Background

Trawler is a small securities firm which has a highly successful corporate finance team, which has been assembled over a number of years and the income from which represents a major share of the firm’s profits.

Two years ago the board of Trawler felt that the firm needed to broaden the scope of its activities, and decided that the best way of doing this was by way of a formal alliance with another firm from which there would flow additional mutually beneficial opportunities.

Twelve months ago, Trawler concluded an alliance with Sceptre which, although slightly bigger than Trawler, had only a small corporate finance team. Sceptre had developed a reputation for recognising up and coming businesses in bioscience, but had been less successful at helping them take the steps from developing business with potential, into actual success stories.

Consequently, Trawler’s board felt that their team had the skills necessary to maximise this potential and following discussions with Sceptre an alliance was formed, whereby business opportunities would be shared between the firms, according to where the expertise lay. Although there was no form of merger or joint venture and each firm retained its own staff, the arrangement is covered by a Memorandum of Understanding.

You are the Executive Chairman of Sceptre. Last month one of the highly regarded members of your small team of corporate financiers left and you have been searching, via headhunters and network contacts, for a replacement.

You have recently become aware that an unnamed suitable senior replacement has been identified and approached. You understand that she can also bring one or two junior colleagues with her. Your Director has now satisfactorily concluded negotiations and asked you to sign off the contract. He is particularly pleased at his coup but, just as you are about to sign off, you recognise the name of Gildenstern as that of a senior member of the Corporate Finance team in Trawler.

Given the alliance between Trawler and Sceptre but against a background of your firm’s need to strengthen the team, how would you respond?

Verdict

The dilemma you are faced with is whether and to what extent your decision should be based upon the immediate needs of your own firm, or whether you should take a more rounded view and consider the possible implications on your relationship with Trawler.

If you take the view that your firm’s needs are paramount and approve Gildenstern’s hiring, you will have to be prepared to deal with any consequences that may arise. Although you do not have a contractual agreement with Trawler, to take the view that your decision need take no account of the impact upon them, is likely to be viewed as a hostile act and a sign of bad faith. This may jeopardise not only your existing agreement, but any future cooperation and so the benefit of the hiring might be outweighed by the damage to Sceptre’s reputation.

On the other hand, you might take the view that you will not take any action at all that might call into question Sceptre’s commitment to the arrangement and so decline to authorise the requested hiring. Although this may be regarded as a highly principled approach, it does not help solve your firm’s needs and, since you do not know why Gildenstern wishes to leave Trawler, you may decline an opportunity to hire someone who will be lost to the arrangement, if they are determined to leave anyway.

There is also a potential middle way, which is to suggest that your Director contacts his opposite number at Trawler and says that you have been looking to hire a replacement in your Corporate Finance team and one of his members of staff has responded. You are intending to hire them, but are concerned that this should not be seen as a hostile act, since you did not poach the person, who had responded to a job advertisement.

However, this is quite a high risk option and you should consider what you would do if Trawler are insistent that Sceptre should not recruit Gildenstern, as it is unlikely that you would wish to be a part of an acrimonious legal dispute. You should also consider what might be the potential consequences for Gildenstern. Accordingly, it is probably only worth considering this option if you have agreed terms (although not entered into a contract) with Gildenstern and have her agreement that you can approach Trawler.

The key issue is your need for Gildenstern to accept that Sceptre’s relationship with Trawler is more important than a single hiring and that should Trawler be unhappy with the proposal, then Sceptre would feel unable to offer the position to Gildenstern.

If Gildenstern is not able to accept that and thus will not allow you to discuss the proposal with Trawler, her response will effectively give you an answer to the dilemma.

Finally, there is the question of whether you should facilitate the hiring of the junior staff who have also been mentioned. Since Trawler is a small firm, it is improbable that they would be relaxed about losing several members of staff at the same time and since they did not form part of your initial recruitment objective, it would be unwise to pursue them as well. Additionally, Gildenstern could also face legal action from Trawler for inducing her colleagues to leave Trawler.

Although each of the above courses of action has a demonstrable drawback, the key issue is that Sceptre’s relationship with Trawler is more important than one hiring and if this proposed hiring will jeopardise a valuable relationship, then the sensible course of action is to continue the search.

Further reading

Background

Chris is a young compliance officer who has recently joined XTB, a mid size international bank, where he is involved in overseeing compliance of their international operations department.

Because of the location of his office, Chris travels to and from work on the train surrounded by people some of whom are employed in his bank, but also many similar organisations and other financial services firms. There is much general chatter on the train, particularly telephone calls about work and Chris is surprised at the extent to which some people treat the train as an extension of their office, seemingly oblivious to their fellow passengers.

Chris is unsurprised therefore when on his way back from a meeting in the City, he sits next to two men having an earnest conversation but when he hears the words regulator, legal department and fine, he begins to listen more intently. The pair talk animatedly about maintaining the integrity of customer data in the face of an apparent data loss some time previously and Chris understands from what is said that the firm has not yet reported the matter to the regulator and there is an internal argument about whether to do so. Although the problem has now been resolved, based upon a recent case involving a major international bank, there is a strong possibility of the regulator levying a substantial fine if they do own up and this will significantly affect profitability and thus bonuses.

As one of the pair comments, “if no one in our organisation picked it up, the chances of anyone from the regulator doing so must be remote and anyway, no customer has been affected and no one has done anything illegal”

Chris is still intrigued about whom and what they could have been talking when, that evening, on his way home, the lift makes a stop several floors below where he works and he is surprised to see one of the pair whom he had overheard on the train, getting into the lift and using a Staff security pass to leave the building.

