Securities & INVESTMENT May 2013

REthe members’ magazine of theV chartered instituteI forE securities &W investment cisi.org/sireview

Class ACTS England is moving to place financial education on the National Curriculum page 12

Tax transparency Latest developments and advice, p22

Ring-fencing banks How practical is the Vickers proposal?, p16

Securities & Investment may 2013 REVIEW Editor Rob Haynes Commissioning Editor Andrew Davis Art Director Steven Gibbon Publisher David Poulton Production Director John Faulkner Managing Director Claire Oldfield 12 Chief Executive Martin MacConnol Advertising Sales Yanina Stachura +44 20 7010 0945 [email protected] 16 Cover illustration Dale Edwin Murray Published on behalf of the Chartered Institute for Securities & Investment by Wardour, 5th Floor, Drury House 34–43 Russell Street London WC2B 5HA Telephone: +44 20 7010 0999 Fax: +44 20 7010 0900 www.wardour.co.uk 18 ISSN: 1357-7069

Communications Editor, Chartered Institute for Securities & Investment Richard Mitchell Contents 8 Eastcheap, London EC3M 1AE Telephone: +44 20 7645 0749 Features Members’ features Regulars Email: [email protected] 12 the money programme 22 cpd: lifting the lid 5 city view Financial education is set for on tax evasion The Government’s Help to inclusion on the National Simon Airey looks at the Buy scheme reveals a peculiar Editorial panel Peter Land, Chartered Brewin Dolphin Curriculum in England, but issue of tax transparency in preference for property FCSI, Chairman what direction should it take? Crown Dependencies ownership. Should there be Suren Chellappah FCSI Sanford C Bernstein Moorad Choudhry FCSI Royal Bank of Scotland Iona Bain investigates similar initiatives for share Simon Culhane, Chartered Institute for or bond buying? Chartered FCSI Securities & Investment 24 acts of charity Scott Dobbie FCSI(Hon) Deutsche Bank 16 degrees of separation In order to meet its financial Mike Gould FCSI Chris Alkan asks whether the commitments, should a 6 upfront Jeannette Lichner MCSI FTI Consulting Gregor Logan MCSI Vickers plan for splitting up charity take on more risk? News and views from Paul Loughlin, Rathbone Investment the banking system could members of the CISI, Chartered MCSI Management Robert Merrifield, Legal & General work in practice 26 need to read including our regular back Chartered FCSI story by Clay ‘Mudlark’ Harris Richard Mitchell Chartered Institute for Catch up with this Securities & Investment 20 branching out month’s essential reading Frank Reardon, JM Finn Chartered FCSI The debacle over Cyprus’s 11 first person Patricia Robertson, Westport Global banks is leading many in the Christopher Adams sounds a Chartered FCSI 27 diary Jeremy Robinson, Charles Stanley financial services industry to CISI events and admissions cautionary note on the online Chartered FCSI question whether branches virtual currency, Bitcoin Hamish Rowan-Hamilton TheCityUK Markus Ruetimann FCSI Schroder Investment are better than subsidiaries. 30 people: pedal power Management Beth Holmes reports Marie Morgan, Chartered 18 profile: alvin roth Nimrod Schwarzmann Arjuna Sittampalam, Sage & Hermes MCSI shares her passion The Nobel prize winner who Chartered MCSI for competitive cycling likes to play with markets Nigel Sydenham, BPP Professional Education Chartered FCSI Alan Yarrow, Chartered Institute for Chartered FCSI(Hon) Securities & Investment

Average audited circulation: 16,665 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.

3

city view

cisi opinion The Government’s Help to Buy scheme reveals a skewed preference for housing that is embedded in the national psyche House RULES government intervention in markets ‘savings ladder’? Such large cash inflows could is fraught with danger for investors and simultaneously revive the new issue market, politicians alike and the latest foray into the lower the cost of equity capital, boosting housing sector is no exception. The inability corporate investment in the real economy, and of so many Britons to raise what is still a restore confidence in equity markets and the institutional agenda, with Legal & General modest deposit in percentage terms tells us savings industry. It’s all rather fanciful, isn’t it? recently spending £65m on 46.5% of house more about actual affordability and value for But not, it seems, when it comes to housing. builder Cala Group and Prudential Property money than the plethora of ratios, indices and Home ownership holds a special place in the Investment Managers £105.4m on a residential statistics produced by the industry. British psyche and, as one of the many letting portfolio from home-builder Berkeley The proposed Help to Buy scheme will see initiatives aimed at stimulating the economy, Homes. So, is housing cheap? the Government invest up to £3.5bn, providing the proposal has much going for it. It promises Conventional measures suggest it is neither borrowers who are unable to afford interest to boost house-building activity, which cheap nor dear, with the Nationwide payments on a wholly-owned home with an affordability index within a whisker of its equity loan of up to 20% of the price of a average of the last 30 years. While that’s good new-build property. A second scheme, also If Government wants to news, it’s not quite as simple as that. Over the limited to 20%, sees a further £12bn of stimulate the housing past 30 years the size of the average newly built mortgage guarantees for those able to pay the home has shrunk and is now the smallest in interest but unable to meet the new, higher market, then why not Europe, about two-thirds of the size of the deposit requirement on existing homes. To average Dutch home. Price and value are not participate in either scheme, all an investor share or bond ownership? the same thing. needs is a deposit of at least 5% – still a tidy Investing directly in markets artificially sum of cash given today’s house prices, accounts for about 1.5% of GDP, but will also be distorts prices, usually with unintended particularly in the south east. good news for everyone from solicitors and consequences and, as we saw in the late 1980s It’s a tongue-in-cheek thought, but if removals firms to decorators and carpet when the Government withdrew its Mortgage government is willing to extend 20% ‘equity suppliers who benefit from an active housing Interest Relief At Source tax subsidy on loans’ and encourage capital gearing of up to market. It has been estimated that increasing mortgage interest payments, the housing 20 times to stimulate investment and activity the number of new-build properties in market can be surprisingly volatile. Rather, in the housing market, then why not consider England by 100,000 from today’s figure of government should focus on lighter regulation extending the same largesse elsewhere? 115,000 could boost GDP by around 1% and to stimulate activity while removing barriers Perhaps to share or bond ownership? Could start to address the longer term undersupply such as stamp duty, a transaction tax that we see government not just providing limited of new homes – although that is unlikely to reduces activity and in housing makes tax breaks on ISAs and pensions but also be good news for prices. extending cheaper than moving. It should do ‘equity loans’ to help those unable to get on the Residential housing is also firmly on the the same in securities markets. n

5 Upfront News and views from the CISI

membership requirements New rules for ethics test The CISI has further extended its requirements • take and pass the Integrity & Ethics module CISI not only the professional body of choice for for new and existing members to take and pass of Professional Refresher, the online learning practitioners, but for investors choosing which an integrity test. This is part of a two-year plan tool, which is free of charge. firms and individuals to do business with.” to continue to demonstrate that CISI members ACSI or Affiliate members who have already The CISI has also introduced integrity are at the leading edge in their profession. completed one of the above do not need to requirements for candidates taking its capital As of 1 April 2013, the CISI requires all new retake these. markets exams. The changes mean that by ACSI and Affiliate members to commit to taking CISI Managing Director Ruth Martin said: 1 April 2014 all core members of the CISI will and passing, at grade A, IntegrityMatters, its “The CISI continues to take the lead on behalf have passed an integrity test. online ethics test, within three months of of its members by reminding the industry, and The CISI has achieved considerable publicity joining the Institute. The introduction of the all of its customers, how much integrity is at for its decision to require all candidates in the integrity test for these members follows the the forefront of our professional body. We UK sitting its wholesale sector benchmark implementation of the same requirements in appreciate that our corporate supporters and exams from 2 April to take and pass 2012/13 for FCSI and MCSI members. members have overwhelmingly supported our IntegrityMatters. See article below. There are also integrity requirements for drive for higher standards, even though it is the It will, over time, ensure that, whether in the existing ACSI or Affiliate members. They must, members themselves who have to take these exams themselves, or through tests, student by 31 March 2014, either: tests to substantiate our claim that we are a members are thoroughly tested too. • take and pass IntegrityMatters, achieving body of action and not just rhetoric. We thank a grade A, or you all for your support as we seek to make the For further information, visit cisi.org/mrules

media IntegrityMatters packs a global punch The CISI’s announcement that it will require candidates for its level 3 capital markets qualifications to pass its IntegrityMatters online ethics test before sitting an exam has generated unprecedented media coverage for the Institute, both within the UK and globally. A major article in the Financial Times, where the reporter, after sitting the test, commented on her result, set the tone. The story was taken up enthusiastically by major UK newspapers, both national and regional, in The advert at Bank tube station in the City of London supporting the initiative and, below, a selection of the media coverage generated by the launch Europe, where it was run by leading publications in France and Italy, and in countries including Canada, India and China. Additionally, television and radio found the story newsworthy and CISI Chief Executive Simon Culhane, Chartered FCSI was interviewed on the BBC’s flagship Radio 4 Today programme, Radio 5 live, CNN’s Quest Means Business and Reuters TV. Simon said: “We are very pleased at the high level of interest generated by our announcement about IntegrityMatters. It demonstrates that the public is keen to learn that practical steps are being taken to raise standards of integrity, rather than just talked about.” All of this coverage was before the appearance of eye-catching supporting adverts at significant London tube stations including Bank, Westminster and in the Canary Wharf area, as well as at major UK railway stations.

6 May 2013 cisi.org

The number of videos viewed on CISI TV in March. This membership benefit is an easy way to catch up with some of the CISI’s most popular 4,024 CPD events online. See cisi.org/cisitv for further details ➳ uk network New CISI branch 60-second interview

The CISI branch network in the UK has been further James Stewart-Smith MCSI, President of the CISI’s new expanded to 17. Southern branch The Southern branch held its launch event at the Guildhall in Guildford. Its President is James Stewart-Smith MCSI, an Investment Manager at Charles Why has the their financial services needs met. The Stanley’s Guildford office (see 60-second interview, Q Southern branch quality of investment management right). James said: “The new Southern CISI branch brings been set up? services available in this area is as good together the great pool of talent in the region to We thought it was time as that available in the City and other disseminate the message that professional financial to start a CISI branch to parts of the UK. services can and are found outside of the City of London, represent the large number with the CISI ensuring a quality mark for firms.” of Institute members based in the How important is it for the CISI The branch covers members working and living in south of England. Q to have a regional presence? Guildford, Dorking, Woking, Cranleigh and other While many live in the area and With any industry body, it is vital that surrounding areas. It will organise a full programme of commute to London, a significant its members feel represented and that CPD and networking events throughout the year, with proportion work for firms that are they can have their voices heard. It is the next session planned for 20 June – a presentation either wholly based locally or have also crucial that they have access to covering a technology theme. regional offices here. training and industry events that are convenient to attend. For more details about the branch, please visit cisi.org/southern How will the new branch By having a branch on the doorstep Q benefit members? of members based in the area, we can Through talks, seminars and events achieve these aims and allow more for members that will promote greater individuals and firms to be involved in understanding of industry issues and the CISI’s work. good practice, and provide updates on latest developments within financial What do you hope to achieve services. The branch will widen the Q in the next 12 months? CISI’s reach to firms based in the To increase membership, promote southern area that may previously the investment services that our have felt that the CISI was not of great members offer to the population benefit to them. of the region, and to organise We will also seek to get across the events that focus on members’ message to local clients that they do not professional needs and also provide Branch President James Stewart-Smith MCSI and CISI CEO have to go to London in order to have networking opportunities. Simon Culhane, Chartered FCSI, at the launch event

membership survey annual conference Have your say on The future of financial services the Institute What does the future Association, and Nick Hungerford, hold for the wealth CEO of online discretionary The CISI is urging members to have their say about the management industry? investment management company services and benefits it offers. Its annual membership This year’s CISI Annual Nutmeg, to try to answer some of survey is currently being conducted, with members around Conference, which the broad questions. the world having until 20 May to express their views. will be held on 3 July What are the challenges and where CISI Managing Director Ruth Martin said: “We are a Iona Bain in London, will be does the potential lie? What will people membership-driven organisation and so feedback from looking to the horizon to see the of Iona’s generation want from their our members is crucial in helping us develop our opportunities – and threats – that financial advisers? policies and benefits package. We would be grateful if loom for its members, their firms Iona has a written a special feature members would spend a few minutes completing the and their clients. on financial education being placed questionnaire; they are all analysed with care and Iona Bain, a journalist and media on to England’s National Curriculum for comments thoroughly dealt with.” contributor covering personal finance, this issue of the S&IR. Turn to page 12 particularly for young people, will be to read her article. Members can access and complete the survey in the MyCISI area of peering through her telescope, with the Institute’s website at cisi.org/mycisi. Those members at MCSI and FCSI level have also been sent a paper copy of the survey and can the help of Daniel Godfrey, CEO of For further details about the conference, alternatively complete this version the Investment Management please see page 27

