Tag: Financial risk analysis

Financial services industry

The Impact of Brexit on the Financial Services Industry

What is Brexit?

Brexit is a shorthand term derived from ‘Britain’ and ‘exit’ used to refer to Britain’s split from the European Union. In 2016, a referendum vote (for everyone of voting age) was held to decide whether the UK should remain in the EU or leave. A good majority out of the 30 million people who voted favored that the UK should leave the EU. One of the common economic arguments often put forward for Brexit is that EU membership is hampering U.K.’s trade ties outside the trading bloc.

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Brexit: what are the main challenges for financial services industry?

After four decades of continuous membership, the United Kingdom is all set to make a great exit from the EU in 2019. This will be the most complex demerger ever contemplated, having severe impacts. It includes the potential disruption to the lives of millions of European nationals living outside their home country, the disruption to complex supply chains in sectors such as automobiles and aviation, and the disruption on capital flows and the financial services industry. In this blog, our experts in the financial services industry have analyzed the impact of Brexit on the sector and what needs to be done next:

Passporting

Presently, a company in the financial services industry that is licensed in one EU member state can in principle conduct business throughout other countries in the EU by passporting their license across national borders. Chances are that the UK decides to stay in the European Economic Area (EEA). EEA provides its members with access to the EU Single Market. It is subject to European law and jurisprudence in respect of the ‘four freedoms’, which include the free movement of goods, services, people, and capital. Members are also required to pay a financial contribution to the EU. In this case, companies in the financial services industry may continue the passporting of their licenses. However, the scenarios where UK seeks temporary EEA membership for a smooth exit from the EU should not be completely ruled out.

Mutual recognition

For much of the early negotiation phase of Brexit, the British government preferred to establish a mutual recognition system. This was an agreement between parties to maintain comparable rules to accept each other’s findings as binding in their own city. For companies in this financial services industry, this would require the establishment of a bilateral body that jointly agrees to objectives including financial stability, consumer protection, and dispute management. Although each party would have different procedures to achieve the agreed objective, the ultimate goal would be ensuring consistency of outcomes.

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Equivalence

In theory, equivalence offers an easier method of facilitating cross-border business. The EU examines the regulatory and supervisory framework that exists in a given country for a given business activity and determines whether the rules in the said third country are equivalent to those in the EU. In case they are, the companies in the financial services industry from the said country are permitted to conduct cross-border business. Given that the UK and EU are at a point of perfect regulatory convergence provides a means by which firms established in the country could continue to operate cross-border, post-Brexit. Equivalence is likely to be the foundation of UK’s financial services agreement, with the UK seeking a declaration that the city of London is fully equivalent to the European Union by reference to a common legal and regulatory framework. This translates to the fact that a deep understanding of both the functioning and limitations of this framework is a prerequisite for post-Brexit regulatory management.

Relocation

Another option available to companies in the financial services industry who are conducting cross-border activities is relocation. Firms in the financial services industry that have their headquarters in London could consider opening a licensed EU headquarters in an EU-27 member state. If the backbone of the future UK-EU agreement is equivalence, then those activities for which equivalence is not permitted would be subject to relocation, possibly with legacy book transfer.

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Financial risk analysis

Financial Risk Analysis Helped a Banking Industry Client Achieve Savings of $ 3.2 Million – An Infiniti Research Success Story

Business Challenge

Over the last couple of years, the banking industry has undergone significant transformation due to factors including business model transformation, adoption of advanced technologies, changing regulatory environments, and more. In an increasingly complex environment of the banking industry, new complexities arise, requiring an adjustment in risk management systems and procedures. Financial risks in the banking sector can potentially cripple the business if not managed on time. Therefore, it is imperative for companies in the companies in the banking sector to implement financial risk analysis and management strategies to identify potential risks in advance, analyze them, and take steps to eliminate them.

The client, a well-known bank in Canada wanted to develop financial risk management strategies to manage risks affecting the growth of the industry. Changes in market variables, including interest rate and exchange rate fluctuations, as well as movements in market prices of securities and financial derivatives created risks that negatively impacted the financial capital of the client. Also, these risks affected the company’s bottom line. Hence, the client approached Infiniti Research to leverage their expertise in offering financial risk analysis solutions. With Infiniti’s financial risk analysis solution, the client wanted to develop a comprehensive and dynamic framework for monitoring, measuring and managing liquidity, interest rate, foreign exchange, and commodity price risks.

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Solutions Offered and Value Delivered

With years of expertise in offering actionable financial risk analysis solutions, the experts at Infiniti Research helped the client devise an effective financial risk management strategy. Financial risk analysis also involved examining changes in market variables, including interest rate and exchange rate fluctuations, as well as movements in market prices of securities and financial derivatives. Our experts also analyzed historical records to predict when the market fluctuations and disruptions were about to occur. This helped the client to create proactive and reactive methods that can prevent financial from impacting the security of the organization.

This highly focused approach helped the client to build strategic financial risk management strategies that minimized the probability of the problem occurring again. Furthermore, implementing risk management strategy reduced the loss in profit for the client. In a span of seven months, the financial risk analysis helped the company to successfully reduce their financial costs and achieve savings of US $3.2 million.

We’ve helped various companies identify the key financial risks and implement effective strategies to reduce the impact. Request a FREE proposal to know how our financial risk analysis solutions can help your business.

What is Financial Risk Analysis?

Financial risk analysis is the process of evaluating and managing the potential risks in the market that negatively impacts the financial capital of the organization. Financial risk analysis helps organizations understand the potential risk factors affecting their business and implement strategies to reduce them. Also, analyzing financial risks gives an idea of the potential risks/events and the time needed to recover and restore operations. Having a robust financial risk analysis strategy allows businesses to prepare themselves financially for the most likely problems.

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