but concerns remain. Foreign-ownership limits are the barrier in Qatar. However, in the UAE, according to MSCI, “investors continue to stress significant concerns over [the DvP regime in the UAE] to fully ensure the safeguarding of their assets ... in particular, the case for failed trades where a forced sale of assets, without the owner’s consent, remains a possibility.”

CISI.indb 13 26/03/2012 12:22 cover story

Goldman growth market, has been listed as bonds of the March bailout as emerging- is a reason why investment managers caution a developed market since September 2009 market debt. Prior to the completion of the its use. A popular criticism of in the FTSE universe, but is still considered deal, traders were operating a so-called debt indices, for example, is that the most an emerging market by MSCI. grey market for the new bonds before their indebted countries can be given a larger Indexes are typically rebalanced annually, issue. The documentation guidelines they weight in an index if there is no maximum but there are procedures to make changes used for trading these was produced by the cap on weighting. In autumn 2011, when more rapidly if needed. “In the Emerging Markets Traders Association. Italian sovereign yields were increasing case of Greece, we held a round-table meeting While there is no precedent at an alarming rate, managers rebalanced for the downgrading of a their funds away from the indices – many developing country, this fact has of which gave Italy up to 25% of the total Many traders view the reissued not blinkered investors. When share. Where large companies Portugal’s debt was downgraded dominate a country’s stock or debt market, Greek sovereign bonds of the March to ‘junk’ by Moody’s last year, it indices may not offer the diversification that forced widespread selling among investors assume. “The MSCI bailout as emerging-market debt many pension funds throughout Frontier Markets index has a huge exposure Europe and beyond because to the Gulf: Kuwait makes up 35% of that with clients to discuss what we might do,” they were prohibited from holding debt of index,” says Carlos Hardenberg, Senior says Woods. “If anything were to happen this type. The downgrade similarly removed Executive Director at Franklin Templeton to Greece, we would schedule emergency the sovereign from many investable debt Investments, who has responsibility for the impromptu meetings of both the Country indices. The fact that it remained a ‘developed’ Frontier Market Fund. “That 35% is heavily Classification Committee and the FTSE policy country by the traditional classification was skewed towards two stocks – a bank and group to advise us on the appropriate course of little consequence to investors’ appraisal of a telecommunications company – leaving of action.” Creditworthiness, a country. Downgrades from the investors disproportionately exposed in one of the FTSE’s criteria, has clearly been emerging market category are more common. Kuwait.” Hardenberg believes Kuwait is a severely tested in Greece, as well as other “In my career, Venezuela and Argentina country where corporate governance and periphery eurozone countries. Indeed, many have both been downgraded from emerging prices are heavily influenced by speculative traders view the reissued Greek sovereign markets to frontier markets,” says Beveridge. local investors. Globalisation also challenges the assumption that indices Too much weight provide exposure specific to the countries That classification by an index provider they cover. “Is Nestlé a Swiss can, by itself, have an enormous effect on company? How much of its revenue is from investment flows into and out of a country, Switzerland?” asks Beveridge. “If you invest in Vale, is that a Brazil play, or a China play? BHP Billiton is listed in Australia and the UK, but it is global. Fundamentally, your client needs to know about the risks involved in companies in which you invest.” Indices provide investors with a useful snapshot of a collection of countries with common risk features. Although a useful guide, they should not be a substitute for an investor’s own due diligence. While their simplicity is a benefit, concludes Calich, “it is the job of the portfolio manager to determine what the best opportunities are”.

The emerging markets leading the pack

Of the 22 countries designated emerging markets by the FTSE group, the following nine are graded ‘advanced emerging’. Brazil Czech Republic Hungary Malaysia Mexico Poland South Africa Taiwan Turkey All of the nine are included in the MSCI and Standard & Poor’s listings, which comprise 21 and 19 members respectively.

14 April 2012 cisi.org

CISI.indb 14 26/03/2012 12:22 CISI.indb 15 26/03/2012 12:23 The credit conundrum

Hugo Cox learns that despite widespread acceptance of the need to reform credit-rating agencies, deciding how to go about it is testing regulators on both sides of the Atlantic

the role of credit-rating agencies in contributing to the by the major rating agencies (see chart), prompting sniping at financial crisis is widely accepted. In the US, neighbours and criticism of agencies’ competence. the Government’s Financial Crisis Inquiry Commission Prior to France’s January downgrade by Standard & Poor’s concluded that “the failures of credit-rating agencies were (S&P), Christian Noyer, Chairman of the French central bank, essential cogs in the wheels of financial destruction”. The said that rating agencies should pick on the UK before France Dodd-Frank Act noted, more specifically, that “the ratings on for re-rating. Earlier, the European Commission President structured financial products have proved to be inaccurate,” José Manuel Barroso dismissed the downgrading by Moody’s which “contributed significantly to the mismanagement of of Ireland as “incomprehensible” and Portugal’s 2011 Moody’s risks by financial institutions and investors”. To resolve this, it re‑rating as ‘junk’ in 2011 as unhelpful and unnecessary. The contained provision for “increased accountability on the part of daggers appeared to be out for the big three agencies – S&P, credit-rating agencies”. The European sovereign Moody’s and Fitch Ratings. So, how far have crisis has reinvigorated the campaign. Leaders across Europe regulators on each side of the Atlantic got towards increasing have bristled as their sovereign debt has been downgraded the accountability of rating firms?

Europe Ratings and outlook actions Prior to the crisis, European agencies were not even regulated. 2004 2005 2006 2007 2008 2009 2010 2011 2012 If any of the big three agencies were sued by investors, they tended to argue that claims had to be pursued through the USA AA+/Negative/A-1+ US parent. “This was a useful get-out: in the US, rating Canada AAA/Stable/A-1+ agencies enjoyed the same level of protection from prosecution Japan AA-/Negative/A-1+ as journalists, under the Constitution’s first amendment protecting free speech,” says Hubert de Vauplane, partner at France AA+/Negative/A-1+ Kramer Levin Naftalis & Frankel LLP and professor at the Germany AAA/Stable/A-1+ Paris Law University. In Europe, registration UK AAA/Stable/A-1+ and regulation was the first step. From 2009, rating agencies required regulatory registration; the European Securities Italy BBB+/Negative/A-2 and Markets Authority (ESMA), is now responsible for their Brazil BBB/StableA-3 oversight. The second measure addressed the Russia BBB/StableA-3 considerable conflict of interest in the way that rating agencies rate the instruments of issuers. This derived from the switch India BBB-/StableA-3 in the fee model that rating agencies adopted from the 1970s China AA-/Stable/A-1+ – which precipitated their huge commercial success – when Spain A/Negative/A-1 issuers, rather than investors, started paying for ratings. The conflict was most visible in the ratings of Korea A/Stable/A-1 collateralised debt obligations (CDOs), which caused such Mexico BBB/Stable/A-3 damage during the crisis. Banks needed AAA ratings to sell Upgrade action Downgrade action Positive outlook Negative outlook these products. So, rather than create a CDO before sending it to the agencies for a rating, the banks employed those agencies Source: Standard & Poor’s to help them build the products. The conflict was