7 news review

donation qualifications Help for infants Award for top performer Congratulations to Stacey Blandford, who has been honoured as a joint top performer in the CISI’s Introduction to Investment exam. Stacey, a team leader at International Financial Data Services’ (IFDS) contact centre in Chelmsford, Essex, was among more than 90 winners in a record 59 categories in this year’s CISI Annual Awards. She was unable to attend the awards ceremony at London’s Mansion House, which was reported in April’s Stacey Blandford receives her award from IFDS edition of the S&IR, and instead Director Clive Shelton, Chartered FCSI received her prize from IFDS Director products with which our firm deals, Clive Shelton, Chartered FCSI. which will help me in my career.” Manchester & District branch President Alan Budenberg, Chartered MCSI, left, pictured Stacey said: “I’m really pleased to She has gone on to pass the CISI’s at the presentation of the monitor. He is shown with, from left, Catherine North have won the award. Taking the FSA Financial Regulation exam and is (MedEquip4Kids), Jane Kilpatrick (Stepping Hill Hospital) and Ghazala Baig (Chief Introduction to Investment exam has now planning to complete a third unit Executive, MedEquip4Kids) given me a much greater knowledge of in order to be awarded the Institute’s A hospital has received a helping hand from the CISI’s the financial services industry and the Investment Operations Certificate. Manchester & District branch to save the lives of babies at risk of sudden infant death syndrome. fundraising The branch raised around £800 at its annual dinner last November in aid of MedEquip4Kids, a Manchester-based charity that provides medical equipment for hospitals and health teams to support children’s treatment. Cycling for charity The money has been used to buy an apnoea monitor for the CISI external specialist Simon Parrott support. Any donation from CISI maternity unit at Stepping Hill Hospital, Stockport. The monitor is geared up for a 100-mile bike ride in members would be appreciated.” is used to alert medical staff to any changes in the breathing aid of the National Autistic Society in Funds raised by Simon will be of babies with health problems so that they can intervene at a May along the South Downs Way. matched by his employer, Aviva vital early stage. He said: “A good friend of mine, Investors, where he is an enterprise Branch President Alan Budenberg, Chartered MCSI visited whose son is autistic, receives valuable risk manager. the hospital to hand over the equipment. He said: “We’re support from the Worthing branch. It delighted to be able to provide such tangible support to improve does an amazing job helping families To support Simon, visit his Just Giving page, the care of local children.” living with autism and deserves justgiving.com/Simon-Parrott1

events online CISI AGM 2013 BEST OF THE BLOGS tinyurl.com/buttonwood-financial advocates applying learned facts to This year’s Annual General Meeting will be held 1 Sounding a pessimistic note on the real-world situations in a number of at the CISI, 8 Eastcheap, London EC3M 1AE, on theme of financial education in schools, subject areas, this may not be best suited Wednesday 25 September, at 10.30am. The Economist’s Buttonwood blog points to the exam culture. A Member (MCSI) or Fellow (FCSI) of the to various failures in the US. It quotes a Institute may be nominated for elected survey by the Federal Reserve Bank of tinyurl.com/black-bullion Cleveland that states: “Unfortunately, we 3The Black Bullion blog, founded by former vacancies on the CISI Board of Directors. Board do not find conclusive evidence that, in private banker Vivi Friedgut in order to help members retiring by rotation may stand for general, financial education programmes people become money smarter, adopts a re-election and the Board itself may also do lead to greater financial knowledge and behaviourist’s stance. Rather than simply sponsor candidates for any vacancies arising. ultimately to better financial behaviour.” teaching young people about the basics, A nomination form, which includes an However, it is not all doom and gloom; such as compound interest, this blog post explanation of the requirements for the Buttonwood also mulls the positives of argues for an education agenda that instils alternative forms of education – such as good habits in place of bad. The following election of candidates to the Board, is available gaming – and extols the virtues of a basic quote forms the meat of the article: in the members’ area of the CISI website. grounding in maths. “Overspending is a habit, under-saving is a Alternatively, a hard copy is available upon habit, debt becomes our personal culture request. Please email [email protected] tinyurl.com/financial-education-vox-pops and soon our slavery to our debt determines or call +44 20 7645 0603. 2 Putting the issue into its wider context – not just our mood and morale but our The closing date for nominations for Board the overhaul of the national curriculum behaviour which in turn feeds into our proposed in February 2013 by Secretary of mood and morale.” membership is 12 July 2013. State for Education Michael Gove – a series of CISI Chairman Alan Yarrow, Chartered interviews published in The Guardian reveals See page 12 for more on financial education. FCSI(Hon) is happy to speak to any potential what a number of teachers and professionals nominee or sponsor before a formal think. Several of these expressed the concern Do you have a blog recommendation? application is made. He can be contacted at that although the new curriculum generally Send it to the Editor: [email protected] [email protected] or +44 20 7645 0603.

8 May 2013 cisi.org

➳ CLAY ‘MUDLARK’ HARRIS Mike Jones FCSI(Hon), Partner, Share Witness and Chairman, MBA Systems

Mike Jones FSCI(Hon) is one of a select Although ownership, corporate chairs the Securities Industry few in the City who not only experienced names and structures changed many Management Association. the huge changes in financial services in times, Mike was to work for the same While he was playing such central the past 50 years, but helped shape them employer for the next 37 years. industry roles, Mike had a day job, at almost every turn. He started in the research department of course. Sir RW Carden merged Although he left his last executive job and later became head of the investment with Capel-Cure, among others, was in 2000, Mike still puts his experience to department. In 1970, Somerset Gibbs, taken over by Grindlays, and then by use. Among other roles, he heads the the firm’s senior partner, approached ANZ Merchant Bank, where Mike European and International Committee Mike and offered to make him a partner set up market-making and derivative- Mike Jones FCSI(Hon) of the Association of Private Client if he would take charge of the firm’s trading operations. Investment Managers and Stockbrokers, administration and introduce computers. In the 1990s, Mike rose to be Chief Partner, Share the body he helped to found and Gibbs was Mike’s mentor. “If you have Executive at Capel-Cure Myers, which Witness and Chairman, formerly chaired. the right sort of mentor, they are like went through various mergers and MBA Systems Mike’s path to the City began at a owners, ending as part of Old Mutual, summer camp in the Lake District run “If you have the right the South African insurer. He was Capel Do you have a by Roan Boys’ Grammar School, the Cure Sharp’s technical director when he back-office story? school he attended in Greenwich. Sir sort of mentor, they are took early retirement in 2000. mudlarklives@ John Bevan Braithwaite, the local squire like gold dust” Mike wasn’t ready to quit, though. hotmail.co.uk and head of the school’s board of He chairs the trading systems vendor governors, visiting the camp for a chat, gold dust. He taught me how to have fun MBA Systems and helped to found suggested that Mike join the training and do your job professionally. He was CityCompass, a financial services scheme at the Stock Exchange, where he one for extracting every bit of fun out of consultancy and conference organiser, was Chairman. life as long as the work was done 100%.” before turning to what is now his main Mike’s first responsibility was to Mike networked, before the term was interest. With Jonathan Eardley, who gather the prices for the Daily Official coined, with other firms’ administration died last year, he set up Share Witness, List, but in three years he learned about partners and was elected to the board, through which he gives expert-witness all aspects of the exchange. and then as Chairman, of the Stock testimony in complex financial cases; he In 1963, he applied for a job at Exchange Management Association. has been involved in more than 60 so far. Sir RW Carden Stockbrokers where He helped to devise the first Stock At 70, Mike reflects: “I have always the interview involved, Mike recalls, Exchange exams and was on the Stock employed people who are generally more “writing down my name and address. Exchange rules committee at Big clever than myself. I also believe in I was told: ‘You’re not really what we’re Bang, and then that of the Securities giving every bit of credit to others when looking for, but you’ll have to do’.” and Futures Association. He still something is a success.” Illustration: Luke Wilson Luke Illustration:

cpd select benefits Guarding against Prepaid currency card on offer The FairFX Prepaid currency card is a revolutionary step frightening lawsuits forward in spending money abroad – and as a CISI member there is an extra reason to Laws and regulation are changing Dobbie CBE, FCSI(Hon), Senior apply for one. and the number, size and Adviser, Deutsche Bank London Protected by chip-and-pin complexity of investigations and former Chairman of the CISI, technology, the FairFX card can continue to grow. Lawsuits against will introduce this important event be used throughout the world directors – and managers – of at Willis’s HQ in Lime Street, at stores and at cash machines that display the MasterCard financial services firms are rarely London EC3. Acceptance Mark and also to make online purchases. out of the headlines. Senior Simon Airey, Head of It is easy to load money on to the card using your mobile phone, managers can be left without Investigations and Compliance the internet or by bank transfer and you benefit from a competitive protection to respond to enquiries at DLA Piper, will address the exchange rate. when urgently needing advice impact of the equally worrying CISI members are entitled to a free FairFX Prepaid MasterCard and support. new tax disclosure rules – outlined card, which normally costs £9.95. In addition, members can receive A major seminar in London on pages 22–23 of this issue – at a free £5 top-up when they order their first card.* on 15 May will discuss recent a special CPD event on 6 June investigations and tips for at DLA Piper, 3 Noble Street, This deal is offered as part of the CISI Select Benefits package. To apply for your ensuring you get the right cover. London EC2. FairFX card, visit CISI Select Benefits via cisi.org/memberlogin It will be led by two of the leading Register now for these and the *Terms and conditions apply. See website for further details. Correct at time of print. global experts in the field – Allen many other free-to-member events Subject to minimum load of £50, €60 or $75. CISI Select Benefits is managed on behalf & Overy partner Calum Burnett in the CISI’s world-leading programme of the CISI by Parliament Hill Ltd of 3rd Floor, 127 Cheapside, London EC2V 6BT. Neither and Francis Kean of Willis. Scott at cisi.org/events is part of the same group as a provider.