That evening, Chris tells his partner about what he had heard at work and she says that as he is still on probation at XTB, he must not interfere and this is none of his business. He agrees that is probably sensible and determines to put it to the back of his mind. However his resolution wavers when he encounters the same person entering the lift as he saw the previous evening. His uncomfortable feeling returns that, having become aware of what is happening, or rather not happening, probably he should do something; but what?

Should Chris have said something at this point?

Although new to XTB, Chris, as a compliance officer was in a position to report what he had heard to a more senior, or even the most senior, person in compliance, who would be in a position to decide what, if anything to do. Chris should have been able to do this, without being drawn into the underlying issue, which seemed to be his main concern.

Convincing himself that he had heard nothing of significance would not have been the right thing to do.

The next day

Arriving at his desk, Chris’s concerns are rapidly pushed to the back of his mind when Louise, his boss, calls him over to tell him that the firm has been told to prepare for a visit from the regulator and that a major theme will be to look at the integration of the business of Vertigo Bank which XTB had bought three years previously.

On learning this, Chris felt that he should say something to Louise about what he heard on the train and related what he could recall, particularly that one of the pair which he had overheard, he had seen in XTB’s building and so assumed that the bank which the pair was talking about was actually XTB. Chris is concerned that they seemed to be engaging in a high level cover up, although he is not aware of the exact details.

Louise tells Chris that it is not something about which he should concern himself, but she will make some tactful enquiries with a colleague in International Wealth Management, which is located on the floor identified by Chris. If she discovers anything, she will let him know what it is all about, although she considers it unlikely that XTB would be a party to anything dubious. Chris returns to his desk and prepares for the regulatory visit but notices that Louise is away from her desk for some time.

Is Louise doing the right thing?

At this stage, Louise has received nothing more than hearsay, but she has responded positively, whereas she could have just said that one frequently hears gossip on the train and Chris should treat what he heard as just that.

Late that day, Louise returns to her desk and in due course calls Chris over. She tells him that she had been gone so long because, on going to speak to her colleague Martin in International Wealth Management, she had been drawn into a highly political debate regarding the matter which Chris had overheard on the train. It appeared that there was disagreement amongst XTB’s senior executives within Wealth Management about how the bank should most appropriately deal with the matter, in order to comply with its obligations to the FSA and at the same time maintain the confidence of the clients of Wealth Management.

Although Louise did not contribute to this discussion, she told Chris that when she had told Martin what Chris had heard on the train and that subsequently he had identified at least one of those involved as working inXTB, Martin had become extremely alarmed and said that they must go and see the Head of Compliance at once. Louise had then been made aware of the underlying problem, which had arisen following the takeover of Vertigo, when a decision had been taken to outsource client data processing to an overseas centre, which system was still in operation. As a result of a recent visit to the overseas data centre by a specialist of XTB’s internal audit team, it had been learned that a few months after the off-shoring process began, in the course of physically transferring data between two of the processing/storages facilities, the company vehicle had been involved in a road accident resulting in a fire which damaged some of the storage tapes. It now transpires that in accounting for the damaged tapes there is an inconsistency between the number of tapes which was recorded as being in the vehicle and the number which was recovered, the assumption having been made that the difference was accounted for by some tapes being destroyed in the fire.

Furthermore, there is uncertainty whether the tapes, which contained personal details of many of XTB’s wealthy international customers had been encrypted and, although the assumption was that the data had been, there was no evidence one way or another. This incident had not been reported at the time to XTB in London.

The resolution

The Head of Compliance was furious on learning this and immediately asked to see the Wealth Management executives, telling them that she was amazed and incensed by what she had just learnt. She then told them in no uncertain terms that XTB’s duty was urgently to report the matter to the regulatory bodies involved, indicating what actions had been taken to remediate the situation, hoping that this would positively influence any regulatory sanction. She added that if they did not agree, she would take it upon herself to report the matter, quoting both the financial regulator’s rules and principles but also the Data Protection Act requirements.

Following this, the Head of Compliance had then said to Martin and Louise that senior members of staff had been highly irresponsible in discussing a sensitive matter in a public place and that had it become public knowledge without the regulator being made aware, the impact on XTB could have been catastrophic. Accordingly, the opportunity must be taken to remind all staff of the dangers of holding discussions about work, taking or making phone calls, or using computers in public places where they could be overheard or observed.

Nevertheless her decision that the regulators must be advised was not influenced at all by learning that members of staff had been overheard discussing the matter in public, but rather that trying to suppress the incident was highly unethical and could have set a dangerous precedent within the firm and, since inevitably it would have come out, it would be highly damaging to the company’s reputation.

PS

Subsequently Louise asked Chris what he would have done if he had learned that XTB intended not to report their problems to the regulator. He replied that although he knew that he should then report the matter to the regulator, perhaps via the “whistleblowing” hotline, he remained uncertain that he would actually have done so, for fear of the consequences for himself and all his colleagues at XTB.

Further reading

Background

Joe Frazier was a young trainee working in a branch of the bank a few miles from his home and had recently been assigned to be a cashier, where he was just getting the hang of his duties in what was a quiet country branch. There was little pressure on the staff and Joe was able to cope easily with the work load.