16 April 2012 cisi.org

CISI.indb 16 26/03/2012 12:23 rating agencies

clear. “How can you give an independent opinion if you come prohibiting them from owning junk debt. Bond indices also from within the team that structures the deal from beginning use ratings as a condition for inclusion, causing further sell- to the end?” asks de Vauplane. After a delay in offs. But downgrades do not cause the problems, further reform, subsequent amendments were proposed believes David Butler, Head of Global Credit Research at by the European Commission last November. They have fixed-income investors Rogge Global Partners; the disruption caused considerable concern. Internal Markets of ratings downgrades is exaggerated. “In a scenario like the Commissioner Michel Barnier has abandoned his most drastic sovereign crisis, while there is a small pulse of forced selling suggestion: to impose a temporary ban on the release of at the downgrade, generally the market is ahead of the rating sovereign credit ratings in ‘exceptional’ circumstances – such change,” he says. Besides, abandoning regulatory as in Greece recently – where ESMA felt that such a ban would endorsement of ratings is no easy task. The first problem is prevent disorder. The problem was that the ESMA’s judgment that it requires US regulators to unpick the Basel rules on of the threat would be highly subjective and vulnerable to capital adequacy for banks, which are leading attempts at political pressure. Forcing issuers to rotate rating reducing systemic risk after the crisis. These rely on ratings agencies is another measure that is still being considered. to calculate how risky many debt assets are. Specifically, the Commission is suggesting that issuers rotate In the absence of a clear alternative, the Securities and rating agencies every three years or ten successive debt Exchange Commission (SEC) has instead imposed arbitrary issuances, not using the same agency again for at least four rules around instruments, such as securitisations, whose years. This would open up the industry to smaller players, creditworthiness would usually be measured with a rating. such as US-based Egan Jones, and – it is suggested – encourage The effect is an increase to the cost of capital that US banks independence on the part of agencies. There are claim is making them uncompetitive. Banks are threatening at least two problems with this. The first is that most banks to forgo securitisation, echoing an episode in 2010 when rating are already paying for ratings from two different agencies on agencies forced the SEC to retract tighter regulation when many debt instruments. In a heavy patch of issuance, they they refused to rate securitised products, stalling issuance (see could easily release ten instruments in less than a year. Smaller box). The second problem is that the alternatives players will become involved, but major investors are likely do not look very appealing. If each institution used its own to insist on ratings from the big three, meaning that many formula, regulators would have a difficult job to police these instruments would have to to ensure that they were not go unrated and therefore too lenient. If unsold. The “If I were starting a rating-agency regulators themselves came second problem is the huge up with solutions, these would workload and cost for issuers, industry, the easiest solution would be likely be rigid and inflexible some of which would appear tearing it all down and starting again” and a poor reflection of the to be pointless. “If you issue risk of a given instrument at a 30-year bond, every four a specific time. years you would have to re-rate it by a different agency,” says Again, the European example is illuminating. Could investors Barbara Ridpath, Chief Executive of the International Centre trust European sovereigns to provide an accurate picture for Financial Regulation, who, until 2008, was Head of Ratings of their own debt when they are desperate to raise money? Services, Europe, for S&P. “It would end up that banks would A German-backed suggestion last year to form a European have to be constantly training rating agencies. The quality agency to battle the dominance of the big three was resisted of the ratings would decline.” In addition to by the UK Treasury, which pointed out that it would not be rotation, the Commission is also looking at mandating that all an independent arbiter of sovereign risk. While rating agencies’ methodologies are approved by ESMA. But, regulators, and much of the market, agree that rating agencies if European governments are looking to reduce the market failed to carry out effective due diligence in advance of the impact of negative ratings, this seems an odd way to go about financial crisis, reforming them is proving very tough for it: if the rating methodology is endorsed by the regulator, a both US and European regulators. “If I were downgrade would appear to be more serious. It starting a rating-agency industry, I wouldn’t start here. The will also make ratings more homogeneous, explains Ridpath. easiest solution would be tearing it all down and starting “It would mean that investors need to use only one rating,” again,” says Ridpath. With global economic recovery creaking she explains, “whereas, ideally, rating agencies should focus under the weight of the uncertain creditworthiness of its major on different elements, so that their ratings mean different sovereigns, this is a luxury that regulators can only dream of. things and investors can choose the rating that best suits their risk appetite.” The combined effect of the proposed changes, believes S&P’s Director of European An impossible task? Communications Mark Tierney, will be to make life harder for The problem of reforming rating agencies in the face of their corporate issuers at a time when they are desperate to raise considerable influence is demonstrated by an episode in the money. “The proposals being considered by the European US in 2010. Commission – including mandatory rating agency rotation for The Dodd-Frank Act repealed an exemption enjoyed by rating corporate debt issuers – will deny European companies the agencies from the ‘expert’ liability required of accountants, ability over time to use globally recognised credit ratings, and will severely hinder their access to capital markets.” and other parties involved in bond sales, when issuing credit ratings on asset-backed securities (ABSs). Smarting at the The US legal ramifications, S&P, Moody’s and Fitch all shut up shop, In the US, efforts at reform have focused on abolishing the refusing to allow their ratings to appear in prospectuses and regulatory use of ratings and replacing them with “other registration statements for new ABSs in the summer of 2010. standards of creditworthiness”, according to the Dodd-Frank The result was that the ABS market dried up until the SEC Act. This is a move that the agencies themselves issued a no-action letter – a pledge not to enforce the rule. support. By obliging certain investors to observe ratings in what they hold, governments would give their debt a Subsequently, the Asset-Backed Market Stabilisation Act of double blow in the case of downgrades. When Portugal was 2011 was passed to repeal this element of Dodd-Frank. downgraded to ‘junk’, many investors faced government rules

CISI.indb 17 26/03/2012 12:23 Social lender Hugo Cox talks to Puranam H Ravikumar, Non-Executive Chairman of microfinance firm SKS, about his path to that sector and the challenges facing Indian banking

last november, Puranam H Ravikumar, President of the CISI’s India Advisory Council, became one of India’s most powerful microfinanciers as Non-Executive Chairman of SKS. He took over from Vikram Akula, the poster-boy of Indian microfinance, following the latter’s surprise resignation from his position as Executive Chairman of the firm – the largest in India’s fast-growing microfinance sector – which Akula had also founded. Ravikumar’s appointment came at the end of a period where the company’s fortunes had charted the eventful and emotive modern history of Indian microfinance – where lending is provided to low-income customers who would otherwise be denied access to banking services. A year earlier, politicians in Andhra Pradesh, the state where microfinance has had the greatest effect and where SKS has its headquarters, accused microlenders of responsibility for the suicides of 57 people. It was alleged that these individuals had been brought low by punitive interest rates and bullying debt collectors. State legislators threatened a cap on lending rates and SKS voluntarily shaved 2% from its rate. The controversy polarised the debate between the two ideological camps that have divided the industry since its birth in the 1970s. One group claims that poor borrowers with uncertain creditworthiness should pay commercial rates. They say that lending should not be capped, lenders should be free to choose the type of lending structure, and the segment does not need subsidisation as part of a developmental agenda. The other camp, which sees microfinance as fitting within a wider social project of lifting people out of poverty, houses Ravikumar. His own interest as a microfinancier developed in an earlier role at ICICI, India’s second-largest full-service bank, where he witnessed the huge differences in prosperity that targeted lending could make to small borrowers in the Indian corporate market (see box). “Until the market reaches a sufficient level of maturity, I think there CV snapshot 2011 – Non-Executive Chairman (interim), SKS Microfinance 2011 – President of the CISI’s Indian Advisory Council 2009 – Managing Director and Chief Executive Officer, Invent Assets Securitisation and Reconstruction Private Limited 2003 – Managing Director and CEO of India’s National Commodity & Derivatives Exchange Limited 1994 – Head of Treasury, ICICI Bank, subsequently Head of Emerging Corporate Entities and Agri Business, ICICI 1972 – Line Function Official, Bank of India, Bihar 1970 – Bachelor’s degree in Commerce from Osmania University, Hyderabad, India Photo: Johanna Ward Johanna Photo:

18 April 2012 cisi.org

CISI.indb 18 26/03/2012 12:23 profile: puranam h ravikumar

is a need for some level of regulation,” he says. India, he notes, The birth of a has a poor record of self regulation: the profit motive typically microfinancier overtakes the developmental programme. National regulation Puranam H Ravikumar’s interest in microfinance, looks likely: during the current budget session of the Indian Parliament, the Government is pushing through a new and particularly its social benefits, grew out of microfinance bill that will move supervision of the industry his final role at ICICI. from state to national-government level and appoint the Reserve Before leaving India’s second-largest Bank of India as regulator. Ravikumar is softly financial services group he ran the strategic spoken and polite. But beneath this gentle disposition is a lending unit, targeting small- and medium- tenacity that, you sense, will equip him well in defending the enterprise borrowers. “I believe our lending sector through a challenging period ahead. made a difference to these borrowers,” he says. Troublemaker “They are largely in the ‘subsistence league’ This tenacity was shaped by two influential managers under and therefore constantly short of funds. The whom he worked during his first job, where he spent eight adequacy and timeliness of funding are very years working for the Bank of India in Bihar, India’s poorest important to them.” state. Their influence developed in him a confrontational streak He left ICICI in 2003 to set up the National that is out of the national character, he explains. Commodity & Derivatives Exchange Limited “Traditionally, in India, we are taught not to contradict an elder,” (NCDEX), India’s online multi-commodity he says. “But these bosses shaped me to think independently. They taught me not to hesitate in disagreeing with superiors exchange, where he was Managing Director when I firmly believe in my view. Sometimes this got me into and CEO. Again, his work had an important trouble. It continues to get me into trouble.” Despite social element. “We did a lot of work to bring the political challenge, Ravikumar may have picked a smart time the benefits of price discovery that exchange to move into India’s small-scale private-lending market. India’s platforms can provide to farmers,” he says. banking sector, dominated by lumbering public behemoths, is Prior to 2003, about 80% of farmers would currently reshaping itself around the deregulation of the private sell produce at the time of harvesting (once or savings market. India’s banks have historically twice per year), when supply was the greatest been bound to fix interest rates on personal savings accounts between 3.5% and 4%. But this provision was removed last and prices were lowest. “Middlemen stored October; providers must now compete with each other for the harvested crops to make it available to the personal savers’ business by offering competitive rates. The market throughout the year, charging a hefty larger public-owned institutions, in particular, which comprise fee,” he explains. three-quarters of India’s banking industry, are being dragged Ravikumar wanted farmers to perform the into a more competitive modern age. The transition storage function, which would give them more will not be easy either for the leading public firms or the wider for their crops. By building a new exchange that economy, believes Ravikumar, because India’s banks are forced to lend more than a quarter of their deposits to the Government. provided clearly visible prices all year round, farmers could now see the substantial difference between prices reached for a crop at harvest “I do not hesitate in disagreeing time versus six months later. with superiors when I firmly The effect was particularly striking in the government market. Historically, the Government believe in my view” of India has been a big buyer of agricultural Out of every 100 rupees of deposits at Indian banks, 28 must be commodities for a social-aid scheme that lent to the Government of India via subscription to Treasury distributes foodstuffs through a network of local bills and Government of India bonds or through deposits with shops, at heavily subsidised prices, to Indians the Reserve Bank of India. The Government has below the poverty line. made much of how this helped to insulate India’s banking As commodity prices grew during the last sector from the global banking crisis. But yields on government decade, so did the government subsidy – in paper are much lower than those available in the private order to keep food affordable for the poor. But sector – current corporate-borrowing rates are about 13%. much of the cost of this was passed on to the The sector is effectively financing India’s government deficit. This increases the pressure on the rest of the farmers from whom the Government was buying sector’s loans. Fixing interest rates on personal deposits was food grains at below commercial rates. Farmers one way in which the Government helped banks to make up were, in effect, cross-subsidising India’s poor. the difference. Now the shortfall must be covered by corporate When farmers started seeing the prices lending, which will become more expensive, hurting Indian offered by the rest of the market through business. “Banks’ higher costs will be loaded onto the private the exchange, they stopped selling to the sector,” says Ravikumar. “Lending costs will go up and this Government at depressed prices. will affect the competitiveness of corporates in the global market.” For more than 40 years, Ravikumar’s “Over the past six years we facilitated a major career has given him a front-row seat in the rapid – and, transformation: now a farmer can sell to where recently, transformational – development of India’s banking the price is best,” says Ravikumar. The other industry. As the sector grapples with the twin issues of benefit, he adds, is better farming practices: deregulation of personal-savings rates and the role it wants for with a view of prices, farmers can rotate crops microfinance lenders, Ravikumar’s will be a highly influential according to those that currently pay best. voice. Those with investments or markets in the subcontinent would do well to follow his pronouncements.

CISI.indb 19 26/03/2012 12:23 Dan Barnes finds that cheaper parts of the UK are set to benefit from a decline in offshore outsourcing, with companies reaping the benefits of homegrown workers and cultural consistency Coming home

midway through the last decade, many British banks support for its sales and trading operations in London, it outsourced their call centres to India along with a range considered outsourcing, offshoring and nearshoring. It of back-office operations, from technology development to decided to stick with the UK because of the skills available, processing and handling. By doing so, they took advantage but realised that it didn’t have to face the same costs that it of the extent to which English was spoken by a highly would in London.” For McMullen, the growing educated, relatively low-cost workforce. Unpopular with realisation of the importance of these skills has brought the tabloid press, ‘outsourcing’ became a term that gained much of the business back to the UK. “At face political cachet as the British media painted pictures value, one region might be more cost effective, but once of underpaid, headset-wearing, Indian IT graduates you take into account language, culture, work ethic and talking to middle-Englanders about last night’s episode attrition level, that face value may not tell the whole story,” of EastEnders. Now, there is evidence that this he says. “A company has to balance the issues of cost, risk trend is reversing. While data specific to financial services and service quality in the long term.” Kerry outsourcing are scarce, a recent study shows that Asia- Quinn, Head of International Sales and Marketing at Invest Pacific is losing ground to Europe, the Middle East and Northern Ireland, the region’s economic development Africa (EMEA) in this area. The Information agency, also challenges the suitability of offshore locations Services Group, a data provider, looked at global for skilled tasks. She notes that Northern Ireland remains outsourcing deals worth more than €20m up until the end of a popular nearshoring choice for London-headquartered last year (see table) in both business processes and IT. The UK financial services – theFinancial Times’ fDi Intelligence value of outsourcing deals in EMEA increased by more than service rates it the world’s number-one location for a quarter in 2011; Asia-Pacific deals were down 10% in value investment in research and development. Even over the same period. This trend appears to be accelerating: among core businesses such as call centres, high-profile the year-on-year drop in the value of Asia-Pacific business offshoring failures have seen some firms bring back work was 42% in the last three months of 2011, while EMEA saw 80% of all outsourcing contracts awarded during that period, as measured by value. Northern Ireland remains a popular

Regional hubs nearshoring choice for London- It is not always clear what commentators mean when they headquartered UK financial services talk about ‘outsourcing’ in financial services (see box), so in some cases the original trends were overstated. While many IT and call-centre support services for banks, for example, to the UK. In 2010, the FSA ordered retail banks to publish shifted to India, much back-office outsourcing moved out complaints data. Spanish retail bank Santander had the of London but remained in the UK in cheaper locations, worst complaint-to-customer ratio, and as a consequence as firms looked to reduce high costs while retaining the surveyed more than 200,000 of its UK customers in 2011. In skills of homegrown workers. Northern Ireland, Scotland response to this feedback, the bank moved its call centres and Wales now host contact centres not only for UK- back to the UK from India in 2011 “to improve customer based financial services firms, such as Lloyds TSB, the satisfaction and the treatment of complaints”. This reversed Royal Bank of Scotland and Santander, but also for Indian an offshore arrangement established by British bank Abbey companies, such as HCL and Firstsource, that are moving National, which Santander acquired in 2004. operations to the UK. “Morgan Stanley, the Peter Ryan, Lead Analyst at research firm Ovum, said at investment bank, has more than 1,000 people in Glasgow the time of the retrenchment that Santander’s decision alone,” says Mark McMullen from Scottish Development pointed to “a growing trend among enterprises in English- International, an organisation focused on attracting foreign speaking markets to move capacity from Indian delivery direct investment (FDI). “When it looked at expanding the centres”. The UK Government has also done its bit to bring back business to the UK. Last September, Cardiff became the UK’s first dedicated enterprise zone for Total value of outsourcing contracts, by region (2011) financial and professional services, with funding support and reduced business rates offered to firms operating in the E Contract value ( bn) Year-on-year change area. For smaller firms, meanwhile, outsourcing EMEA 44.2 27% to India and beyond was never the cheapest option. Mike Foley is Managing Director at peterevans, a Cardiff-based Asia-Pacific 7.1 -10% firm that provides outsourced IT development for full- service stockbrokers and execution-only brokers – firms Source: Information Services Group, 2012 that do not have the scale to make an offshore operation

20 April 2012 cisi.org

CISI.indb 20 26/03/2012 12:23 outsourcing Coming home

worthwhile but want to cut high London costs. “There are significant advantages to being in the UK,” he says. “Being closer to the market gives you a better chance of understanding what is happening. You have the same time zone and culture and, crucially, we keep our lines of communication short. We are in a low-cost centre and most of our competitors are in the same position – nobody’s really based in the centre of London these days.”