9 news review Anthony Lobo, Head of Oil and Gas at KPMG Ask the experts…

SHALE GAS

Shale gas is an energy source stored in shale 25 years, with capital requirements expected rocks, and technological developments in to exceed US$200bn. According to the the past decade mean that it can now be Securities and Exchange Commission’s new Update extracted relatively cheaply in some countries. reporting standards on reserves, companies In April’s budget, Chancellor George When burned it releases less carbon can now include shale gas in their reserve Osborne announced a series of tax dioxide than traditional fossil fuels and base. As reserves represent the growth potential breaks that will make searching for and deposits of shale are being found in locations of a company to an investor, these new extracting shale gas more attractive. These around the world. provisions are extremely favourable to include gas field allowances, to stimulate However, there are some concerns worth companies seeking to exploit shale. It will help investment in the sector. noting. The process of ‘fracking’ involves investors to calculate future cash flows and The Chancellor said: “Shale gas is part drilling a well bore into the reservoir rock lead to better company valuations. of the future and we will make it happen,” formation and then forcing water, sand and Europe has some 639 million cubic ft of adding that he was keen to ensure that chemicals into the well at high pressure to create shale gas reserves, but the depth of the local communities benefit from shale gas fractures or fissures in the rock. Once the resources is believed to be 1.5 times greater than projects in their area. fracture is open, the released gas flows out into in the US. The Oxford Institute for Energy The Chancellor’s ‘dash for gas’, however, the well bore. Shale gas development around Studies estimates that the cost of extraction in has been met with scepticism. Speaking at the world has met with fierce opposition from Europe could reach over $16 per 1,000 cubic ft, the Clerk Maxwell Lecture at the Institution local residents and environmental groups compared with less than $7 for the US. These of Engineering and Technology, Professor due to the perceived environmental impact high production costs and low margins, Paul Stevens, Senior Research Fellow at on contamination and depletion of both combined with greater competition, are curbing Chatham House, claimed that the shale gas groundwater and surface water and the the appetite for investment in shale gas revolution in the US is unlikely to be potential to trigger seismic activity. France, for production start-ups in Europe. repeated in the UK, and that Mr Osborne’s instance, banned hydraulic fracturing as of July Compared with the US, the regulatory regime strategy is seriously flawed. 2011, including its use for research purposes. in Europe is relatively undeveloped, which is In the US, companies have unlocked access to also a threat to investment. Companies are rich shale gas reserves measuring a total in forced to work without a predictable regulatory shale gas deposits have been located in excess of 800 million cubic ft and the country is framework, and, even within the EU, there is no the Mendips. seeing marked activity in ramping up for universal approach. Access to exploration In May 2011, the Parliamentary Select full-scale production, including investment permits and development licences is uncertain, Committee on Energy and Climate Change opportunities mainly in the mergers and creating significant regulatory risks. concluded that, based on estimates of the UK’s acquisitions market. Additionally, European investors are onshore shale gas resources, there will not In 2008, the country imported 13% of its watching the US to see if players there decide be a ‘shale gas revolution’ in the UK based on natural gas supply. That figure is expected to to develop the country’s capabilities as a natural domestic resources alone. Nevertheless, drop to less than 1% by 2035. It is commonly gas exporter. developing shale gas reserves could make the thought that the US is poised to become a In the UK, where reserves measure below country more self-sufficient by reducing its significant player in the global natural gas 100 million cubic ft, shale gas production was reliance on imported natural gas. market, becoming a net exporter in the started at the Blackpool aquifer in Lancashire,

coming decades. and then voluntarily suspended due to concerns Do you have a question about This means that significant investment in that the operation was causing seismic activity. anything from tax to virtual trading? infrastructure will be needed over the next These claims have not been proven, and new [email protected]

quick quiz Test your industry knowledge Q1. Which ONE of the following is an operational-statutory objective of the Financial Conduct Authority? A) Reduction of financial crime B) Enforcement of principles C) Protecting and enhancing the integrity of the UK financial system D) Ensuring that the relevant markets function well

Q2. A loan is available at a quoted rate of 8% p.a. with interest charged on a quarterly basis. What is the annual effective rate? A) 8.00% B) 8.24% C) 9.01% D) 36.05%

Illustration: Cameron Law Cameron Illustration: Q3. Which ONE of the following items appears in a cash flow statement? A) Depreciation charges B) Goodwill amortisation C) Short and long-term creditors D) Interest The S&IR’s Quick Quiz features questions from CISI payments elearning products, which are interactive revision aids to help candidates prepare for their exams. Answers are on page 29. Q4. Who assumes the risk of ensuring that the liabilities of a defined benefit pension scheme are met? To order CISI elearning products, please call the Customer A) Scheme members B) Scheme sponsor C) Each beneficiary D) Government actuary Support Centre on +44 20 7645 0777 or visit cisi.org

10 May 2013 cisi.org

first person

Cyber flunk Have you heard the one about the virtual currency? Unless you are prepared to treat ‘investments’ such as Bitcoin as a speculative joke, it’s probably best to leave well alone this is one bubble that really harder to generate as time could damage your financial passes, limiting supply. A small The problem is health. Forget tulip mania, the number of online services are South Sea Company and the accepting Bitcoins as payment: that Bitcoin doesn’t dotcom boom. Investing in for example, you can redeem behave like a currency Bitcoin – a virtual currency them for electronic goods, promoted as an alternative to guitars, website hosting and ‘real’ money – is proving to be even dental work. The currency volatility – a huge South a nerve-racking ride. is perhaps best known, though, Sea-style bubble – that would Bitcoin is a nice idea. Imagine for its use on the Silk Road, a send even the bravest hedge a world where powerful clandestine site that traffics fund managers running for governments and central drugs and other illicit goods. the hills. banks no longer manage The shady side of Bitcoin currencies, where the creation need not diminish its Gold for geeks of money is automated by attractions as a currency, as Some have derided Bitcoin as a computer algorithms and the long as it works like one. The Ponzi scheme, reliant on little man can thrive in a problem is that it doesn’t continuing inflows of money to digital marketplace where behave like a currency. keep going. That doesn’t quite cash is obsolete. nail it. Rather, it is a phantom The trading flaw commodity – not a currency – Diminishing returns Paul Krugman, the Nobel that has little or no intrinsic In the wake of the global prize-winning US economist, value beyond the world financial crisis – and as Cyprus has already exposed the inhabited by the became the latest eurozone fundamental flaw in Bitcoin. computer nerds running nation to be bailed out – interest His analysis, two years ago, goes the software that creates in Bitcoin has grown. a long way to explaining the the coins. It is, simply, At the same time, the price of extraordinary moves now. Yes, ‘gold for geeks’. Bitcoin the ‘coins’ has been nothing if the sudden and sharp rise in could trade at $100 not volatile. In February, they Bitcoin’s value in April made it tomorrow, only to be were valued at $20. The look like a good investment. But worth $1 the next day. ‘currency’ then leapt to as that doesn’t make it a successful That hasn’t deterred much as $266 in April, before currency. A monetary system the speculators. One plunging back again in a matter should not make people rich, asset manager was of days to below $100. Hardly a says Krugman, but make reported to have set up haven of stability. transactions easier and the a Bitcoin fund last year Indeed, the biggest Bitcoin economy as a whole richer. intended as a light- exchange – Mt.Gox in Tokyo – Bitcoin shows no sign of hearted punt. It briefly suspended trading after doing that. As the price of the offered people the that plunge. The exchange said coins has soared, real-world chance to invest $1,000 it had been a “victim of our own dollar prices have more or less when the price of success” and blamed the stayed steady. This means that coins was $13, the “astonishing” number of new consumer prices as measured caveat being you accounts being opened: 20,000 in Bitcoins have plunged. Thus, could lose the lot. a day. Personally, I’d take that there is every incentive to If you can afford explanation with a big pinch of hoard the coins rather than to treat it as a joke, salt. Bitcoin may be a spend them. then why not? fascinating phenomenon – but Hoarding the virtual coins Just be prepared it is also one hell of a bubble and not only keeps trade illiquid, to laugh when your no place for serious investors. it will help drive prices sharply money turns into Here’s why. higher should people bid to buy cyber tulips. n Bitcoin was created four them on an exchange such as years ago by an unknown Mt.Gox. In short, it will take Christopher computer scientist. The limited only a little trading activity to Adams is the stock of coins is ‘mined’ by move prices a long way. The Financial Times’ computer users and becomes result has been the kind of markets editor

11 The money PROGRAMME English authorities have long shied away from putting financial education on to the national curriculum. All of that is due to change, reports Iona Bain

until now, the complex world of money has been an incidental situation. Three-quarters support embedding financial education part of the English school syllabus. Unless parents and schools went within the curriculum. out of their way to teach financial skills, it was only maths as a core But a row is brewing over who should take charge of shaping subject that might, as a happy by-product, have created a better lessons. Should it be those who, in theory, know money better than understanding of how to make the pounds go further. Imparting anyone – the financial services industry itself? Or can teachers be how interest on a savings account works, or whether a two-for-one trusted, with the right resources, to teach this thorniest of topics deal on baked beans is good value, is as far as most teachers have independently and thoroughly? And will it be enough to embed it strayed into this tricky territory. within citizenship classes, which also aim to cover areas such as law, That’s all about to change. As part of the draft National volunteering and respecting ethnic minorities? Curriculum, drawn up by the Department for Education, A recent commentary in the Financial Times claimed that high citizenship classes will, from September 2014, ensure that pupils are street banks responsible for some of the “worst consumer “equipped with the financial skills to enable them to manage their misselling scandals of the past decade” would be “invited” into money on a day-to-day basis as well as to plan for future financial British schools to help implement the Government’s new financial needs”. That means learning about budgeting, as well as the basic prospectus. Martin Lewis, of Money Saving Expert fame, has financial services that young people are likely to encounter sooner previously suggested visits by bankers to schools would be as rather than later. Further down the line, pupils will get to grips with morally dubious as pharmaceutical companies teaching children wages, taxes, credit and debt, as well as the more ‘sophisticated’ about biology and chemistry. financial products that their parents may still be struggling to grasp. What about HSBC, which won an award from Charity Times Only the outline of the curriculum will be drawn up by the magazine last year for a five-year, £3.4m programme, working Department for Education but it is thought it will be similar to the alongside the Personal Finance Education Group (PFEG), Britain’s arrangements in Wales and Scotland, where there is freedom as to foremost charity in this area? It deployed 648 teachers and trained what resources are used and how teachers cover these topics. 1,110 HSBC volunteers, as well as developing a ‘best practice’ Despite the lack of clarity at this stage, people do feel that package that was used in 5,250 schools. More financial education is needed. According to recent research from than 20,000 primary school pupils were the Nationwide Building Society, half the population say that had thought to have been taught the ins and they been taught money management when they were younger it outs of money through the scheme. A

Illustration: Dale Edmin Murray Illustration: would have had a “positive impact” on their current financial more long-running project comes from