After some weeks of this quiet life Joe was summoned by the branch accountant and told that there was a problem at Miltown branch where many of the staff had caught a bug and they were very short of cashiers. Consequently Joe was asked to report to Miltown branch the following day for a brief attachment and warned that it was a busy branch which would really test his abilities.

When he arrived just in time at the unfamiliar Miltown office the next day, after a more difficult than expected journey caused by a road accident, he was directed to the senior cashier Eric, who seemed less grateful for Joe’s presence than he had expected and spent very little time briefing him on what to expect.

During an increasingly busy day, quite a queue of customers built up and Joe worked as quickly as he could when he found in front of him a gentleman who announced loudly that he was a former manager of the branch and “that standards appear to have slipped since I retired” leaving Joe somewhat flustered, particularly when Eric the senior cashier came up behind him and started talking to the man.

It transpired that the customer was Mr. Macdonagh who had retired from the bank about 10 years ago and was now the secretary of the local golf club, which kept its account at Miltown. He came into the branch regularly and paid in large numbers of cheques and cash and frequently was impatient with the cashier if he was not served with what he considered to be adequate speed and deference.

Joe was conscious of the other customers waiting behind Mr. Macdonagh and began to check the deposit as quickly as he could, but he was unable to reconcile the amount of cash on his till with the figure on the credit slip and became increasingly anxious. Eric, noticing a potential incident seized the deposit from Joe’s position, saying to Mr. Macdonagh “I am sure that we can rely on our former manager to get things right.” He stamped the Golf club paying in book with Joe’s position stamp and gave the book back to Macdonagh, who thanked him grudgingly and left.

As things quietened down, Eric told Joe to close his till and check the golf club deposit carefully and to make sure that it was right, as the last thing they needed was Macdonagh complaining about them as he still had friends in the bank. Joe counted the cash several times but each time he came down to the fact that there was a £10 shortfall in the cash deposit and he wondered what he should do.

Finally, he plucked up the courage to report the shortfall to Eric, who looked distinctly unhappy at what Joe told him and said that as Joe had stamped Macdonagh’s deposit receipt, the simple answer was that they would have to report it on the end of the week return of “overs and shorts in tills,” which as luck would have it was being submitted that day. Eric told Joe that he would help him complete the form explaining how the loss had arisen but that Joe would have to request the accountant to countersign the form. Joe accepted what Eric said but felt that he was being made responsible for something that was not his fault and was particularly aggrieved that the accountant brusquely told him that he would have to be more careful in future, if he was to get on.

Joe felt rather belittled by this treatment and when he returned to Miltown the next day, he was determined to be on his guard.

Fortunately the branch was a bit quieter and Eric was soon making noises about not needing Joe the next day when he saw Macdonagh enter the branch and head straight for Joe’s till which fortuitously had no customers.

“Young man” he said, “I don’t know what they teach you at school these days, but you seem unable to count any better than the people we employ at the golf club. They found £10 under the drawer of the till in the bar, which they said had been included in the club deposit, which you certified as being correct. So who does this £10 belong to?” and he pushed a £10 note towards Joe.

At that point, Eric, who had been hovering once again, took the note saying to Macdonagh “I’m awfully sorry that you had a problem yesterday. This young man had found a discrepancy in his till at the end of the day and we had identified the likely source as your deposit and were going to phone you, so thank you so much for coming in.” Macdonagh looked witheringly at him, turned round and stumped off, whereupon Eric, with the £10 note in his hand returned to his position as another customer stood before Joe.

The dilemma

Shortly before the end of the day, Eric approaches Joe and thanks him for his hard work, saying that the busy days of the week are now past, a number of staff will be returning the next day and so Joe can return to his own branch, but in the meantime should take the opportunity to leave an hour early. Joe is quite relieved and grateful to have a head start on the commuter traffic, so he does not give another thought to the question of the £100 until he is on his way home, when he begins to mull over what happened and what if anything he should do. Joe feels that Eric made him look foolish both in the branch and with the controlling office, to whom his name will be reported. And what has become of the £100, which should have gone into his till, but seemed to have stuck to Eric’s hand and why did Eric send him home early?

Options

As he sits at a red light he muses on the possible courses of action open to him.

• Should he ring Eric the next day and check that he has done what he should, crediting Joe’s till with £100, or will Eric feel that Joe is suggesting that he may have pocketed the money?
• Should he forget the matter and assume that it is just one of those things?He is not going back to Miltown and is unlikely to see Eric again, so there really is no need to do anything.
• Should he contact the bank’s confidential helpline and report what happened? But anything he says will be pretty specific and so if they do anything it can easily be traced back to him.
• Should he discuss it with his own accountant, but what if he then rings the Miltown accountant and says that Joe is concerned about the £100; that will still make him look bad and may easily be seen as accusing Eric of pocketing the money.

Verdict

It is best for Joe to discuss this with his line manager in his own branch, to make his own role transparent and to raise any irregularities. This avoids any direct confrontation with Eric or the accountants, and Joe’s line manager should be able to judge the best course of action.

Further reading

Background

George is a production manager in Elixir, the UK subsidiary of an international electronics firm and he considers that he is fortunate to earn more than the national average salary. While his income is not yet subject to the 40% “higher” rate of tax, it is just on the margins. George’s firm has an incentive scheme designed to reward staff who make valuable suggestions which benefit the firm’s performance and George, together with a young colleague Dean, made a suggestion which removed a production bottleneck and resulted in a measurable improvement in productivity.