Fighting back? Not everyone accepts that UK skills are superior. “UK retail banks outsourced a lot of software-application development on the basis of arbitraging labour costs,” observes Nigel White, a senior executive in IBM’s outsourcing business in financial services. Indeed, it is increasingly the more demanding tasks that banks are looking to move abroad today, believes Ian Alderton, Chief Information Officer of Corporate Banking at the Royal Bank of Scotland, speaking in a personal capacity. “Historically, what was taken overseas tended to be very process oriented – activities that could be scripted,” he says. “What I am seeing now in the Indian market is based less on cost arbitrage and more on the maturity of skills in country.” Both supply and demand for better skills in financial services in countries such as India is increasing. As the S&IR noted in its ‘City view’ column in January, the CISI has seen increased demand for certification as firms seek a global benchmark for initial competence; these organisations are becoming more concerned with ongoing training and continuous learning. But the shift may no longer be simply about saving money, since the economics of success in the subcontinent have created wage inflation. “When you could get staff with PhDs being paid Outsourcing: What’s in a name? 20% of the wages of their western European equivalent, the additional management costs and issues were balanced Misrepresentation in the media means Générale, for example, has operated an out,” says Martyn Hart, Chairman of the UK’s National that the ‘outsourcing’ concept has offshore technology business in North Outsourcing Association. “As the market grew, competition become muddled. Africa that functions as a supplier to the for staff drove up wages. To bring more staff to a higher Outsourcing can involve ‘offshoring’, bank since the 1970s. level also adds cost to the outsourcer.” with a workforce employed thousands The confusion also obscures how of miles from the rest of a business; it far UK firms have benefited from A fine balance might also refer to ‘nearshoring’, with financial services outsourcing within Wage inflation is one of several factors encouraging UK financial service firms to look back to Britain when service centres developed in the same the UK. According to data provider the considering what and where to outsource. But the trend region or country as the core business Information Services Group, which is more complex than a simple repatriation of high-skilled but at a cheaper site. It is also important investigates large, private-sector services, such as building investment algorithms, or to distinguish business-process global outsourcing deals, the value of customer-sensitive services, such at telephone banking. outsourcing – such as call centres – contracts in the UK across all sectors The data show a renaissance in the wider from IT outsourcing. alone rose from £7.8bn (E9.4bn) in clawing back of business for EMEA outsourcing firms Captive companies, which are fully 2002 to £13.1bn (E15.8bn) in 2008. against their Asia-Pacific rivals. Certainly there is anecdotal evidence of financial services outsourcing closer to the owned by the firms they service, Although the global financial crisis led to UK, but detailed research would be valuable in evaluating have long been offshored, but this is a collapse in value, in Q4 2011 they had how far the UK and Europe have reclaimed business in not outsourcing. French bank Société recovered to £11.95bn (E14.4bn). this sector.

CISI.indb 21 26/03/2012 12:23 Recognising sta ndARDS T he development of a universal way of identifying all parties to financial contracts will have major benefits for the industry, saysGary Wright MCSI

22 April 2012 cisi.org

CISI.indb 22 26/03/2012 12:23 continuing professional development

the inter-governmental G20 summit June 2012. In the absence of one the gaps. It is in this scenario of market firms in Cannes last November, fixated as it was global standard, firms have either been using that LEIs will be introduced. LEIs could become on the euro crisis, nonetheless scored a different identification codes from the various an integrating standard within firms’ systems, securities and investment industry first. In its organisations that maintain codes, such as enabling a consolidation of data for regulatory Final Declaration, it specifically endorsed a SWIFT, or creating their own bespoke codes. reporting, as well as a major advancement of technology standards initiative – legal entity The problem with firms developing their own internal management of counterparty risk. identifiers (LEIs) – and called for immediate monikers is obvious: they work internally, but Internationally, regulators would action in the adoption of this system (see below). are meaningless for both counterparties and all be able to use a common LEI standard to LEIs sound reliable and dull. regulators. So, the creation of internationally enable cross-border regulatory efficiencies. Reliable is just what our political leaders – and recognised LEIs will allow all firms to The regulatory mesh will become closer, regulators – crave right now. These standard identify legal entities, such as counterparties bringing about harmony of reporting and the identifiers will give regulators the raw data they or professional investing institutions. And ability to get a clearer picture of international need to keep a keener eye on global, systemically the potential benefits go further. cross-border trading and investment activity. important financial institutions – and other Americans are the current leaders in the LEI Post-trade matching of transactions firms with regulatory reporting obligations field, initially focusing on potentially toxic should become far more efficient. Consider – and their transactions with counterparties derivatives products. But LEIs will soon break the time currently wasted in trying to get across all their products, markets and regions. out into other financial products and become a trade allocations details. Then introduce LEIs Both risk managers and regulators will be able global standard in all markets. The UK is certain into the scene and imagine the identity of the to use LEIs to leverage the effectiveness of tools to be an early adopter. investing fund accounts being assigned at the aggregating global exposures. point of deal execution. The potential to create More mature readers in London will remember What will an LEI look like? faster and more efficient settlement is matched the days when the London Stock Exchange The LEI will be a unique 20-character by the capability of almost real-time risk issued a three-digit broker code. Firms’ systems alphanumeric code assigned to all entities that management of counterparties and investing recognised these codes; indeed, many of us are counterparties to financial transactions. institutions. So, LEIs can be the recognised organisations by their numbers. The identifiers will be neutral, with no platform for managing risk exposures across LEIs are the logical, if rather grander, extension embedded country code or other intelligence. multiple financial products on an international of that system. LEIs originated in Any legal entity – though not a natural person, scale, bringing together professional investing the US as a direct consequence of the 2007/08 or ‘individual’, as we used to call them – that institutions and the market. The benefits to financial crisis. The Dodd-Frank Act gave enters into a transaction will be eligible for an international regulators will be huge, providing birth to twins: the Financial Stability Oversight LEI. That includes issuing entities, transacting them with a systems capability to share cross- Council (FSOC) and the Office of Financial entities, reference entities, reporting entities border business with domestic regulators. Research (OFR), its research and data arm. and ultimate parents. Who will Investment trends and the securities activities of The OFR realised immediately that LEIs operate LEIs? Will it be SWIFT, as a registration firms and their legal investing institutions could were critical to its mission. So along came the authority, or will it be a new organisation that provide early warnings of potential problems in Financial Stability Board (FSB) LEI expert does not compete commercially? Will the system the market. All this is possible, but group of key stakeholders – global regulators be run from a central base, possibly in the US, is still a considerable way from implementation. – that will deliver recommendations to the or will it have a spokes-and-wheel look, with This year, there is anticipation of further next FSB plenary this month [April 2012], each market issuing its own domestic LEIs? agreements and developments concerning and will in turn report to the G20 summit in Will all firms have to join SWIFT, or will it be the design of LEIs. SWIFT and the various an open standard allowing, for example, BT and industry-standards groups would welcome other network suppliers to provide services? feedback and assistance from people and firms There are many questions, and during this key phase. The CISI, “We support the creation plenty of fevered work – and lobbying – is through its professional interest forums, is under way worldwide to come up with answers. also aiming to increase awareness of LEIs of a global LEI which The biggest obstacle that needs to be and pushing to get as many firms as possible overcome is to build a consensus of international engaged, as early as possible, in the design and uniquely identifies parties market requirements. This is far easier said than implementation issues. This is a major global to financial transactions. done and, like all standards, will have its fair industry development that will, in time, affect share of protective organisation; some countries all types of firm across financial products, We call on the FSB to take will have to be muscled into line. ‘Consensus- and it needs to be on every firm’s development building around key topics’ is the refrain here. agenda. When implementation begins, it is the lead in helping co- The initial benefit of LEIs is built around likely to come from a regulatory push first. counterparty risk management, allowing a far But make no mistake: this is an opportunity ordinate work among the more industry-integrated capability, which to reduce risks and cost in the business, while regulatory community to would extend to assisting regulators in the producing the potential for increased bargain case of a default. However, this throughput and positive revenue effects. prepare recommendations is by no means the only benefit. LEIs will This is well worth the investment, create an environment in which industry-wide and it cannot come too soon. for the appropriate straight-through processing (STP) becomes governance framework, a real possibility. After decades of great effort Want to know more? The CISI will run a CPD event and greater cost, industry-wide STP is still in London on 28 May called ‘The Coming LEI (Legal representing the public elusive. Firms have invested in Entity Identifiers) Revolution’ (see page 27) front-, middle- and back-office systems since the interest, for such a global mid-1980s, at huge cost and with mixed results. Gary Wright MCSI In many cases, these systems have reached is Chief Executive of B.I.S.S. Research LEI by our next summit” legacy status and have been creaking for some From the G20 Cannes Summit time. Some systems have been integrated Final Declaration, November 2011 via middleware, with others operating in a fragmented architecture where spreadsheets are universally used as a cheap option to plug