12 May 2013 cisi.org

cover story

The CISI and financial education The CISI is actively involved in education. It has which has teachers’ slides and interactive MCSI, published by the CISI. The Education an Education Trust, which financially supports learning, and from September the CISI will be Trust itself has sponsored the distribution of developments in schools, that is chaired by piloting its new Certificate in Finance, Risk & 2,000 copies of this book. former Board member Clare Gore Langton, Decision Making in several schools. A new qualification, Fundamentals of Chartered FCSI(Hon) and also an Education The two certificates combine to become the Financial Services, has recently become Committee, chaired by Board member Nick Diploma in Finance, Risk & Investment, which available for schools and colleges. Two of the Swales, Chartered FCSI, which brings together has already been approved for funding in Institute’s qualifications are also recognised as education professionals and practitioners. The schools and is recognised by Ofqual, the part of Advanced and Higher Apprenticeship CISI has also developed qualifications, learning education regulator. Many firms have signed up frameworks. The CISI is also actively working and teaching materials for schools to use. to offer work experience to complement the with universities to ensure that young people For example, a number of schools and studies of these students, while others have with its qualifications can go on to university colleges currently deliver the CISI’s Certificate sponsored the distribution to local schools of – the Certificate for Introduction to Securities for Introduction to Securities & Investment, #yourmoney, the book by Jeannette Lichner & Investment already attracts UCAS points. the RBS Group, which has delivered sessions on money for more with close links to teachers in the sector will be ideally placed than 18 years via the MoneySense for Schools programme, while to offer materials and support; the CISI has always been a Santander in Schools scheme uses staff volunteers to talk to practitioner driven and, in the field of schools education, this children about the role of banks. includes head teachers and teachers, who are represented on the CISI’s Education Committee. The CISI will be playing its full Investing for the future part and is working closely with the PFEG to offer practical In preparation for the changes ahead in England, the CISI has support as well as ensuring that its own schools qualifications itself been investing considerably in the education sector. In April, will be relevant and appropriate to the new curriculum funding from the CISI’s Education Trust led to the Institute requirements unfolding in England.” sponsoring a two-year teaching post at Liverpool’s Archbishop Meanwhile, Jeannette Lichner MCSI, author of #yourmoney, the Beck College. This step drew support not only from Liverpool City CISI-sponsored guide for 16–25-year-olds on spending and saving Council’s Children’s and Young People’s money, and an experienced financial services professional, is Services, but also from local CISI corporate supportive of banks playing a part in financial education. Lichner supporter firms, the Institute’s regional says: “It’s extremely unfortunate that some press articles have gone committee, and indeed the Archbishop into a tailspin over this, describing banks as the architects of of Canterbury. payment protection insurance misselling who are now handling our CISI Managing Director Ruth children’s money education. There were a handful who did wrong Martin says: “Professional bodies but it’s now clear there are lots who are trying to do right.” The general consensus in the financial industry is that it should never hijack the education agenda to push products – or consumer trust could well be lost again. In a 2012 report on investor education initiatives among its members, the International Organization of Securities Commissions said strict guidelines were generally followed. “For example, the speakers are not allowed to promote themselves, identify the financial institution with which they are affiliated, or promote any financial products.” Tracey Bleakley, Chief Executive of the PFEG, says that the financial services industry ➳

13 cover story

has been “extremely generous” in its support for financial more time to learn about the topics, which included money education, and that the PFEG’s own quality mark is a guarantee management, borrowing, financial products and the world of work. that resources are “independent, free of branding, and of the The Stewart Ivory Foundation, a charity set up by a group of highest educational quality”. She goes on: “Through its work Edinburgh fund managers when they sold their business to a US in schools and its support for the PFEG over the last 12 years, buyer in 2003, recruits volunteers across the financial sector (many the sector has helped millions of young people understand retired) to provide regular sessions for (Scottish) sixth-year more about money. On its own, however, this is not enough. students. Chairman Hamish Buchan says: “The big question is We want to see financial education taught in every school in whether you teach the teachers or bring in outsiders. We’ve been the UK, which is why we are so pleased that after two years of told that financial experts engage the students far more once they campaigning the Government has finally agreed to include it in have reached sixth year and you have to ask if the teachers really are the new National Curriculum being introduced from September confident enough to do it on their own. Teachers trust us because 2014. This is a huge victory and a big step forward for our we’ve no axes to grind or any agenda to promote.” broader campaign for every young person to be given the skills, Buchan concludes: “If we’re really committed to personal finance knowledge and confidence they need to be able to manage education in schools, it needs to be properly state-funded and their money well.” treated as a subject in its own right. The big complaint we hear from Alongside its counterpart in Wales, the Scottish Government teachers is that they have so much to get through and personal decided some time before Westminster (five years ago) to make finance ends up falling through the cracks. If it doesn’t have its personal finance education compulsory. But Education Scotland own exam, it’s at the bottom of the pile.” leaves it up to schools to decide how they teach money – much like the model proposed for England next year. Step forward Royal About the author: Iona Bain is a freelance journalist who specialises Bank of Scotland, Clydesdale Bank and Standard Life, which have in young people’s personal finance. She has appeared as a been among those offering books or online courses as part of the contributor to BBC Scotland and Radio 1 and has her own website, Financial Education Partnership (FEP), supported by seven youngmoneyblog.co.uk Scottish institutions. Simon Thompson of the Chartered Institute of Bankers in Scotland, which runs the FEP, admits that a programme can succeed in a school only where a teacher makes time for it. “They need to be as passionate about the topic as they The international angle would be about music, or chemistry. But, as in other parts of school England will now join Australia and Singapore in planting life, teachers always have other priorities.” When the FEP ran pilot workshops last year, it found that 40% money lessons within the curriculum. Other English- of schools had nobody overseeing financial education, with 71% of speaking countries, such as New Zealand and Canada, are volunteers experiencing problems when also following suit, developing national finance education they visited students. Nearly one-third strategies at government level. Money is even a stand alone of schools didn’t have the right subject in certain US states, such as Tennessee and Utah. equipment to host the session, and However, a 2011 survey from the Council for Economic nearly a quarter of students Education also found that the number of states that require wished they had been given students to take a personal finance course at high school level is just 13. Emerging countries are also trying to address financial illiteracy. Brazil now has its own National Association for Financial Education and has struck up a partnership with the Organisation for Economic Co-operation and Development to promote thorough financial education throughout Latin America. In Europe, the Czech Republic has been teaching money in secondary schools since 2009, while other beleaguered countries in the eurozone, such as Spain and Italy, have both seen successful pilot schemes that aim to impart financial sense in youngsters. These have now prompted discussions about whether to enshrine money lessons within the curriculum. It’s too early to see whether education schemes in other countries have improved financial literacy among the young – there hasn’t been enough research to prove that approaches in other countries could provide a useful template for England. Britain’s network of financial education charities, particularly the PFEG, is considered alongside the American organisation Jump$tart Coalition and the Australian website MoneySmart as being the most helpful resources available. But both Australia and the US have, at various points, recognised exams as a vital indicator of whether young people are becoming financially savvy. By contrast, it’s unclear at present whether children in England will be comprehensively assessed on what they’ve learned, even after the curriculum changes.

14 May 2013 cisi.org

Degrees of separation

Chris Alkan asks whether the Vickers proposal to split Once that process ends, banks are expected investment from high street banking is practical to have until 2019 to ring-fence their retail divisions. “We don’t yet have a detailed list of britain’s big banking groups have long “If the rules are too strict then the synergies dos and don’ts,” says Putnis. “How well this known that the cosy relationship between their of joining these businesses together will plan works will depend on a lot of micro details.” retail and investment businesses was coming disappear and it may make more sense for The first mystery for banking groups is how under attack. Ever since the publication of the banking groups to simply break apart.” the stand-alone retail units will be controlled. Vickers report in September 2011, it has been Retail divisions will require a separate board clear that politicians wanted to ensure that high More questions than answers of directors, which raises some thorny street banks would not be put in danger by At present, banks have more questions than corporate governance questions. their racier investment banking arms. answers about how the new system will “Shareholders of the main banking group By early next year the Banking Reform Act, function. Although the Independent will not have unfettered discretion in who sits which is currently working its way through Commission on Banking, led by Sir John on these new boards,” says Giles Williams, Parliament, will insist that retail businesses are Vickers, published its report in September a partner at KPMG’s regulatory services put behind a ‘ring-fence’ so they could survive practice. “Instead, regulators will have to play even if riskier parts of the business collapse. a role in the selection too. The most likely This is easier said than done, however. Large “A total split would outcome is that shareholders will submit modern banks share payment, financial create a lot of duplication and watchdogs will approve.” That is an management and information technology unusual situation for shareholders, who are systems across the entire group. A single board and inefficiency” used to exerting complete sway over of directors oversees all wings of the company. fully-owned subsidiaries. Siphoning off one part of the business will 2011, Parliament is still fleshing out its findings. Being a director in one of these organisations present a host of technical challenges, as well as The Banking Reform Bill is not expected to will be an awkward and difficult role, compromising the rights of shareholders to receive royal assent until early 2014. Even this cautions Simon Gleeson, a partner at Clifford control the business they own. will not be the end of the process. The new Chance. “They will have all the existing “The practicalities of how this will work will Prudential Regulation Authority – which only duties to shareholders with added duties to be hugely important for the banking industry,” came into being on 1 April to replace some of the the regulators on top.” says Jan Putnis, a partner at Slaughter and May functions of the FSA – will then need to make Paul Chisnall, Executive Director of who specialises in the financial services sector. more specific rules based on the law. Financial Policy at the British Bankers’

16 May 2013 cisi.org

Photo: iStockphoto a spike in costs.” costs.” in a spike Thatmean would inefficiency. duplication and “A alot of create splitwould says Putnis. total systems,” separate very need it will feet two own on its able to to be stand for abank that insist will regulators that adanger is “There between different their divisions. services to share allowed be will groups banking norms.” governance existing under directors non-executive of independent appointment the with arises issue the one since insuperable not is an for instance, directors, of how you question independent The appoint application. practical and provision statutory to concept from translated being themselves find recommendations Vickers the as arise Association (BBA), says: “Several issues issues (BBA), says:“Several Association most crucial will be payment systems, such such systems, payment be will crucial most the Among infrastructure. of banking areas reasonable customer needs,” he adds. able to meet being bank ring-fenced the consistent with is place put is in ring-fencing uponwhich basis the that to ensuring attention giving also are “We difficulty. event of financial the uponin relied be and basis on agroup bank the support both can infrastructure a bank’s Chisnall says the BBA is looking at whether at whether looking is BBA says the Chisnall how is far question crucial more even An Attention is likely to focus on several core core on several to focus likely is Attention

break-up would make sense” high ring-fences that afull “We could endupwith such be allowed within the retail bank. As a result, aresult, As bank. retail the within allowed be may not ultra-rich by the demanded sometimes operations complex financial The Williams. says for users, end dislocation to create likely to achieve.” of years It anumber may hassle. take administrative ahuge be will objections any of logging process the and volume of communications ahuge “Such says Putnis. court,” in object can of them any and customers to their to write need banks that means entity. “This different to a accounts to move order in their customers of consent the need banks rules, current beyond merely splitting infrastructure. Under challenges technical be also However, will there Further challenges Gleeson. says problem,” tosolution this prove agood could subsidiarisation operational of kind “This organisation. of the arms both to backing company, provide could that service up set afree-standing could banks that possible It also group. is of the rest to the services warns. Putnis by regulators, closely scrutinised to be likely are contracts such any course, Of services.” custodial and of surplus management investment services, IT some include could “This quickly,” replaced not be says Putnis. could it that not crucial is so function the long as so permissible be could “This bank. retail to asupplier the be could group of the rest the solutionthat is possible duplication.One costly over ways to prevent such mulling already However, to be. likely are are they rules the at KPMG. Williams warns them,” who operate people the are neither not and cheap are systems “Treasury exposure. group’s financial entire of an management the handle currently which functions, treasury to duplicate of having threat the face also Banks systems. technology information including to operate, banks enable that plumbing the to function.” it cease would temporarily, even payments, to make ability the it solvent. were lost If abank if matter wouldn’t “It he explains. exist,” banks of why retail part essential an is payments “Processing Gleeson. aring-fence, says within to be need services such that case astrong make can Regulators Services. Automated Clearing Bankers’ as An additional worry is that the divide is is divide the that is worry additional An supply could bank retail the Alternatively how strict unsure still are experts Banking of key parts of other said be could same The