As a result of this suggestion, George and Dean were each awarded a bonus of £5,000 but have been advised that, because of the timing of the announcement, there is a bit of uncertainty whether the award can be processed in time to include it in the March payroll. Both men were delighted to receive the award and Dean, who is still struggling to pay for his Christmas holiday in Thailand, is very keen to ensure that payment will be made in March. George, on the other hand calculates that this bonus will push him over the tax threshold, so that £4,000 of his bonus will be subject to tax at 40%, rather than the 20% rate which would be applied to the rest of his income. Dean earns less than George who assumed that none of Dean’s bonus would be subject to more than 20% tax.

George feels very aggrieved that he might have to pay twice as much tax as Dean and wonders whether he can do anything about it, since it will make a big difference to what he and his wife can spend on the new kitchen they have long been planning. That evening he discusses the matter with his wife who tells him that he must speak to whoever organises the company payroll and see that payment is not made until April.

The next morning, George tells Dean that he is going to see Nicola, his HR Manager who is responsible for organising the company payroll, to try to get the payments delayed until April, because it will save him nearly £1000 in tax. Dean does not respond.

When George meets Nicola she congratulates him, saying that he will no doubt be pleased to learn that she is confident that she will be able to get the award payments included with the March salaries. George looks horrified and Nicola asks him what is wrong. “That will cost me £800” he replies and explains why, adding that he was sure that Nicola and Elixir would be sympathetic towards him. Nicola is taken aback at this saying that she did not realise that and would have to think what could be done and there is very little time.

George returns to work leaving Nicola with a dilemma. In trying to accommodate Dean’s need to receive his award payment as soon as possible she in danger not only of upsetting George, but actually costing him money and Nicola worries whether she will be able to satisfy both Dean and George.

Although Nicola has not said that she can do anything to help either George or Dean, she arranges to speak to Richard, the Finance Director with whom she shares her dilemma. Richard says that he quite understands George’s feelings, but income tax is something that everyone has to pay and the company avoids getting involved in any sort of manoeuvres that might attract unwelcome publicity. In any event, the award was made during the current year and will be included in the report and accounts for the year just ending. Accordingly, Elixir has no real justification for delaying the payment until the following year.

At the same time as George and Dean are awarded their bonus, the Board of Elixir’s parent consider the anticipated group results which are particularly good, as a result of which a proposal is discussed to award Walter, Elixir’s Managing Director, a bonus of £100,000. At the meeting when the decision is ratified, a member of the compensation committee suggests that it would be sensible if they consider how to make the payment in a tax efficient manner. If they delay payment until the following year, a lower tax rate would be in force thus saving Walter some £5,000 in tax.

A member comments that they should be aware that any apparent delay to an award simply to permit Walter to benefit from a lower rate of tax might attract unwelcome publicity. The Chairman says that is a justifiable risk, but losing a key executive because you do not offer a sufficiently attractive compensation package is not. The committee do not demur at this, and agree that the “bonus” should be paid in the form of a retention payment, which could justifiably be made once the lower tax rate applies.

In due course the executive team of Elixir meet and the final results for the year are discussed, including the funding of end of year bonus payments. Richard has been pondering what Nicola had said to him about the tax impact on George’s bonus of it being taxed at a higher rate and what, if anything, Elixir might or should do to help him. Accordingly, at the end of the meeting he raises the matter as a topic of general interest for consideration by the executive team, in the light of the public debate about the morality of deferral for tax purposes of bankers’ bonuses which reward people who are already highly paid, in the knowledge that a lower top rate of tax would apply in the following year.

Walter says that he does not see it as an issue; it is really no different to suggesting that someone should not be awarded a pay rise if it would take them into a higher tax bracket and that companies should try instead to find alternative means of rewarding their staff. That approach, he adds is what, had led to the rash of non or low tax items such as company cars and “entertainment allowances” which had been paid until they were made unattractive by subsequent tax charges being imposed on them by the Inland Revenue.

As the other members of the team nod in apparent agreement with Walter, Richard, who is unaware of the pending award to the Chief Executive, asks how that argument is different from the position of a highly paid individual who receives a sizeable bonus, payment of which is deferred to enable them to take advantage of the lower tax rate that it will attract the following year, when the top rate of tax will be reduced by 5%.

In fact, adds Richard, this is a perfect example of the well-off being treated differently to the lower paid employee. The impact of the 20% increase in tax paid by the lower paid employee on his relatively small bonus is significantly higher than that on the 5% saving on the high earner award, even if the actual monetary amount is much smaller. Accordingly, he says, there must be a strong argument that in the interests of equity, companies should not differentiate in how they treat any discretionary awards, irrespective of the amount or the beneficiary.

Walter thanks Richard for his “interesting observations” and the meeting closes.

The dilemma

The first quarter of the year which often sees lurid headlines about the size and iniquity of “fat cat” bonuses. Following the announcement by the Chancellor of the Exchequer that he was reducing the top rate of income tax with effect from 5 April 2013 these headlines were given an added twist as a result of proposals by a number of firms proposing to defer payment of bonuses so as to take advantage of the forthcoming lower tax rates for high earners.

 

But is this outrage based more on the size of the proposed bonuses and levels of income of the beneficiaries, rather than the principle itself?

Options

• Since all parties cannot be satisfied, the firm should adhere to its existing policies, accepting that this may satisfy only a minority.
• Following the signal given by the board, it should delay the bonus payments for everyone.
• It should try and make specific allowance for individual employees.
• It should consult compliance as to the best course of action.