CISI.indb 23 26/03/2012 12:23 When a non-executive director is asked to produce a report on a company’s due-diligence process, he finds it leaves much to be desired.T he company thanks him and he resigns, as his job is done – but he then receives an email from another party fishing for information. What is the best course of action? Keeping mum

bob, a senior manager, has spent informally at an industry dinner with a of either party for him to remain on most of his working life in the securities mutual colleague, Guy, who now works it. He tenders his resignation as a industry, for many years being an in the supervisory division of the FSA. non-executive director of Optimist. approved person and holding board- Shortly after that, Bob level positions in FSA-regulated Trifling? receives an email from Guy. It says firms. He has always enjoyed good Bob is asked to present his findings that he understands that Bob has left relationships with other industry to Adam, the Chief Executive, who Optimist and asks him whether he is practitioners, as well as serving on angrily refutes the criticism. Adam says “aware of anything that he would like an FSA advisory panel regarding the that Optimist’s processes are in line to disclose”. Bob is somewhat surprised Retail Distribution Review. with those of all the firms for which by this and wonders whether it would Bob is now semi-retired and is a non- he has worked, and states that he does be unethical for him to respond at all. executive director at Optimist, a small not intend to waste resources on this Nevertheless, he considers various wealth manager. He has been asked to or to worry his clients over trifling possibilities and writes them down undertake an informal review of how administrative matters. so that he can mull over how best to the firm meets customer due-diligence Bob accepts that no customers appear proceed. The four courses of action he to have been considers are: disadvantaged, • ignore the email and do nothing Adam states that he does not intend and he has no • respond saying that he would be evidence of the firm happy to meet to discuss anything to worry his clients over trifling being associated specific that Guy may have in mind with financial • respond saying that he left Optimist as administrative matters crime, but says a result of a disagreement over policy that there is not • respond saying that he had nothing obligations, such as ‘Know Your sufficient management information specific to raise, but then phone Customer’, when taking on board a new to confirm the issue either way. The the whistleblowing line to report client and subsequently monitoring its report is then discussed by the firm’s Optimist’s poor standards regarding transactions. Bob’s initial Audit Committee, where Kevin thanks basic compliance issues. findings are that Optimist’s processes Bob for his “excellent work, which are not of the standard suggested by the has provided much food for thought”. industry guidance and he reports his He adds that, in due course, it may concerns to Kevin, the Non-Executive be felt appropriate to look at some of What would you do? Chairman of the Audit Committee and the individual parts of the findings. Visit cisi.org and let us know. The results, Board Chairman. Kevin As a result of this decision, is not surprised and explains that this Bob tells Kevin that, since the main together with the opinion of the Chartered confirms his beliefs, which is why he focus of his position on the board Institute for Securities & Investment, will be asked for the review. He mentions to was the production of the report, he published in the June edition of the S&IR. Bob that he has discussed this matter does not feel that it is in the interest

24 April 2012 cisi.org

CISI.indb 24 26/03/2012 12:23 grey matters

Hidden agenda? THE VERDICT

When Cyclamen, a large investment management company, arranges the transfer of smaller company Freesia’s outsourced work to a third party, Tulip, it fails to reveal that it is receiving a fee for its part in the negotiations. Is this a harmless oversight or a serious breach of duty? This was the Grey Matters dilemma posted in the February issue of the S&IR. Readers were invited to vote in a poll on the CISI website for the course of action they would take, choosing from the following four options: • what Duncan, Cyclamen’s Chief Operating Office, had intended was clearly wrong and he should be fired • what Duncan had proposed was wrong, since Freesia was not being offered a similar fee • the transfer process was flawed and should be restarted on a completely transparent basis • Duncan’s motivation was for the best, so Alex, Freesia’s Chief Executive, should accept the explanation of Cyclamen’s Chief Executive, Naz.

The CISI response The great majority of the limited number of respondents to this dilemma felt that as the process was substantially flawed, it should be restarted on a completely transparent basis, and it would be difficult to argue against such a response. There was a small degree of support for sacking Duncan, with the remaining votes being split evenly between the two other suggested courses of action. What we have here is a situation in which one party was clearly being disadvantaged, and the proposed transaction certainly did not meet our test of being open, honest, transparent and fair. Consequently, an offer by Naz to reopen the proposed transfer via an open tender would meet that requirement – although this is not to say that the outcome would necessarily change. It is worth bearing in mind that where it was proposed that a fee would be paid to Cyclamen by Tulip for introducing the business, this fee would ultimately have been at the expense of Tulip’s clients – in this case, Freesia. Cyclamen’s attempted justification that it was incurring expense in passing the business to Tulip is probably equally true of Freesia, and Duncan seems to have adopted a blinkered view of the impact of his actions. Whether this amounts to a ‘sackable offence’ remains debatable.

2169_Apr12_p24-25_Grey matters.indd 25 28/03/2012 09:29 books

new workbook and elearning edition new workbook and elearning edition Need Financial Derivatives Derivatives A professional-level exam, Financial The aim of Derivatives, part of the CISI Derivatives is part of the CISI Certificate Certificate programme, is to ensure that to read programme and covers the characteristics individuals develop an understanding of derivatives including forwards, futures, of the technical aspects of financial and The latest publications swaps and others traded in the UK, their commodity derivatives. This will enable and study aids relationship with the underlying cash candidates’ employers to seek approved supporting CISI securities and their use in achieving investment objectives. person status for them to advise and deal in the derivatives A new edition of the Financial Derivatives workbook and markets. A new edition of the Derivatives workbook and qualifications corresponding elearning product (valid for exams from corresponding elearning product (covering exams from 11 July 2012 to 10 July 2013) is due out and will cover: 11 July 2012 to 10 July 2013) is due out and will cover: • an introduction to derivatives • an introduction to derivatives • futures and options trading • underlying markets • principles of exchange-traded futures and options • principles of exchange-traded futures and options • principles of OTC derivatives. • principles of over-the-counter derivatives.