overdraft fees and other charges.” charges.” other and fees overdraft higher mean will this ‘free’, theoretically to be meant is banking “Since warns. he banking, of retail cost the increase will principles Vickers of the implementation Astrict sense,” more says Gleeson. make break-up afull would ring-fences that high such up end with “We easily could customers. on costs extra impose also andcould profits bank to constrain going certainly almost is in real danger of tying ourselves up in knots.” knots.” up in ourselves of tying danger real in “We are simple,” from says Williams. far be to outcome likely is “The process. laborious along and to be set is warn, experts world. banking retail and banking investment the straddle that services require which businesses, medium-sized and small of true be may also same The using. are they service on the side of aring-fence –depending on either banks two with dealing themselves may find high-net-worth individuals ring-fence An electrified Experts also believe that the new system system new the that believe also Experts Working through these various issues, against suchagainst backsliding.” would be a way“Electrification of guarding Williams. says repealed,” was law the finally until blurred got distinction the time, “Over banks. investment and retail separate to attempted that US the in 1933 Act the in 2020 or 2025.” like look will world the what know not We do it. with away get to them allow to willing be may politicians and regulators and chances take to willing more be will Banks fade. to begin will memories point some at “But says. to imposedetermination these rules now,” he astrong be might “There future. the in backsliding avoid to is KPMG, at expert regulatory and apartner Williams, Giles says 2013. January in Financial Times the in wrote Tyrie shock,” a get will they much, too ring-fence the test banks the if words, other “In rules. the breach they if banks up break would that ring-fence” “electrified an favours Commission He on Standards. Banking Parliamentary the MP, of Tyrie Chairman of according punishment, threat to Andrew the require may rules new the Enforcing This was what happened to Glass-Steagall, Glass-Steagall, to happened what was This for motive The such draconian threats, banking reform

17 Last year, Professor Alvin Roth won the Nobel prize for economics for his ground-breaking work examining the mechanics of markets. Tamsin Brown traces the academic’s achievements and finds out that his ideas possess real-world punch The market maker

The economic theory behind Alvin him on an undergraduate course and he behaviour that reduces overall welfare”. It is Roth’s work may be difficult for the average graduated in 1971 in a branch of engineering difficult to read these words, published by man in the street to understand, but the called operations research, although he Roth in the 1990s, and not admire their simple application of his work has helped to solve admits that much of his time was spent prescience with respect to some of the events of major headaches, and even heartache, for mastering karate. From there he went on the financial crisis. Indeed, the EU’s insistence people from many walks of life. to complete a PhD at Stanford, and has upon central clearing of over-the-counter While many of his peers have been wrestling taught at the universities of Illinois, derivatives is one example of market designers with questions surrounding the credit crunch Pittsburgh and Harvard. making a safe place of exchange, and at least and eurozone crisis, the 61-year-old American Roth’s speciality may be matching markets, economist has been busy improving the such as those of jobs and schools, but the mechanisms of all types of markets – design of any market, including financial ones, everything from school applications and he says, is paramount to how well it works. kidney donations to the finer details of “The City of London is a big financial transactions in the financial services sector. market because it is convenient for people to go Roth, who is indifferent about which markets there and do their transactions. It is good to go he studies, says his motivation is to help make where the market is ‘thick’ – or where lots of things work better. For all the accolades he has achieved, including his Nobel prize, Roth’s academic life The design of any market, didn’t get off to a promising start. The son of two teachers, he quit high school in Queens, including financial ones, New York when he was aged 15 – a decision he Roth says, is paramount says was driven by his feeling that he had learned nothing in the classroom since being to how well it works taught to read and write. He admits that his parents felt the decision was foolish but they trades are being offered and where you can needn’t have worried. Roth was hardly your choose among a large number of possible average high school drop-out. He had been counterparties,” he says. attending weekend classes at Columbia But one problem that can afflict financial University’s engineering school – it accepted markets is ‘congestion’. Roth explains: “You sometimes have people eager to make trades in such volumes, more quickly than they can be CV snapshot accomplished, so the price moves by the time the trades can be executed and that is a 2013 – Returns to Stanford as Visiting Professor problem for the market.” of Economics He says that, while electronic trading 2012 – Shares Nobel prize for economics with has increased the capacity of many financial Professor Lloyd Shapley markets, he agrees with the side of a debate, 1998 – Joins Harvard University as George Gund currently ongoing in the US, that is sceptical Professor of Economics and Business about the vast sums of money being spent on Administration fibre-optic cables and microwave channels 1982 – Becomes Professor of Economics at connecting the various exchanges based in the University of Pittsburgh New York and Chicago. Despite his desire to see markets avoid congestion, Roth seriously 1979 – Becomes Professor in the economics questions whether this costly race for and business administration departments ever-fast trading is an efficient use of resources. at the University of Illinois Indeed, he recommends an incremental 1974 – Completes PhD at Stanford University approach to participation in financial markets, and becomes Assistant Professor at the whereby prices move at specific intervals of, University of Illinois say, ten seconds. 1971 – Graduates from Columbia University with Markets must be “safe to participate in” so a degree in operations research as to “prevent participants transacting outside

of the marketplace and engaging in strategic Corbis Photo:

18 May 2013 cisi.org

profile: alvin roth

suggests that regulators are heeding the words enables chains of donors and patients to be of academics like Roth. matched and significantly increases the Winning the Roth is willing to apply his highly academic number of compatible kidneys available to mind to discussions on almost any market. But those in need of them. Nobel prize it is the practical application of his work that The need for new kidneys in the US far has set him apart. He has helped improve the outstrips supply and another interest for Roth It clearly came as a surprise. Alvin Roth was way new doctors apply for jobs in hospitals in is the repugnance felt by much of society for fast asleep when the call from Stockholm the US and he has assisted in the redesign of the buying and selling of body organs. Roth came to tell him he had won one of the the application process for schools in a number has written papers exploring what drives these most prestigious awards on the planet – the of major American cities. emotions. This has led him to look at some Nobel prize for economics. In fact, it was The work for which he has probably rather more obscure markets that evoke similar only on the second call, which went through received the most praise is designing the feelings of repugnance, such as for horsemeat kidney exchange programme in New England. and even dwarf tossing. However many to his wife’s office, that the callers from When someone offers to donate a kidney to eyebrows this may have raised, there will be Sweden received an answer. their loved one but it is not compatible, they plenty of attention focused on him in the years The 8m Swedish kronor (£808,000) can enter a computerised system designed by ahead to discover whether his work can solve award was shared by Roth and fellow Roth which will search for a compatible donor/ any more pressing real-life problems. Among economist Lloyd Shapley, Professor patient pair. The complex computer algorithm these may be financial markets. Emeritus at the University of California, for their work in studying and improving the performance of many markets. The two academics’ studies may have been a generation apart but both have focused on matching markets where participants can’t just choose what they want or pay for what they want; they also have to be picked. These include, for example, university applications or the job market. Their research focused on how the clearing process of these markets can be carried out with the most stable outcome. In other words, how to make sure that as many people as possible are happy with their choice so that the market operates effectively. Roth built on the studies that Shapley, now 89 years old, carried out in the 1960s, with the now deceased David Gale from the University of California, into how different matching methods can be used. Roth conducted experiments to test the theory and then put his findings into practice, helping to redesign job, school and organ donor markets. The pair were honoured by the Royal Swedish Academy of Sciences in Stockholm for the theory of stable allocations and the practice of market design. Although commonly known as the Nobel prize for economics, the award is officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel and was first awarded in 1969. Roth says: “I guess you could say designing of markets is an ancient human activity but economists are starting to understand something about it and are now sometimes able to help a little bit.”

19 20 May 2013 May 2013

Illustration: Dean Buckley out Branching

cisi.org moved to the Bank of Cyprus. Customers with with Customers of Cyprus. moved Bank to the and frozen be will deposits their Laiki, with bank currently customers these If protected. closed. be will Bank, Laiki bank, privatisations, the country’s second-largest and rises plus tax overhaul of banks, its an to agreeing economy. Cyprus as wider well As the and sector of banking its disintegration to avoid the effort an in (IMF) Fund Monetary International the EU and the with UK. the in entrants banking is for non-domestic crisis the of ramification One alike. customers banking and economists for regulators, concern to cause continues the is cyprus to branches?BethHolmesinvestigates theCypriotcrisisheraldendofpassportingapproach Will Customers with less than €100,000 will be be will €100,000 than less with Customers bailout a€10bn agreed Cyprus March, In nation closest to home that to that home closest nation just a few days, but Cypriot authorities have authorities but afew days, Cypriot just cards. debit or credit on amonth €5,000 no than more transferring country, and the when leaving cash in €1,000 no than more aday, taking €300 withdrawing money.” of their part getting and depositors the of pockets into the EU going the have expected not Icould of Greece. case the in as change, violent another not were expecting people but other bad Iand was situation the that at Group, Law NCI says:“WeConsultant knew crises. for set would similar templatethe this about concerns serious to express Dijsselbloem Jeroen Minister Finance Dutch prompted that EU policy from departure –aradical deposits smallest for at the 6.75% starting charge aone-off face customers bank Cypriot all seen have would IMF the EU and by the brokered deal original the although savers, better for these compensation Small industry. the out to help bail used excess of their 40% around however, have will €100,000, than more The measures were due were for place to stay in measures The to now limited are customers Cyprus, In Advocate Legal and Stylianou, Kleopas