The Verdict

The most honest and fair thing to do would be to impose the same standard on all employees, which is consistent with the first option. The second option potentially attracts unwelcome publicity, reinforcing a perception of unfairness. The third option seems unwieldy and smacks of unfairness, and could attract attention from HMRC. The fourth option is likely to result in the same outcome as the first option.

Further reading

As you may be aware, the CISI Southern branch runs regular CPD and social events in both Guildford and Reigate, to help members keep up to date with developments in the financial services industry and to network with other professionals.

These events are organised by the Southern branch committee. We’re a group of industry volunteers drawn from a range of sectors and we all have in common the desire to benefit from high-quality CPD events and to promote our industry to a wider audience, including engagement with schools, colleges and universities to help education.

We are keen to recruit new members to our committee, in part to replace two members who have stood down after a number of years of dedicated service, and also to bring new ideas, perspectives and views to the group. New ideas are always welcome!

The committee meets around once a quarter in Guildford to plan topics for future CPD events and to discuss strategies for growing the effectiveness of the Southern branch in our area, both in terms of attracting more members to events and encouraging engagement with the academic sector and other professionals from different industries.

Committee issues and topics

We are normally joined by our CISI representative at our meeting to look at any issues and topics for our branch area and these can include:

• Future topics for consideration at CPD events, linked to industry experience of relevant issues that our membership faces
• Future speakers at CPD events who can add value to our educational needs
• Social events in and around our Southern branch area
• Education events and contact with local schools, colleges and universities
• Liaison with young professionals to engage in the CISI programme, both from within the industry and outside, with the legal and accountancy professions as an example
• Liaison with other branches to engage in future CISI events, with the recent example of a ‘super-event’ in Portsmouth.

This is not an exhaustive list but provides a flavour of what our committee may consider during its meetings.

It is a satisfying and rewarding role and certainly not onerous. We would welcome volunteers from any sector of the financial services industry and if you feel able to offer your time and expertise, then please do let me know.

I would be happy to discuss this opportunity with you either over the telephone or in person.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee

The Annual General Meeting for the Southern branch of the CISI was held at 5pm on the afternoon of Wednesday 19 June 2019 at the Harbour Hotel in Guildford. Please contact me if you would like a copy of the minutes of this meeting.

More committee members needed!

May I take this opportunity to note that two members of our Southern branch committee have now stood down (thank you to them for their past service) and we are looking to replace them and to build our committee membership further. I have prepared a separate blog on this topic – please do have a look at this and volunteer if you can.

CPD and social event

The AGM was followed by a fascinating and thought-provoking presentation from David Guild, Divisional Director of Brewin Dolphin, who took us on an engaging journey through the events and changes he has experienced over his illustrious City career. The broad theme was one of ‘then and now’, exploring how the economy, regulation, investment trends and consumer attitudes have changed over time. It was interesting to note that although there have been many changes over the last four decades, David highlighted the one constant as being the importance of the adviser or investment manager’s relationship with their clients. This certainly struck a chord with the audience, who were very much in agreement.

This excellent presentation was followed by the Southern branch summer drinks event on the terrace of the Harbour Hotel, which was enjoyed by all.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee

Bev Bevan, drummer extraordinaire and Birmingham music legend who has played with such bands as Electric Light Orchestra and Black Sabbath, was guest speaker at the CISI Birmingham & West Midlands annual dinner 2019, held on 6 June at the Clayton Hotel

Click here to view photos from the event.

It was 1973, Jo Jordan had scored the goal that would send Scotland to the World Cup for the first time in a generation, Harold Wilson was considering devolution for Scotland, Dark Side of the Moon was number 1 in the album chart and I was in Primary school. It was then that that Scotland’s last Stock Exchange closed in Glasgow and everything moved to what became the London Stock Exchange. But last week our members in Glasgow, Aberdeen and Edinburgh had the opportunity to learn that things are about to change with the creation of a new Scottish Stock Exchange, under the working title of Project Heather until it gets recognition from the FCA.

Tomás Carruthers heads up Project Heather and provided an overview of the plans that will open a new exchange for the 21st century. The Scottish Stock Exchange will be the first Recognised Investment Exchange worldwide for which companies have to measure their positive social and/or environmental impact before listing and produce an annually updated impact report publicly available on their website.

The members heard Tomás discuss the need for impact reporting to become as mainstream as financial reporting and that they were building an exchange that is more inclusive and accessible to advises, issuers, and investors. He talked us through the agreed technological and strategic partnership with Euronext and how the Scottish Stock Exchange is setting out to bring access, visibility and liquidity to businesses. Scotland has a huge tradition of demonstrating entrepreneurship and inventing just think of all the things attributed to Scotland and this will provide a huge opportunity for raising capital for our new businesses. He asked the advisers to work with them and get involved so they understand the changing financial market imperatives towards sustainable investing which is being driven by investor demand.

The Q&A sessions increased with each presentation and the word with our members was how fascinating this opportunity was and more so that it was happening in Scotland. Following comments about Dundee’s absence from the roadshow, we are looking at dates to rectify this in the near future.

During the Edinburgh session Project Heather were able to announce the home of the new stock exchange will be on George Street in Edinburgh with offices in Glasgow and Aberdeen as well.