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Online tool Online tool External specialists Professional Refresher CISI bookshop The CISI relies on industry practitioners to offer The CISI’s their knowledge and expertise to help create and Professional Refresher maintain its exams, workbooks and elearning elearning tool enables products. There are several types of specialist: you to remain authors and reviewers for workbooks and elearning products, item (question) writers, item up to date with editors and exam panel members. All of them regulatory issues and receive a number of benefits to thank them for changes, maintain compliance and demonstrate their involvement. continuing learning. The product now consists of There are currently about 300 external specialists more than 40 modules, including: who have volunteered to assist the Institute’s • anti-money laundering The CISI online bookshop enables you to qualifications team, but more are required. • corporate actions purchase workbooks, publications and elearning • investment principles and risk products quickly and efficiently. The CISI would particularly welcome applications from specialists to help with • financial crime The ‘add to basket’ facility allows you to see developing its regulatory titles, Corporate Finance • professional taxation at a glance what you are buying, and there is Regulation, FSA Regulation & Professional Integrity • training and competence. information on what each product covers and the and FSA Financial Regulation. exams to which it applies. The ‘checkout’ facility To register your interest, please contact Iain Price: Free for all CISI members; otherwise is secure and easy to use. Worman on +44 20 7645 0609 or download the it costs £150 per user. Visit cisi.org/refresher application form at cisi.org/externalspecialists for further information. Go to cisi.org/bookshop

26 April 2012 cisi.org

CISI.indb 26 26/03/2012 12:23 Diary Events to attend over the coming months ➳ CISI annual dinner Professional courses 6 september Venue: London unless otherwise stated Guildhall, Gresham Street, London, EC2 19 april Anti-Money Laundering and Terrorist Financing Introductory Bookings are now being taken for the CISI’s premier social event of the year, its Workshop £500 annual dinner, which will celebrate the Institute’s 20th anniversary. To make an 23/24 april Understanding Regulation & Compliance £900 enquiry, please email [email protected] 25 april Investment Principles & Risk (PCIAM)* (Leeds) £300 25 april Investment Principles & Risk (IAC)* (Leeds) £500 Conferences 25/26 april Investment Principles & Risk (LSE)* (Leeds) £900 20 june Annual Conference 25 april Investment Principles & Risk (PCIAM)* (Manchester) £300 Glaziers’ Hall, 9 Montague Close, London, SE1 25 april Investment Principles & Risk (IAC)* (Manchester) £500 25/26 april Investment Principles & Risk (LSE)* (Manchester) £900 2 may Investment Principles & Risk (PCIAM )* £300 CISI members can attend this conference for just £200 3 may (non-members £400). For further details, visit cisi.org, Mastering Communication with Clients and Colleagues £500 call +44 20 7645 0680 or email [email protected] 10 may Introduction to Financial Markets £500 15 may Securities* (Edinburgh) £500 Con fEREnce sponsorship 24 may Operational Risk: Taking it to the Next Level £500 To consider taking up one of the sponsorship or exhibition opportunities at a conference, please contact Hannah Steele 29 may Securing Competence & Professionalism £500 at +44 20 7645 0648 or email [email protected] 30 may Investment Principles & Risk (PCIAM)* (Edinburgh) £300 30 may Investment Principles & Risk (IAC)* (Edinburgh) £500 London CPD events 30/31 may Investment Principles & Risk (LSE)* (Edinburgh) £900 *This event fulfils the requirements for qualifications top-up to fill gaps between 17 april Vision and Values in a Volatile World existing CISI exams and the new Retail Distribution Review exam standards Gresham College, Barnard’s Inn Hall, Holborn, EC1 30 april Long Finance or Short Monetary Systems McGraw-Hill, 20 Canada Square, Canary Wharf, E14 Member and Fellow discounts Professional courses discount: Fellows 35%; Members 30%; Associates 20%. 1 may FCSI Masterclass – Strategic View of Competence and Professionalism The following discounts are applicable only to one workshop per year: Watermen’s Hall, 16–18 St-Mary-at-Hill, EC3 Affiliates 30%; Students 20%.

9 may What Makes a Good Regulator? To book: Willis, 51 Lime Street, EC3 cisi.org [email protected] +44 20 7645 0680 10 may The Rivals: Will China Rewrite the Rules of World Trade and Finance? America Square Conference Centre, 1 America Square, 17 Crosswall, EC3 Branch events 21 may Communication Skills for Client-Facing Managers 27 april Investment Trusts America Square Conference Centre, 1 America Square, 17 Crosswall, EC3 West Country: Brewin Dolphin, Vantage Point, Woodwater Park, Pynes Hill, Exeter 23 may Regulating the Regulators Gresham College, Barnard’s Inn Hall, Holborn, EC1 2 may Standard & Poor’s Agency Briefing with ACCA Ireland Republic of Ireland: TBC 25 may ShareGift – Saving and Profiting from Charitable Donations TBC 14 may Sports Mental Game Skills for Business Yorkshire: Doubletree by Hilton, Granary Wharf, 2 Wharf Approach, Leeds 28 may The Coming LEI (Legal Entity Identifiers) Revolution 14 may Sports Mental Game Skills for Business SWIFT, The Corn Exchange, 55 Mark Lane, EC3 Yorkshire: York 30 may European Equities Update 17 may Annual Dinner Morningstar UK, 1 Oliver’s Yard, 55–71 City Road, EC1 Liverpool: Crowne Plaza, St Nicholas Place, Princes Dock, Liverpool 1 june Futures Versus ETFs 31 may Annual Dinner BlackRock, Drapers Gardens, Throgmorton Avenue, EC2 Birmingham & West Midlands: Hyatt Regency, 2 Bridge Street, Birmingham 8 june Passive and Active: European Active Bond Fund Analysis To book: BlackRock, Drapers Gardens, Throgmorton Avenue, EC2 cisi.org/eventscal [email protected] +44 20 7645 0652

For further information about London CPD events, visit cisi.org/capitalcpd With the deadline for retail investment advisers to comply with the Retail Distribution Review less than nine months away, the CISI is staging a series of roadshows around the To book: UK to help practitioners to meet its requirements. For details of your nearest roadshow, cisi.org/eventscal [email protected] +44 20 7645 0680 visit cisi.org/rdrroadshows