cyprus banking crisis

indicated that they are likely to keep them in The previous UK Government intervened to stay on the right side of the regulators.” place for longer. Iceland introduced temporary in Iceland’s banks in order to protect UK And that is why, even though banks are not capital controls in 2008, which are still in place depositors and arrangements were made to legally obliged to form a subsidiary, changes today. (More on Iceland later.) pay compensation to retail depositors in are afoot. When the Bank of Cyprus converted At the time of writing, a draft document the UK branches of Icelandic banks its UK branch to a subsidiary last year, it said it prepared by the country’s creditors showed Landsbanki, Heritable Bank and Kaupthing was because regulators had threatened to force that the cost of the bailout for Cyprus has Singer & Friedlander. While UK depositors it to remind depositors that they were not increased to €23bn, up from the original price were protected, Iceland’s own people took covered by the FSCS, established by the FSA tag of €17.5bn. This extra amount must be found a different view. at the end of 2010. from somewhere and ordinary Cypriots must “At the time, the collapse of the three largest For non-EU banks, which need regulatory still be aware of the Sword of Damocles Icelandic banks in October 2008 was blamed approval for branches, there has been a sharp hanging perilously over their heads. on the British, and then Prime Minister Gordon fall in the number of branches. Since 2007, the But what does all of this mean for Cypriot Brown became a hate figure in Iceland,” says UK has allowed only four non-EU banks to open banks operating in the UK and what Icelandic economic commentator Sigrún branches, while 14 have opened subsidiaries. implications will it have for other banks setting Davíðsdóttir. “A nine-volume report finally told Andrew Bailey, Chief Executive Officer of up – or wanting to – in London? Icelanders what had happened and why the the PRA, has gone on record as saying that the EU law allows banks from any member state banks collapsed. Only then did it become clear practice of allowing even EU banks to have to set up branches in another member state deposit-taking branches across national lines is without the obligation to convert them into “dying out” because of repeated bank failures subsidiaries. Subsidiaries are regulated by the For non-EU banks, there and that the situation is “not sustainable”. government in the country in which the bank is has been a sharp fall in the With local regulation as strict as the UK’s, hosted (and have their own capital and thanks to the newly up-and-running PRA, liquidity), but branches are not. number of branches which has the single objective of promoting the The Bank of Cyprus UK is a subsidiary and financial stability of the UK financial system, is has 50,000 UK customers. In other words, it how politicians had ignored warning signals, the UK an attractive proposition for non- is a separately incorporated UK bank and regulators were too lax and bank managers domestic bank entrants? depositors are protected by the UK’s Financial were, at best, economical with the truth. “I don’t think it would hurt,” says Smith, Services Compensation Scheme (FSCS), which Rumours of foul play in the banks led to setting “[And] I don’t think we should underestimate covers savings up to £85,000. The crisis in up an Office of the Special Prosecutor, which the degree of scrutiny here. I think there is a Cyprus should have no effect on its depositors. has already indicted leading bankers and massive focus from banks and regulators Meanwhile, Laiki Bank has four branches in shareholders. Finding out the truth does not about their exposure to the evolution of the the UK and serves 13,000 customers. Unlike resolve economic woes but it answers the eurozone crisis. Our regulators were on top of Bank of Cyprus UK, its UK operations are questions necessary to learn the right lessons. the issue, followed what was happening in directly controlled from Cyprus, and so are not This is what Cyprus can learn from Iceland.” Cyprus and were able to engage with the covered by the FSCS. It says deposits of up to So why do overseas banks prefer branches? Cypriots. When the Treasury team went €100,000 are guaranteed and customers are “Branches, put quite simply, are cheaper and to Cyprus, there was a sense that the Brits free to make withdrawals if they wish. there is an easier flow of liquidity,” says Smith, were coming over to give their counsel, borne Depositors with more than €100,000 in UK “but if you’re operating in any country you need out of what happened in Iceland.” branches of Laiki would be at risk of facing the same fate as their Cypriot counterparts. However, the Prudential Regulation Authority (PRA) has said all accounts in credit in Laiki’s Out of Luxembourg? four UK branches would be shielded from any levy on their accounts and their deposits will be Before the Cypriot crisis, the FSA’s tough regulations were proving to be a turn-off for some moved to Bank of Cyprus UK, giving them non-domestic entrants. At the end of last year, a group of China’s largest state-owned banks, protection under the UK’s banking rules. including the Agricultural Bank of China and the China Construction Bank, wrote to the Treasury to KPMG Partner Stephen Smith, who has held complain about the UK’s “rigorously demanding” liquidity rules and blamed the FSA for forcing them the responsibility for co-ordinating the firm’s to transfer large parts of their European business to Luxembourg, where regulation is less stringent. response to the eurozone crisis since 2009, says: Since the start of the financial crisis, several state-owned Chinese banks had set up in London but “In relation to Laiki, the UK Government and found their efforts to establish branches were thwarted by the FSA. Along with regulators in the US, Cyprus arrived at a mutually agreeable result whereby the Bank of Cyprus took over Netherlands and France, the FSA was concerned about the self-sufficiency of branches of foreign deposits, avoiding precisely the problems that banks and their intra-group exposures. This meant that setting up subsidiaries, with their tight arose in relation to Iceland.” standards on transparency and liquidity, was the only, somewhat less appealing, option. So what does the Cypriot situation mean for London now? Within the EU, the imposition of capital controls in Cyprus as part of its bailout by the EU and IMF has raised serious questions of how such measures are compatible with a single market, where the freedom of banks to establish branches in other EU countries has long been a cornerstone. Indeed, the situation may herald the beginning of the end for branches, altering the situation for non-EU banks trying to get a foothold in Europe. A number of international trade bodies, including the Futures and Options Association and the British Bankers’ Association, have written to the International Organization of Securities Commissions, asking it to address mutual recognition for regulating cross-border business.

21 22 October 2012 OctoberMay 2012 2013 published areport, information exchange andreportingregimes. Dependencies andtheassociated enhancedtax Understanding (MOU) ineach oftheCrown with therecently signedMemorandum of prioritise andplaneffectively forcompliance Action needstobetaken now inorder to and elsewhere, andformany oftheirclients. consequences forCISImembers, ontheislands Jersey andGuernsey –have important Crown Dependencies –theIsle of Man (IOM), developments on taxinthe recent and Jersey over thenextfive years. through agreements with theIOM,Guernsey expects torecover inunderpaid tax £1bn its offshore strategy. This makes it clear that it viding voluntary disclosure facilities for • the legalandpracticalimplicationsforfinancialinstitutionsintermediaries Crown Dependenciesareleadingthewayintaxtransparency. SimonAireyexplains pro HM Revenue &Customs (HMRC) has The UKGovernment is: Photo: Getty on tax evasion evasion tax on Lifting theLifting lid

cisi.org

cisi.org No Safe Havens Safe No , outlining , outlining separately on20March 2013that theyhad The states ofJersey andGuernsey announced Voluntary disclosure facilities reduced penalties benefit from substantially of these will opportunities Those availing themselves • or with undeclared liabilities. enabling thedetection ofthoseevading tax, double taxtreaties with individual countries, Exchange Agreements orclauses inthe looking tosignwid taxpayers with overseas accounts, and er Tax Information eclare that the disclosure iscorrect • lude acomputation ofallundeclared de between 6April 2013and • • • by HMRC. Avoluntary disclosure must: been historically, subject toaninvestigation UK taxpayer must notbecurrently, norhave on 19 February. Isle ofMan agreement that was signed and timeframesaresimilartothoseofthe with undeclared UKliabilities. The terms disclosure facilities for‘relevant persons’ tax matters, establishing voluntary Government relating toco-operation in each signed anMOU with theUK tax liability from 5April 1999 and complete 30 September 2016 d inc be ma be fullandun In order toqualify forthespecialterms,a

prompted

continuing professional development

• be accompanied by full payment of the tax preserve greater funds under management communal or outdated address)? or evidence of inability to pay, a payment on within the local financial institution (FI). • How are customer queries or complaints to account and a proposal for full payment. Subject to certain qualifying criteria, the be addressed – and by whom? Those availing themselves of these LDF is available to any UK taxpayer with • What if a customer disputes that they are disclosure opportunities will benefit from undeclared assets anywhere in the world a relevant person? substantially reduced penalties. Also, only (including in the Crown Dependencies). • What if a customer does not respond or liabilities (that are eligible within the Therefore, careful assessment of a person’s seeks to move assets elsewhere? terms of the relevant disclosure facility) individual circumstances should be • Can customers ‘self-certify’ their status or arising after 5 April 1999 will need to be undertaken by a specialist adviser in this field is more positive confirmation needed? disclosed. For liabilities falling outside the to establish which facility is more favourable. • What about ‘gone-away’ cases or instances terms of the disclosure facilities, HMRC where the underlying beneficial owner must may, in certain circumstances, seek recovery Practical implications of the Crown not be contacted? of underpaid tax for the previous 20 years. Dependency MOU • What if a customer advises an employee In addition, if HMRC agrees that the liability Some of the key considerations for FIs of the FI that they have undisclosed tax arose from a reasonable error or mistake, operating in the Crown Dependencies are but have not decided which disclosure liability needs to be computed only for the summarised below. facility to use? past four years, which could be extremely FIs are required to identify ‘relevant • Are effective monitoring procedures in useful. While there is no immunity from persons’ and advise them of the existence place for any reporting obligations under criminal prosecution, discussion on an of the disclosure facility before 31 December anti-money laundering legislation? anonymous basis with the ‘help desk’ run 2013. They must also send a reminder in the • Who should FIs refer customers to if by an experienced professional adviser should last six months of the disclosure period, they need advice regarding a voluntary minimise this risk. which ends on 30 September 2016. disclosure? Interest, penalties and any ‘further tax’ (not The definition of what constitutes an FI yet defined) due must be paid within 30 days is wide and covers custodial institutions, Foreign Account Tax Compliance Act of notification by HMRC. From informal investment entities and insurance companies. and intergovernmental agreements discussions with HMRC, it is anticipated that The definition of a ‘relevant’ account is similarly In addition to the initiatives referred to a quantification of ‘further tax’ will be agreed wide and encompasses a far broader range of above, separate announcements have with the taxpayer and their advisers. The investments than has traditionally been been made by the Crown Dependencies Frequently Asked Questions (FAQs) reported under the EU Savings’ Directive. relating to negotiations with the UK and published on HMRC’s website on 8 April Inevitably, there are a number of legal and the US concerning intergovernmental clarify a number of the outstanding questions. practical considerations, including with agreements. These steps are designed to However, these FAQs will continue to be relation to data protection legislation, underpin the disclosure facilities by refreshed on HMRC’s website as further anti-money laundering and banking providing the relevant tax authorities questions arise. They can be viewed at confidentiality. The appropriate way to search, with the information they need to check cisi.org/offshoretax reconcile and interpret customer data will the accuracy of taxpayer returns. often be complicated by multiple sources of The Liechtenstein Disclosure Facility information, old or inconsistent data and Conclusion The UK Government and the Principality legacy computer systems. Related issues Governmental approaches to deterring and of Liechtenstein announced an MOU in detecting tax evasion are to be applauded as August 2009 creating a disclosure facility long as they are proportionate, effective and providing UK taxpayers with the opportunity The Crown Dependency consistent. However, there are significant to regularise their tax affairs. The disclosure facilities may costs and risks to manage, especially where Liechtenstein Disclosure Facility (LDF) is FIs operate across jurisdictions, as they will available until 5 April 2016. not always be the most need to accommodate different information The terms of the LDF are different from reporting and compliance regimes. Despite those in the Crown Dependencies. Those cost-effective solution this, careful planning and assessment can UK taxpayers making disclosures under the mitigate the risks and facilitate cost-efficient LDF have an assurance against criminal concerning old or inadequate ‘Know Your solutions to achieve compliance. prosecution where they make a full, accurate Customer’ data may also arise. and unprompted disclosure, as long as the There are important questions that FIs Simon Airey will speak at a CISI CPD event source of funds is not ‘criminal property’ as need to ask themselves, in order to ensure that about tax disclosures on 6 June at DLA Piper, defined under section 340 of the Proceeds of they have satisfactory procedures in place to 3 Noble Street, London EC2. Details are Crime Act 2002, with the exception of tax deal with all relevant legislation; the manner available at cisi.org/events offences. In addition, there is no tax payable in of communicating with customers will often respect of periods prior to April 1999. be a sensitive one. These include: Simon Airey is Head of It should be noted that the Crown • Who should the notification come from? Investigations and Compliance Dependency disclosure facilities may not • What should it say? at DLA Piper always be the most cost-effective solution. For • Does it inadvertently constitute tax advice? instance, the LDF may result in an overall • What happens if such a sensitive lower settlement (and a guarantee of no communication cannot be delivered or criminal prosecution), which in turn may falls into someone else’s hands (eg, via a

23 Acts of CHARITY

In order to honour its funding commitments, a charitable organisation must increase its income. A possible solution presents both the charity and its advisers with a dilemma

christopher has worked throughout had to say and, at that point, he ushered his career for a major corporation and reached into the room Yvette, the fund manager who a senior level as the head of marketing, a directed the charity’s funds. position from which he is about to retire. Yvette told the trustees that the investment He is a strong supporter of a charitable climate was not good for delivering the level foundation, established in Victorian times by of return necessary to fund the charity’s his wife’s great-grandfather, that promotes commitments, some of which had been education in countries within what is now the entered into at a time when returns had Commonwealth. Christopher’s wife, Harriet, generally been higher and easier to achieve. is a trustee of the charity as a result of her To achieve these returns in the current climate family connection. Although highly engaged would require a change of strategy that would in the activities of the charity, Harriet does involve investing in a broader and riskier not have a deep understanding of its finances, spread of investments, including hedge funds particularly relating to the investment and derivative-based investments, which were strategy of the foundation, which is normally available only to investors whose all-important in the context of generating experience and knowledge would enable income to fund its ongoing activities. Sphere to classify them as ‘professional’