Subject to approval from the UK’s Financial Conduct Authority (FCA), the Exchange hopes to launch in the second half of 2019. I suspect that the Scottish Stock Exchange will be well established before we find another Jo Jordan to head us to another World Cup.

Colin Anderson

 

John Moran, former Secretary General of the Irish Department of Finance, speaking at a Chartered Institute for Securities & Investment (CISI) event in Dublin yesterday (29 May 2019) said that following the European elections the centre of power in the European parliament has fundamentally changed.

The results, said Mr Moran, mean that the duopoly of power between the European Peoples Party and the Socialists is broken. This will impact the Parliament’s priorities for the next five years, and critically define how the next generation of EU leaders will be selected.

The much-feared lurch towards populist nationalist ideals didn’t happen, and the largest voter turnout since 1994 has given a strong mandate to pro-EU parties.

View the full press release here

ET Response: The Buddy system is in place to ensure that new individuals have a reference point, a ‘go to’ in another team and someone to ask advice from. There is no set policy for who is selected and the choice is left to the hiring line manager as to who might best assist and support the incoming recruit. However, the aim is to make the new joiner feel comfortable and so the line manager will select someone who is likely to be of similar age and/or experience level. If you would like to be put forward as a buddy for new joiners, please ensure that is made known to your line manager, HR and we will make sure that is shared with other teams.

On Thursday 16th May, CISI sponsored STEP Northern Ireland's Charity Quiz Night which was held in aid of Age NI. The Society of Trust and Estate Practitioners have held the event on previous occasions but this was the first time that the two professional organisations had combined. There was an excellent turn-out, with well in excess of one hundred attendees and five of the twenty tables taken by member firms of the CISI. The drinks reception provided by the CISI meant that the event immediately got into full swing and the pleasant atmosphere provided excellent networking opportunities in a relaxed environment.

The "speed quizzing" via tablets was a really enjoyable format, rendering any use of smart phones impossible and teams had to rely on their wits and dexterity alone to get any success. There were a number of spot prizes provided and whilst the competitive spirit was high, everyone kept the evening's priority in mind and an impressive total was raised for Age NI. The CISI members seemed to dominate the event, with Quilter Cheviot taking a strong lead into the half time buffet. Perhaps their wits were then dulled by the excellent fare on offer as Investec came through in the second half to emerge as overall winners. Our thanks to STEP NI for allowing us to collaborate with them in such an entertaining and worthwhile event and we hope to work with them again in the future.

This morning saw a first for the CISI - a joint CPD event between the Southern and South Coast branches. Held at the University of Portsmouth, the event attracted attendees from across both regions, including some individuals for whom this was their first CISI CPD event.

This ground-breaking event was introduced by Keith Churchouse, President of the Southern branch. An insightful presentation followed from Neil Dobson of Invesco, who focused on the topic of behavioural finance, with some audience participation. Neil’s presentation was very helpful for investment managers and financial planners alike in understanding client attitudes and reactions to investment risk, gains and losses.

A choice of two breakout sessions followed, with Trevor Neil of Beta Group providing a fascinating overview of Bitcoin and crypto currency and Trevor Head of AIG Life focusing on the range of protections that are now available to protect clients and their families. This was a particularly useful presentation for financial planners, given the now mandatory requirement for 15 hours of protection CPD per year.

The group came together for the final presentation from Gervais Williams of Miton Group, who provided an absorbing and thought-provoking view on global and UK markets going forward. 

The event was a great success and much positive feedback was received.

Our thanks go to the four excellent speakers and we look forward to running another joint event in future.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee

The CISI’s fourth Ireland Awards Ceremony was held at the Royal College of Physicians in Dublin, on 4th April.

We were delighted to welcome our winners, invited guests, National Advisory Council members, CISI Ireland President and our keynote speaker for the evening, Professor Diarmuid Hegarty, President, Griffith College.

Professor Hegarty made the presentations to the individual award winners, with Jim Winter, CISI Regional Director. Professor Hegarty spoke of education as ‘the building of a bridge, a bridge to other worlds, a bridge to other people but most of all a bridge to a better life’. He reminded us that ‘a professional award is not an entitlement of rank or class. It is earned through many hours of mental toil and diligent application’ and told the award winners to ‘hold your qualification in the high esteem it deserves’.

A drinks reception followed the presentations, with a chance for the winners to celebrate with their partners, work colleagues and CISI guests. We were pleased to be joined by Senior Management from Citibank Europe, supporting their winners and achievers.

Awards were presented to seven individuals for results achieved during 2018, with one of the winners receiving two awards on the night.

Joint Winners - Investment Operations Certificate (IOC)
Martina Kresnik, Citibank Europe
Christine Mannix, Citibank Europe

Winner – UK Financial Regulation
Rachel Barden, Nat West Markets

Winner - Asset Servicing
Noel McMonagle, Citibank Europe

Winner - Introduction to Securities and Investment (International)

Marcus Duke, Citibank Europe

Winner - Global Securities Operations
Noel McMonagle, Citibank Europe

Winner - Risk in Financial Services
Neil O’Sullivan, First Derivatives

Winner – Client Assets & Money
Ciaran Cuddy, Citibank Europe

Click here to view the full photo gallery.

Click here to view the video.

Satish is an ambitious junior manager in the settlements team of a major international bank. The firm experienced a difficult period some years ago, when it struggled to keep up with a greatly increased flow of daily transactions, the consequences of which led to adverse comment by the regulator.