CISI.indb 27 26/03/2012 12:23 diary

CISI 2012 Annual Award winners Principal event sponsor Qualification Sponsor Winner Firm Certificate in Investments 7city Learning Derivatives Julian Woler HypoVereinsbank Richard Powell Nomura International Alastair Pringle Nomura Asset Management UK Securities BPP Timothy Willis Arbuthnot Securities Sean Fernandes Goldman Sachs Laurence Richardson InfraRed Capital Partners Surendra Jain Deutsche Bank Leif-Niklas Fanter Nomura Asset Management UK Sundarakrishna Mohanraj AllianceBernstein Capital Financial Derivatives Dina Ahmad BNP Paribas Joshua Maguire Merrill Lynch International Investment Management Brewin Dolphin Charles Drury Gianclaudio Antonelli BCM & Partners Commodity Derivatives Inderpal Gujral UBS Investment Bank Investment & Risk Andrew Hobson Evolution Group FSA Financial Regulation Matthew Pollock Deutsche Bank David Potterbaum HSBC Bank Anthony Scigliano Marex Carlton Praneil Doolabh Goldman Sachs Hardeep Rai UBS George Horton Goldman Sachs Daniele Piccitto Royal Bank of Scotland Katharine Klosterman UBS Investment Bank Thomas Turner Goldman Sachs Andreas Koller Credit Suisse (UK) Principles of Financial Regulation Michael Egerton Protean Investments Andrew Scourse Santander Global Banking & Markets Desmond Huang Yongchuan Deutsche Bank Sophie Scott BNP Paribas Risk in Financial Services Risk Reward Andrew Rinker MCSI Andrew Rinker Certificate in Investments winner Sean Fernandes Goldman Sachs Certificate in Corporate Finance Corporate Finance Regulation Sheila McIntyre Clydesdale Bank Simon Cook Grant Thornton UK Corporate Finance Technical Foundations Brendan Perkins Fenchurch Advisory Partners Nicholas Spencer Campbell Lutyens & Co Certificate in Corporate Finance winners Harry Florry ACSI Peel Hunt Brendan Perkins Fenchurch Advisory Partners Nicholas Spencer Campbell Lutyens & Co Sheila McIntyre Clydesdale Bank Gary Jason Chan Citigroup Global Markets Investment Advice Diploma Derivatives Andrew Rinker MCSI Andrew Rinker FSA Regulation & Professional Integrity FSTP – Financial Services Victoria Haselgrove ACSI Seven Investment Management Training Partnership James Birch ACSI City Equities John Saunders Barclays Bank Steven Holmes Williams de Broë Investment, Risk & Taxation John Saunders Barclays Bank Securities Joakim Jerner Morgan Stanley & Co International Investment Advice Diploma winner James Birch ACSI City Equities Limited Investment Operations Certificate Asset Servicing Michael Weeks Cazenove Capital Management Collective Investment Schemes Administration James Gordon FCSI Smith & Williamson Investment Management Sam Maybrey CREST Settlement Kathryn Woodley Euroclear Exchange-Traded Derivatives Administration Chenguang Luo Citi FSA Financial Regulation BNP Paribas Anya Leasor HSBC Bank Global Securities Operations Baillie Gifford Elizabeth Aldridge ACSI Morgan Stanley & Co International Nathan Jacobus State Street Bank & Trust Co Julie Wilson Citigroup ISA Administration IFDS – International Financial Data Services Yvonne Allen AJ Bell Holdings IT in Investment Operations Michael Hamilton Capita Life & Pensions Services Stephanie Shaw JHC Operational Risk Miao Zhi Eunice Koh DBS Bank Yan Ling Angela Lua Deutsche Bank Maria Mathew Accenture Services OTC Derivatives Administration Maria Nielsen Goldman Sachs Principles of Financial Regulation Paul Stephenson State Street Bank & Trust Co. Private Client Administration/Administration of Settlement & Investments Emma Beck L&G Investment Operations Certificate winners Barclays Wealth Scott Sutherland National Australia Bank Yan Ling Angela Lua Deutsche Bank International Certificate in Financial Advice Beatríz De Marco Sierra Instituto Financiero Anaf Islamic Finance Qualification Jawad Mandakar Central Bank of Bahrain International Investment Management Bedrock Jamal Saeed Zeed Abdel Jabbar ACSI International Introduction to Investment Award Shantanu Singh 7city Learning Singapore Shermal De Alwis MillenniumIT Software Limited William Blomfield DIFC Rules & Regulations Morgan Lavanchy Introduction to Investment: The Foundation Qualification IMA – Investment Management Association Shanky Jaiswal HSBC Bikash Purohit HSBC Electronic Data Processing India Brian McBride Fidelity Investments Aileen Oliver Interactive Investor Kim Gray Standard Life Mohammad Nasim State Street Syntel Services Introduction to Investment: The Foundation Qualification – Citi Jonathan McAdams University of Ulster Further Education College Award winners Mark McCoy University of Ulster

Certificate for Introduction to Securities & Investment (Schools) Benjamin Hasan Langley Park Boys School CISI Diploma BPP Bonds & Fixed Interest Markets James Pearson Barclays Bank Financial Derivatives Equitable House Investments Ltd Justin May Morgan Stanley Fund Management Anil Yelthimar Shenoy Henderson Global Investors Global Operations Management Katherine Buchanan HSBC Bank Interpretation of Financial Statements Claire Evans MCSI Brown Shipley Investment Analysis Saku Nath Saha Invesco Perpetual

28 April 2012 cisi.org

CISI.indb 28 26/03/2012 12:23 diary

CISI 2012 Annual Award winners (continued) Private Client Investment Advice & Management APCIMS Vicki Brady Speirs & Jeffrey Mandeep Kaur Rai HSBC Private Bank Regulation & Compliance Compliance Institute Award 2011 Robert Bramham MCSI Brewin Dolphin CISI Diploma winner Kara Hyne MCSI Legal & General Investment Management Euroclear Prize in Memory of Andrew Winckler Diploma in Sarah-Louise Horrocks UBS Investment Bank Investment Compliance Diploma in Investment Operations SIO – Scottish Investment Operations Alastair Seaton MCSI Kames Capital Advanced Certificate in Operational Risk IFDS – International Financial Data Services Robert Rhodes ACSI Advanced Certificate in Global SecuritiesO perations HSBC Mark Elliott ACSI QInvest John Pattie Friends Provident International CISI Masters in Wealth Management Charles Stanley Financial Markets Helen Sullivan ACSI Quilter Portfolio Construction Theory Beth Pearson ACSI Brewin Dolphin Applied Wealth Management Rathbones Tina Robinson MCSI Brewin Dolphin CISI Masters in Wealth Management winner Tina Robinson MCSI Brewin Dolphin