Harriet returns from a meeting of the customers. The present classification of the Getty Photo: trustees one day looking rather concerned trustees as ‘retail’ customers meant that and tells Christopher that the meeting was Sphere was restricted in what investments the charity for many years and a number of quite difficult and concluded with a degree of it could recommend to the charity. This talk the trustees were not at all happy with the acrimony. Apparently, Jasper, the Chairman of hedge funds, derivatives and customer way in which the Chairman was effectively of the trustees, who is ‘something in the suggesting they should be sacked. Accordingly, City’, had told the meeting that if the they recommended that Harriet, as a charity continued to utilise the conservative The classification of the representative of the founding family, should investment strategy recommended by its trustees as ‘retail’ customers contact Yvette and suggest tactfully that Sphere existing investment manager, Sphere, it would would have to be more proactive if it wished to be unable to generate sufficient income to means they are given only retain the charity’s investment mandate. meet all of its existing funding commitments Harriet told all of this to Christopher, who to its chosen projects. restricted investment advice listened sympathetically. He said that he This had come as something of a bombshell would support Harriet, but that if she had to the trustees, who had asked what action, classifications served only to concern Harriet, been asked to contact Yvette, then she if any, they could take to try to restore the who felt that she was getting out of her depth. should do so. necessary levels of income. At this point, After Yvette left the meeting, the Chairman Harriet’s news did not come as a complete Jasper had said that he had spoken to some told the trustees that he strongly recommended surprise to Yvette, who had been wondering of his contacts in the City who had made a that they should seek to re-let the mandate to what she could, or should, do to try to retain number of suggestions, including that as a manage the charity’s funds. He suggested that the charity’s business both for Sphere and her start they should change the charity’s fund they should do this as a matter of urgency, as own position. She went to discuss the matter manager. However, before they went down Sphere was clearly not up to the task. Sphere with Malcolm, her director. that route, they should listen to what Sphere and Yvette had been investment managers to Malcolm was quite blunt in his response,

24 May 2013 cisi.org

grey matters

saying that the investment climate was the Retail Distribution Review, but Yvette trustees were professional men and women challenging for everyone, and that should be able to sell this as a positive feature. (to whom the classification probably could Sphere was no different to any of its peers This apparent reduction in the fees would be applied) the same could not be said of which specialised in managing charities’ almost certainly help to sway the board, the board as a whole. Moreover, was it money. If Sphere wished to remain in particularly those members who, like Harriet, appropriate for a charity to give up important business, it would have to do whatever did not really understand the financial side protections to broaden its investment was necessary to retain the mandate of the charity and might not focus on the possibilities, increase its income or reduce and its revenue from it. If that meant potential increase in risk arising from ‘opting its fees? The turnover in trustees might very reclassifying the charity trustees as up’, but who would be attracted by lower fees well mean that the current expertise justifying ‘professional’ investors, so that they and the possibility of higher returns. the ‘opt up’ could disappear at any stage. could be offered more diverse products, After her somewhat bruising encounter Therefore, was a charity in a different position then so be it. Additionally, if Yvette with Malcolm, Yvette reflected on what he had from an individual investor? persuaded the trustees they should ‘opt up’ said and whether this was something with to broaden their investment options, the which she felt comfortable. Clearly, it was So was this really a solution creating subsequent reclassification would give important both to her and to Sphere to retain winners all round, or was it unfair on, them access to institutional share classes the charity’s mandate, but was it reasonable to or unsuitable for, the charity? Yvette of funds, which normally carry an annual take the steps being proposed? remained in a quandary. management charge of half that of the Reclassification, although permissible in retail class. This would accelerate the cost appropriate circumstances, would, she felt, If you have any comments, email them to benefit to the charity from the changes to be stretching the definition of ‘professional’ [email protected] or leave a the commission regime resulting from investor, since although one or two of the comment at cisi.org/sireview

25 books

NEW WORKBOOK AND ELEARNING EDITION NEW WORKBOOKS AND ELEARNING EDITIONS Need Introduction to CISI Study Material and the New Securities & Investment Regulatory Environment A new edition of the CISI’s Introduction This year a new regulatory to read to Securities & Investment workbook structure took effect in the and corresponding elearning product UK, made up of the Financial The latest publications (covering exams from 21 July 2013) is out Conduct Authority, the and study aids now. Providing an ideal introduction to the Prudential Regulation supporting CISI world of financial services, it covers topics including: Authority and the Financial • the economic environment Policy Committee. As a qualifications • financial assets and markets result, new workbook and elearning editions (covering • equities exams from 1 April 2013) are out now: • bonds • UK Financial Regulation (formerly FSA Financial Regulation) • financial services regulation • Principles of Financial Regulation • tax ation, investment wrappers and trusts • UK Regulation and Professional Integrity (formerly • other retail financial products. FSA Regulation & Professional Integrity).

Price: £100 for combined workbook and Price: £100 per subject for combined workbook elearning product and elearning product

NEW WORKBOOK AND ELEARNING EDITION NEW WORKBOOK AND ELEARNING EDITION NEW WORKBOOK AND ELEARNING EDITION Fundamentals of Taxation in the Risk in Financial Financial Services UK for Individuals Services Fundamentals of Financial Services & Trusts Risk in Financial Services is part is a new qualification that is an The object of this new level 4 of the Investment Operations important first step in developing exam is to ensure that candidates Certificate and Certificate the essential basic knowledge can apply the knowledge, theory programmes. It gives candidates required for working in financial and practical techniques required a broad understanding of the services. Candidates will learn about the industry to assess a client’s current financial position and general principles of business risk, the key risks and commonly used financial products, such as future requirements, make suitable investment that arise within the financial services industry, shares and bonds. It will provide an understanding recommendations, monitor performance and the influence of corporate governance, regulation of financial terminology and help in calculating respond appropriately to changing circumstances. and codes of conduct, and the approaches that interest rates and dividend yields. The Ofqual- The exam will test candidates on their knowledge are typically used to identify, reduce and manage regulated qualification, which is recognised as a and understanding of taxation of investors and specific aspects of risk. A new edition (covering level 2 award on the Qualifications & Credit investments in the UK. The corresponding exams from 11 August 2013) of the workbook Framework, is ideally suited to junior employees workbook and elearning product (for exams from and corresponding elearning product are due out within the industry. It is also appropriate for 12 March 2013 to 11 March 2014) cover: in May. Topics will include: school leavers who are considering a career in • tax ation of investment income • principles of risk management finance. A key feature is that it comes with free • National Insurance Contributions • c orporate governance and risk oversight CISI student membership with access to a wide • tax -planning strategies. • ent erprise risk management. range of online study tools. The workbook and corresponding elearning product (covering exams Price: £100 for combined workbook and Price: £100 for combined workbook and from 11 May 2013 to 31 July 2015) are out now. elearning product elearning product

Price: £80 for combined workbook and Visit cisi.org/bookshop to purchase workbooks, publications and elearning products quickly and efficiently. elearning product

ONLINE TOOL External specialists Professional Refresher regulatory changes. Modules are The CISI’s reviewed by practitioners frequently The CISI relies on industry practitioners to offer their knowledge and Professional and new topics are added to the expertise to help create and maintain its exams, workbooks and elearning Refresher suite on a regular basis. At the end products. There are several types of specialists: authors and reviewers for is a training of each module, there is a test which workbooks and elearning products, item (question) writers, item editors solution to will help you to determine how much and exam panel members. All of them receive a number of benefits to help you knowledge you have gained. thank them for their involvement. remain up-to-date with regulatory The product currently consists of developments, maintain regulatory over 40 modules, including: There are currently around 300 external specialists who have volunteered compliance and demonstrate • anti-money laundering to assist the Institute’s qualifications team but more are required. continuing learning. This popular • corporate actions The CISI would particularly welcome applications from specialists to online learning tool, now enhanced • financial crime. assist with developing exams for Exchange-Traded Derivatives, and updated, allows self- Passing a Professional Refresher Commodity Derivatives, Over-The-Counter Derivatives and Corporate administered refresher testing on a module is logged under the CISI Finance Technical Foundations. variety of topics, including the latest CPD scheme. To register your interest, please contact Iain Worman on Price: Free for all CISI members, otherwise it costs £150 per user. There +44 20 7645 0609 or download the application form available are also tailored module packages available for individual firms. Visit via cisi.org/externalspecialists cisi.org/refresher for further information

26 May 2013 cisi.org

Diary Events to attend over the coming months ➳ Conferences London CPD events 3 july CISI Annual Conference 2013† London 15 may Directors’ and Officers’ Liability Explained† Willis, 51 Lime Street, EC3 Building on the success of the last Annual Conference, 11 june FIX Essentials† when the CISI welcomed a record 250 delegates, BT Centre, 81 Newgate Street, EC1 this year’s event will give members – and, through them, their clients – unique insights into the 12 june Thematic and Sector Investing with ETFs† investment landscape. Deutsche Bank, 1 Great Winchester Street, EC2 John Other People’s Money – Investing in Growth will be the 24 june LIBOR – A Response to the Scandal† Griffith-Jones theme driving the event. Attendees will have the America Square Conference Centre, 1 America Square, 17 Crosswall, EC3 opportunity to hear from top-level speakers about 9 july Investment Horizons† technological innovation, the economic outlook and Willis, 51 Lime Street, EC3 what drives the wealth management industry forward. The experience of the speakers ranges from For further information about London CPD events, visit cisi.org/events building the new financial regulator through founding To book: cisi.org/eventscal +44 20 7645 0777 a successful investment management firm to co-ordinating UK intelligence. Sir David Omand Of equal importance, this interactive event provides the opportunity for delegates to discuss the issues Branch events with other attendees. 16 may Annual Dinner Confirmed speakers include: Liverpool & North Wales: Crowne Plaza, Nicholas Place, Princes Alderman Alan Yarrow, Chartered FCSI(Hon), Dock, Pier Head, Liverpool Chairman, CISI; John Griffith-Jones, Chairman, 22 may Allocating to High Yield/Corporate Credit† Financial Conduct Authority; Professor Sir David Jersey: The Royal Yacht, Weighbridge, St Helier, Jersey Nick Hungerford Omand GCB, Visiting Professor, Department of War 22 may Bank of England Update (joint event with ACCA and CIMA)† Studies, King’s College, London, former Security & Yorkshire: Holiday Inn, Tadcaster, York Intelligence Co-ordinator and Permanent Secretary at the Home Office; and Nick Hungerford, CEO, nutmeg 23 may Anti-Money Laundering (joint event with CIMA) Yorkshire: DoubleTree by Hilton, 2 Wharf Approach, Granary Wharf, Leeds 23 may Month Two – the FCA Today (followed by Annual General Meeting)† CISI members can attend the Annual Conference for Liverpool & North Wales: Investec, The Plaza, 100 Old Hall St, Liverpool just £200 (non-members £400). To book, visit cisi.org/events, 24 may Month Two – the FCA Today† or call +44 20 7645 0777 Liverpool & North Wales: Surrendalink, 8–11 Grosvenor Court, Foregate Street, Chester 24 may What the FCA Means for You? The Future of Regulation† CPD training courses Manchester & District: Barclays Wealth, 3 Hardman Street, Venue: London, unless otherwise stated Spinningfields, Manchester 29 may Corporate Finance, FCA/PRA Update: Latest Practical Advice 14 may Introduction to Financial Markets £500 on Preparing for the New Regime† 15 may Getting to Grips with Operational Risk – for Non-Operational Bristol, Bath & South Wales: TLT, One Redcliff Street, Bristol Risk Professionals† £500 6 june Charity Golf Day for Yorkshire Air Ambulance 16 may Mifid II and the New Regulatory Structure† £500 Yorkshire: Leeds Golf Centre, Wike Ridge Lane, Leeds 21 may Practical Guidance on Preventing Insider Dealing and Market 6 june Annual Dinner Abuse† £500 Yorkshire: DoubleTree by Hilton, 2 Wharf Approach, Granary 5 june Suitability and Appropriateness: Avoid Misselling!† £500 Wharf, Leeds 6 june Sanction Breaches – Avoiding Expensive Enforcement!† £500 6 june Annual Dinner Birmingham & West Midlands: Regency Hyatt, 2 Bridge St, Birmingham 10 june Planning, Delivering and Recording CPD in the RDR World £500 14 june Evening at the Races Liverpool & North Wales: Aintree Racecourse, Ormskirk Road, 11 june Client Assets and Client Money (CASS)† £500 Aintree, Liverpool 17 june Ethical Finance – What’s In It For Me?† £500 27 june Annual Dinner 18 june Updated Thinking for Packaged Products† £500 East Anglia: Norwich Cathedral, Norwich 24 june RDR gap-fill: Investment Principles & Risk (PCIAM, 30 august Football Tournament half day) £500 Liverpool & North Wales: TBC 10 september Multi-region Football Tournament Member and Fellow discounts Liverpool & North Wales/Yorkshire/Manchester & District: TBC Professional courses discount: Fellows 35%; Members 30%; Associates 20%. To book: cisi.org/eventscal [email protected] +44 20 7645 0652 The following discounts are applicable only to one course per year: Affiliates 30%; Students 20%. † This event meets annual CPD requirements for members affected by the Retail Distribution Review. To book: cisi.org [email protected] +44 20 7645 0777 Please note all RDR CPD must be relevant to your role.