More staff were hired and a commitment was given to the regulator that appropriate processes would be put in place to monitor the firm’s performance in the affected area. This led to the introduction of an internal reporting system, which is seen as increasingly onerous and somewhat irrelevant by those not involved in the firm’s earlier problems. As a result, the requirement for signature by nominated position holders is not always followed to the letter.

Approaching year-end, Satish is asked by Eamonn, his manager, to ensure that the departmental management information (MI), which Satish co-ordinates and analyses, is up to date for discussion at the heads of division meeting. Bearing in mind the previous and well-documented difficulties of his team, Eamonn will be the focus of attention and, as the meeting is off-site, he has to depart the previous day.

Satish is feeling under some pressure, but is determined to meet all his deadlines, conscious that his chances of promotion will be influenced by how well he performs at times like this. Consequently, he comes in early and stays late to ensure that he can keep on top of the daily routine, as well as meet Eamonn’s needs.

The end of the reporting period approaches and Eamonn, anxious to get his figures as early as possible, begins to press Satish for them. Satish is also reminded by the firm’s regulatory reporting unit that his department’s report is due and that it needs to be signed off by Eamonn, as head of department. This requirement of the firm’s operating procedures, was introduced as a result of the commitment given to the regulator.

As his deadlines loom, Satish provides Eamonn with his MI and takes the opportunity to remind him that he will also need to sign off the regulatory report, which will be ready the next day. Sounding exasperated, Eamonn says that he is much too busy preparing for his meeting to be concerned about “that sort of stuff” and suggests to Satish that, if he is confident that it is correct, he should sign it on Eamonn’s behalf. Satish is aware of the firm’s procedures, but does not feel able to say anything to Eamonn at this particularly stressful time and is relieved simply to have completed the MI.

The Dilemma

The following day, the regulatory report is completed and is given to Satish for him to obtain Eamonn’s signature. Satish tells his colleague that he will see whether he can get Eamonn to sign it, but he is enormously busy and about to leave for the airport.

Satish waits until Eamonn appears to be free and goes into his office with the report, which he asks him to sign. “I told you yesterday that you could sign it” says Eamonn, heading for the door. “It’s only a report and you know what it is all about. You have my complete confidence”.

Options

Satish is torn between doing what his boss has told him to do and complying with the firm’s procedures. He considers various options.

 

• If he signs the report, he will keep Eamonn happy, but he will be breaching company rules.
• If he does not sign but waits for Eamonn to return, the report will be late and the department will look bad again, which may affect his chances of promotion.
• If Eamonn has told him to sign the report, surely he can safely do so?
• Perhaps he should explain to the regulatory reporting unit why Eamonn’s signature is missing and say that Eamonn authorised him to sign the report?

The verdict

Satish should explain to the regulatory reporting unit why he has been unable to obtain Eamonn’s signature and advise them that Eamonn has authorised him to sign the report.

Further reading

A red button issue for investors, investment managers, consultants and regulators as evidenced by a huge attendance at the session. Thoroughly engaging evening as performance was analysed and the future of the asset category considered. CISI Ireland assembled a top quality panel of managers, consultants and fund selectors, from Ireland and the UK, to discuss.

Panel members L-R Chris Nicholls, David Ryan - Chairman, CAIA, Rory Gillen Frank O’Riordan CISI President, Joe Mottley and Sara Morgan

Sara Morgan, Blackrock: Sara began by clearly outlining the differences between Absolute Return and Total Return investment objectives. Focussing on absolute return it was clear there was a performance issue. Sara singled out 2018 and 2015 as being particularly poor. What lessons could be learned? Expectations were set too high. Costs were underestimated. Sara also felt there had been capacity issues in some asset classes given the unprecedented growth. The liquid Alts category she feels is a very mixed bag.

For Sara there is still a role for Absolute Returns (AR) going forward, especially as in her view we should see more dispersion and lower correlation between asset classes, given we are seeing the end of the QE experiment. However there is a need for better communication and education in the future, and above all a need to manage expectations. Investors do need to have a longer time horizon and be aware of the risk of significant drawdowns along the way.

Rory Gillen, GillenMarkets. Rory very much drew on the facts. Rory looked at data from 1998 to 2018 and highlighted the period 2003 to 2018 as being especially disappointing for Absolute Return. He believes low interest rates, high costs and too much capital chasing specific strategies as key drivers of the underperformance. If we expect long term equity returns to be 5% over inflation, he cannot see AR with higher costs and targeting lower risk (volatility) being able to offer similar return profile. There is no evidence and he feels the case for inclusion of AR in multi-asset strategies is weak.

Chris Nicholls, Aberdeen Standard LIfe: Chris felt that there had been a definite change in market circumstances since the financial crisis and managers should have been more vigilant in communicating that to their clients. Market features didn’t help AR – in 2017, as risk assets performed and in 2018, as practically all asset classes were negative, diversification didn’t reduce risks. As managers they should also have been more aware of changes in the “financial plumbing” in the system, especially the degree to which Central Banks were including market sentiment in their decision making. Chris still sees a role for AR into the futures and cites broader investment freedom with use of asset classes such as Private Equity , Aircraft leasing etc as a possibility.

Joe Mottley, Clarus Investments: They have become disillusioned with the performance of AR. He cited the FT definition of AR as positive returns in all market conditions with lower risk as probably what most people thought they were buying into. This hasn’t happened. Joe produced some forensic data on an Irish AR peer group of funds, and his findings were

• Costs were higher but only about 35 basis points on a median basis.
• Correlation with equity markets was higher than expected.
• Volatility generally was well managed.