Membership admissions and upgrades

MCSI Digital Intelligence Smith & Williamson Farley & Thompson Rathbone UBS Alexander Forbes Systems Hellen Dalton Jamie Lavender William McIntosh-Whyte Daniel Edwards Ian Porter Ravindra Mittal Edward Fox FF&P RGM Walker Crips Rowan Speckham First Global Knowledge Mark Garnett Turkan Ahmet Feridun Jonathan Birchall Valentina Kang Allenby Centre Société Générale Simon Peck Rowan Dartington Daniel Robinson Mohamed Ikram Amy Duong James Thompson David Farr Chartered MCSI Arjent Thowfeek Spixworth David Zelouf Alastair King Advisa James Hutson Galvan Research Jeffrey Winter First Global Knowledge Michael Nathan Andrew Du Val Bank Leumi & Trading UK Portfolio Centre Adam Saint BRI Lihi Pinto-Fryman Matthew Dickinson Management Muath Mubarak RSM Tenon Oliver Mustin Bank of America Merrill Harrington Brooks Philip John Howe HJP Mark Appleby CCLA Lynch Babatunde Onolaja Williams de Broë Simon Porter SMC Simon Steele Dawn Li Wan Po HB Markets Martin Vanstone Hargreave Hale Reena Srivastava Chadwicks Barclays Costas Constantinou Xcap Securities William Searle Smith & Williamson Richard Ross Paul Anderson Heartwood Simon Christopher Niven Henderson Rowe Taiwo Fayose Charles Stanley Christopher Arbuthnott Burr Carter Others Charles Aram Anita Mahal Stuart Baker James Braddock John Kevin Divall Ravi Dadlani Ben Gregory Edward Sealy City Asset Management Kiran Chavda Simon Lough Yie Chun Lee Adam Hayek Speechly Bircham Alex Lander Michelle Duncalf Clive Meek Christopher Moore William Lawes Jessica Arrol Collins Stewart Mark Flynn Michael Stanes Dannial Yusoff Dominic Wright Vanessa Walters Stephen Meadows Sean Gallagher Mark Wills Nusa Znuderl HSBC Standard Bank Credit Suisse Richard Jeremy Henderson Anthony Gifford Christopher Berry Andrew Howe Hardstone Anil Yelthimar Shenoy ACSI Christian Andres Rijs Standard Life Deutsche Bank Jonathan Holland Henderson Rowe ABN AMRO IFDS Sarah Morris Antonietta Manzi Terence Moore Tobias Thomson Paula Van Katwyk Martin Digweed Tamac Nicholas Muir Graham Nicoll HSBC Aviva Ingenious Rowan Francis EC Squared Kathryn Nield Katherine Buchanan Daniel Osbourn Guy Bowles Terium Parvis Jamieson David Pearce Keren Collins Bank Muscat Investec Darius Namdar Isle of Man Bank Darshan Puri Eileen Cronin Loay Al Lawati Crispian Goody Thomas Miller Peter Davies Karan Sejpal Alessandro Poli Barclays James Martin Howes Charles Meaden JFH Services Reem Tawfic Jonathan Reed Benjamin Turner Kirsty Nimmo Wealth at Work John Hercock Harry Thorburn Investec Bennett Coleman John Laing Ronald Firth JPC Scott Sven Whittingham Stuart Light Anand Kumar Joanne Gibbins Paul Sheen Iain Scott Brewin Dolphin David Rankin Bluetrust KBC Xcap Ogier David Seymour Jensen Edward Sammon Maria Chatziperou Billy Hadjioannou Stuart Flack Brooks Macdonald Robert McIver BNP Paribas Killik Matthew Hanley Premier Asset Howard Crossen Killik Andrew Hendry Frank Thomas Anderson Others Management Canter Holland Nicholas Crellin Biju Sebastian Jade Bunnett Jonathan Bendall Peter Nicholas Neil Benjamin Mayfield Ben McKeown Petra Vrbova Knight Frank Wendy Johnson Raymond James Cheviot Partners LIFT Brewin Dolphin Peregrine Chan Petre Kamenv Pieter Burger William Buckhurst Ian Morrison Louise Bissmire Liontrust Bozhidar Yankov Rowan Dartington City Asset Management Merrill Lynch Caroline Boyd Neale Soffe James Gardner Denise Collins Matthew Lee Matthew Casson Lloyds Banking Group FCSI(Hon) SandAire Coutts Ian Rogers Samantha Harden Roger Van Lammeren Emirates Securities & Henrietta Grimston Christopher Ball Pigotts Robert Harper Marlborough Commodities Authority Smith & Williamson Timothy McInerney James Pigott Brown Shipley Nicholas Cooling Abdulla Al Turifi Stephen Lennon Credit Guarantee Platinum Alan Belton Rajesh Manon Towry Corporation Timothy Lock C Hoare & Co Martin Bown Chartered FCSI Oliver Marsland Amar Chander Premier Thomas Richard Orange Jim Aitkenhead Arbuthnot Latham Ramachandran Nicholas Kelsall C K JHA & Co Maunby St John Gardner This list includes membership Credit Suisse Rathbone Chandan Kumar Jha Robin Irwin Ashburton admissions and upgrades Roderick Boulton Kieran Lamb Canada Life Ministry of Justice Ashley Aldrich-Blake from 28 January to Hans-Olav Eldring Mandy Smith Fiona Roberts Gabor Csaszi Barclays 21 February 2012 Christopher Grove Redmayne-Bentley Cenkos Morgan Stanley Simon Patterson Peter Hindle Matthew Frampton Adam Robin Vasudev Apte Brewin Dolphin David Marshall Royal Bank of Canada ConvergEx QIB Simon Chicken Salih Gokalp Oder Dele Adesina Ross Carmichael Yasser Gado Brian Price Toby Pegler Maria-Eleni Ampatzi Coutts Quilter Collins Stewart Christopher Pottle Caroline Aslett Natasha Powell Christopher Beckett Paul Derrien Charles Sanford Alex Charalambous Crowe Clark Whitehill Sarah Bewley Deutsche Bank Stephen Swift Amit Kachawaha Julie James Nicholas Britnell Sam Myers David Booler & Co David McFadzean Deutsche Bank Richard Thomas Carter Investec Gavin O’Neill Nima Naghibi Bronwen Morgan-Thomas Patricia Garcia David Littler Abu Dhabi Department Amrit Sandhu deVere Group Anna Haugaard Quilter of Transport Janette Saxer Shane Helberg Benjamin Mountain Richard Sneideris Spencer D’Mello Oliver Charles Spry Eclat Gdumas Nicholas Murphy Rathbone Deutsche Bank Ruffer Guillaume Dumas Jonathan Rawicz Justine Peck Nicolas Patsalos Joseph Sylvester EFG Harris Allday Melissa Scaramellini Savoy Investment SC Davies Gareth Hodson Amrendra Sinha Management Paul Denley Antony Webb Lynne Bradford

CISI.indb 29 26/03/2012 12:23 people Community spirit

T he contribution of John Garbutt as an alderman and Justice of the Peace formal training as such for the role of Alderman, (JP), John Garbutt plays a key role in the but that it is important for the individual to FCSI to the ‘Square Mile’ extends government and judicial system of the City ensure his or her own continuing professional far beyond his distinguished of London. John became an development in this capacity. “This career in financial services. Alderman, an elected member of the City of includes learning about how the City of London London Corporation, in 2009. The Corporation and the numerous City-wide Lora Benson reports Corporation is effectively the local authority institutions operate in order to enhance one’s for the City, and John represents the most contribution,” he says. central of its wards, Walbrook. The ward is based around Bank underground station and Charity work encompasses the Mansion House – home of the Within the role, John is not only a member of John Garbutt FCSI in Lord Mayor of the City of London – the Bank of two decision-making bodies – the Court of his Alderman’s gown England and many other landmarks within the Aldermen and the Court of Common Council world of financial services. On his – but is also a trustee of the City Bridge Trust, election as an Alderman, a title that dates back London’s largest charity; the Epping Forest 900 years, John transferred as a JP to City of Committee, administering the largest open London Magistrates’ Court, having previously space owned by the Corporation; and the Irish been on the bench at City of Westminster Society, which governs certain properties Court. “Being approved as a JP is in Northern Ireland that are owned by the a key prerequisite to becoming an Alderman,” City. As for his role as a JP, John he says. “A second requirement is that the had to pass a rigorous selection process to candidate should hold the Freedom of the be accepted for the position. City.” John is very much at home “Completion of a penetrating application in the City, having worked there for nearly form is required, with extensive references 40 years with some of the leading names in taken up, followed by panel interviews international financial services. He is now that were some of the most testing I’ve ever sat through, and I’ve been through quite a number in my career!” he says. “Training is “The panel interviews ongoing for a magistrate, and includes visits to prisons and community-service centres as to become a Justice of the well as numerous courses led by the probation Peace were some of the most service. You have to be approved as ‘threshold competent’ after the first 12 to 18 months of testing I’ve ever sat through” sitting in court, and again every three years thereafter. So you are constantly kept on your Director, Global Head of Corporate Governance, toes.” His casework is “extremely at HSBC Global Asset Management (UK). varied”. He explains: “You have no idea what He says that being an elected might confront you at any particular sitting. member of the City of London Corporation is All but the most serious crimes are dealt with unusual in a number of ways. First, the position by magistrates, from minor thefts and traffic is unpaid, unlike that of councillors in other offences to cases involving quite a high degree UK local authorities. Second, City of London (though not the very highest) of fraud and voters include business electors in addition to violence. When a case is deemed too serious, residents. Furthermore, candidates campaign it is referred to the Crown Court, which, in for election as independents and not on any the case of the City of London Magistrates’ party-political platform. John’s Court, is the Old Bailey. As an extension of my role as an Alderman extends beyond being a involvement in this area, I’m also the City of ward representative to giving support to the London Magistrates’ Court representative on Lord Mayor as he promotes the City of London the Inner London Magistrates’ Association and its financial and professional services. Executive Committee.” John is John’s duties include attending a member of many other City-based entities the Lord Mayor’s Show and other functions, and international charitable organisations. He with guests ranging from visiting heads of is a Fellow of the Royal Society of Arts and a state and ambassadors to captains of industry, Governor of two City-related schools, as well as government representatives and the clergy. Deputy Chairman of the International Students Aldermen are expected to be Trust, President of Walbrook Ward Club and a actively involved in livery companies to which Council Member of the City Livery Club. they belong. In John’s case, this includes the Weavers, which is the oldest livery company, Got an interesting hobby? Contact Lora Benson and the International Bankers, one of the with your story at [email protected]. If it is newest. He says that there is no published, you will receive £25 of shopping vouchers.

30 April 2012 cisi.org

CISI.indb 30 26/03/2012 12:23 channel islands stock exchange advertorial

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