27 diary

Professional forums yorkshire Members’ events Tee time for charity The CISI’s six Westminster Bank; Get in the swing of professional forums Bill Scrimgeour, Global Former rugby a CISI charity golf are a key membership Head of Regulatory and Industry player John Bentley benefit. Affairs, HSBC Securities Services day to help an air Covering the areas of ambulance service keep flying. Andrew Bailey compliance, corporate 17 July: What is the Target? T2S, A finance, IT, operations, Revolution in Securities Settlement The event, being risk and wealth or a Costly Mistake? organised by the management, these Speakers: Richard Young, Market Institute’s Yorkshire discussion groups meet Reform Manager, SWIFT; Chris branch, will take regularly in central Prior-Willeard, CEO, BNY Mellon place on 6 June at London to debate CSD SA/NV; Justin Chapman, Senior Leeds Golf Centre. David Young current issues and hear Vice President, Global Head of The event is open presentations from Industry Management, Operations to teams of four industry speakers. and Technology, Northern Trust or to individuals; Events are generally tickets are £30 held at midday with a Risk per player, payable in advance. Companies are invited to light lunch provided 16 May: Demystifying ICAAPs enter more than one team if desired and to sponsor a hole Bruce Weatherill and time to network. Speakers: Colin Atkinson MCSI, (minimum donation of £20). MCSI These sessions are Supervision Division, Financial The fundraising will continue into the evening with the free and open to Fellows, Members, Conduct Authority; Sani Alnajjar, branch annual dinner being held at the DoubleTree by Associates and Affiliate members Senior Manager, Risk and Hilton Hotel in Leeds, where there will be the chance to of the Institute. Student members Regulation, Deloitte LLP win raffle prizes and take part in an auction. The dinner may attend one event of each forum annually. 5 June: The Problems of Risk Reporting will feature as guest speaker John Bentley, who played for and Governance England at both rugby union and rugby league, with tickets Forthcoming events Speakers: John Sutherland; David costing £40 per person or £380 for a table of ten. Compliance Young, Consultant, Maisemore The Yorkshire Air Ambulance relies heavily on donations 10 July: Conflicts of Interest – Consultants Ltd to cover the £7,200 daily cost of providing emergency Round-table Event rescue cover over an area of four million acres. 4 July: Why Do Banks Get It Wrong? Corporate Finance Reputational Risk in Practice Book online soon at cisi.org/eventscal or email Alexandra Blunden at 21 May: Corporate Broking: Is the Speakers: Dennis Cox, Chartered [email protected] for more details Obituary Premature? FCSI, CEO, Risk Reward Ltd; Speaker: Tim Linacre MCSI, Neil Brown, Chartered FCSI, Senior Consultant Partner, Earth Capital Partners liverpool & north wales

16 July: Banking Regulation – What 9 July: Investment Horizons CPD event is the Future? Speakers: Trevor Williams, Speaker: Andrew Bailey, Deputy Chief Economist, Lloyds Bank; Online presence Governor for Prudential Regulation Kevin Gardiner, MD, Global With the growth of online media, the Liverpool & North and CEO of the Prudential Regulation Investment Strategy Wales branch of the CISI has set up its own group on Authority, Bank of England the business network, LinkedIn. Wealth Management Branch President Jon Walker, Chartered MCSI said: Financial Technology 2 July: Asia and the ComPeer Wealth “We see this as an excellent way for members in the 18 July: High-frequency Trading Management Benchmarking UK Report Speakers: TBC Speakers: Bruce Weatherill MCSI, region to stay in touch with each other and discuss Partner, Weatherill Consulting; and debate industry events. It will enable us to update Operations James Brown, Senior Analyst, members about CISI CPD and social events and new 22 May: The Impact of AIFMD ComPeer Ltd Institute developments and benefits.” Speakers: Richard Pavry, Director, Members can catch up with the group – CISI Liverpool & Jupiter Asset Management; Nick For more information about North Wales Branch Network – at linkedin.com Jenkins, Assistant Director, forthcoming forum meetings, Nearly 5,000 members have already joined the CISI’s Regulatory and Technical, National visit cisi.org/pf LinkedIn group – Chartered Institute for Securities & Investment Official – and this number continues to grow.

Membership admissions and upgrades

MCSI Baker Tilly BRI Cheviot Contrarius Cruse Acumen Kyria Ali Hannah Edwards Myles Tunstall Lee Richardson Allan Cruse Alexander Robertson Barclays Brooks Macdonald Churchill Wealth Coutts Deutsche Bank Ahli United Bank Miles Nesbitt Andrew Bennie Management Alan Ditton Bronwen Morgan-Thomas Zeena Farouk Bestinvest Matthew Watson Matthew Barwick-Barrett Raphael Ribeiro Downing Alfa Trading Charles Buxton Butterfield Bank Citi Daniel Webb Judith MacKenzie Nilesh Rajudin Brewin Dolphin Darragh Lee Wanda Symonds Monique Wong Excel Recruitment Anderson Strathern Ian Booth Cave & Sons Collins Sarri Statham Credit Suisse Catherine Hullah-Brown Ross Hunter William Keogh Nicholas Saunders Damien Brown Matthew Bailey Fiske Attivo Leana Prasher Central Markets Conifer Fund Services Timothy Woosley James Gatehouse Charlotte Watson Katie Waite Joseph Neighbour Donna-Maria De Roche Ian Wright

28 May 2013 cisi.org

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Marie competes at Marie, left, and below, taking the Commonwealth part in mountain bike races in Games in Victoria the Isle of Man (Canada) in 1994

Pedal power Marie Morgan, Chartered MCSI has enjoyed a glittering cycling career that has seen her compete all over the world. Lora Benson reports

when isle of man Now a dealer at Ramsey Crookall, Marie Marie also held the women’s British hour stockbroker Ramsey became British Women’s Road Race Champion record on the track, a mark that had stood for 14 Crookall took on a young on five occasions during the 1990s. She also years when she broke it, and won the Women’s receptionist 27 years ago, competed for Great Britain in the 50-mile road Tour of Majorca. She became the first British little did the firm realise that race at the 1992 Olympics in Barcelona and the woman to triumph in a stage in the Women’s one day she would become a 1996 Games in Atlanta. Tour de France in a mountain-top finish at Marie Morgan, British cycling champion and Marie says: “The directors at Ramsey Vaujany. Marie recalls: “I was being chased all Chartered MCSI star at two Olympic Games. Crookall were extremely supportive, allowing the way up the mountain by a Dutch rider who Now Marie Morgan, Chartered MCSI is me time off work when I gained a place on the was a World Champion and did not like to be looking forward to making another major British team after cycling only for three years beaten in the mountains – I would count that as contribution to the world of sport, after being and helping me out with equipment. my most satisfying win.” appointed an ambassador for the Isle of Man “In the two Olympic years, I was able to take She has had her share of injuries along the Commonwealth Games Association in the six months out from the office so that I could way: “In my first full season, a car pulled out lead-up to the Games, which will take place concentrate on winning a medal.” on me while I was competing in a time trial. I in 2014 in Glasgow. At the Barcelona Games, Marie suffered the sustained a smashed jaw, which had to be plated She says: “This came totally out of the blue. disappointment of a tyre puncture when she back together, and it was then wired up for The Association was looking for sports people eight weeks. I was on a liquid diet throughout who had competed at the highest level and and it was not a pleasant experience.” my name came up. It is hoped that I will have “I could manage to cycle Marie retired from competitive cycling in much to offer athletes who are trying to gain only three miles to start 1996, but keeping fit is still a huge part of her qualifications standards by giving them life: “I cycle or run three to four times a week. advice and support, as well as undertaking with, as I was really unfit” I love being in shape and keeping trim. Living fundraising support. on a beautiful island is an inspiration in itself to “I’m delighted and honoured to accept the was in the lead ten miles from the finish, get out there and do something. role. I look forward to putting something back eventually being placed 24th. “Almost everyone can cycle. It is a fantastic into sport, which has given me so much pleasure “I was absolutely gutted but in sport there way to keep fit and is a great family activity. over the years. It will mean a lot to me if I can are things that happen that are beyond your Cycling is on a real high due to the success of play a part in helping someone else realise their control,” she says. In Atlanta, she came 11th. our Olympic cyclists like Bradley Wiggins ambitions at the Games.” Marie also suffered bad luck at the 1994 and Isle of Man pair Mark Cavendish and Marie was a late starter to cycling, taking up Commonwealth Games in Victoria, Canada, Peter Kennaugh.” the sport aged 26 in 1987, a year after joining where she had a good chance of winning a Marie’s sporting prowess is not confined to Ramsey Crookall. She says: “I felt I was medal. Representing the Isle of Man for a cycling – she has also represented the Isle of becoming a couch potato, having in my second time – she had also competed at the Man at clay pigeon shooting. younger days been a successful middle-distance Auckland games in 1990 – Marie lost crucial runner. I got hold of a second-hand bike and time when the chain came off her bike and For further information on cycling, see could manage to cycle only three miles to start jammed before the halfway point of the race. britishcycling.org.uk with, as I was really unfit. Initially I competed in She still came home in fourth place. local races and as my fitness progressed, I Apart from her five British Road Race titles, Got an interesting hobby? Contact Lora Benson started giving the local female cyclists a run for Marie became ten-mile and 25-mile British at [email protected]. If your story is published, their money and then began racing in the UK.” National Time Trial Champion. you will receive £25 of shopping vouchers.

30 May 2013 cisi.org