Poor decisions were made at different times – not enough hay was made when the going was good. In 2016 and 2017 many AR funds had a big structurally bearish view which they didn’t unwind. A lot of damage was also done in 2018 as many asset classes were negative and despite their ability to short this was a headwind for AR managers. Clarus view is that the declared objectives of AR funds is too high and that instead an AR fund delivering 1 or 2% over cash could work.

 

Its not often we get the chance to talk about a Hat-Trick for Scotland (unless we are talking about second half tries), but the week commencing 18th March has been a first with three CPD events and in three different cities.

Monday, we started in Glasgow with a talk about Mental Health Awareness in the Workplace which was delivered by Louise Ramsay of the Work Well Hub delivered to a packed house raising their awareness of some of the common mental health disorders and how to manage them.

Tuesday, we headed over to Edinburgh where Gbenga Ibikunle (known as GB to his friends) from Edinburgh University took us on a journey through some of his research on FinTech and the new Edinburgh Futures Institute, before finally looking at how FinTech and Financial Services will be impacted by the new Institute.

Wednesday, a first as we headed over the Fourth Road bridge and headed across the silvery Tay to Dundee. This was our first venture into the city which has seen a steady increase in membership over the last year. Blair Anderson (honest no relation) provided two talks; A Market Review & coping with Uncertainty and Are you Planning for Growth? It was great to see so many companies represented at the event and if these numbers continue then there is definite scope to bring more events to the City of Discovery.

We even had some members attend the breakfast Accidental Managers Programme on the Wednesday on delegation which are available to all members through our association with the Professional Bodies Forum for Scotland. Does that mean a hat-trick plus one!

So where next?

Over the coming months there will be more opportunities near you as in the next few months there will be events in Aberdeen, Dundee, Edinburgh, Glasgow and hopefully Stirling as well. If you are interested in helping drive forward an event in your city, then please get in touch.

I look forward to seeing you at the next event in a town near you!

Colin Anderson
Client Relationship Manager Scotland

 

First of all, our thanks go to Nick Boe of Brewin Dolphin for helping to prepare and arrange the March CISI Southern Branch meeting in Reigate on the afternoon of 19 March 2019. 

With a packed room, the meeting started promptly with two diverse presentations planned for the audience to interest both Financial Planners and Wealth Managers alike. Both presentations were well received by the audience with a good few questions from the floor and much interaction with the presenters after the event. 

The first presentation was from Sam Jermy, Senior Business Development Manager at Time Investments, presenting on Inheritance Tax planning in 2019. With examples used throughout the presentation, Sam provided a review of the first Office of Tax Simplification (OTS) report on IHT, the outlook for estate planning in light of the OTS review and the residence nil rate band as a refresher. He also touched upon gifting, charitable legacies, business relief and Trust interaction.

With a short interval between presentations, the second session was given by Marte Borhaug of Aviva Investors who explored the main drivers of ESG (Environmental, Social and Governance) investing, what it means in practice to be a responsible investor, what plastic cups and antibiotics have got to do with it and where the industry is likely to go next. Reference to the info-tagging system for food was made (with some tasty examples) and the desire for this to occur with all funds into the future so that clients can make informed ESG decisions.

It was good to have such diverse topics and the venue lent itself well to helping the audience focus on the wide-ranging themes. 

Thank you again to Nick and also to Louis Coke from Charles Stanley in supporting our East Surrey venue, which is growing in attendees. 

Keith Churchouse, President of the Southern Branch, closed proceedings by drawing everyone’s attention to the joint branch Super-Event planned for 14 May at Portsmouth University. I hope you can all attend. 

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee

Hi everyone

There has been a lot going on in the CISI world and we wanted to share some updates with you.

We are proud to have launched the CISI Young Professional Network in Yorkshire in March.  The Network is aimed at professionals in the 18-35 age bracket and aims to help members enhance their professional skills.  We look forward to welcoming new and existing members to our events and would be grateful for your input as to what support you would like for your career development plans.

On the Financial Planning front, following the merger with the CII, the committee has been bolstered by some new faces from the financial planning arena and we work closely together to ensure CPD events are relevant to members from the financial planning world, as well as the rest of our membership base.

The CISI website has undergone quite a makeover over the last 12 months or so. It is worth having a look round the site, to ensure you are utilising all information and development opportunities available to you.  Whilst on the site, please take the time to review your communications preferences, which can be found in the 'My Account' section of 'My CISI'.

If you have any suggestions for CPD events, as well as feedback on preferences for venue, time of day etc these are most welcome.

We look forward to seeing you at future events.

Emma Spratley
Yorkshire Branch President

I was delighted to meet with the CISI Southern Branch Committee towards the end of January 2019 to look at the opportunities and agenda for the balance of 2019. Our meeting was the day after the CISI Presidents’ Day (pictured) in Fenchurch Street in London and many great ideas from the various regions were considered.

I am pleased to also report the success of the first CISI Southern Branch CPD event in mid-January 2019, which was well received and highly topical.

Your committee plans to continue to look at a dual-location format for 2019, with our CISI Branch meetings to be held in both central Guildford and just outside Reigate, with the Reigate events now kindly organised by Nick Boe of Brewin Dolphin. In addition, we are planning a ‘Super-Event’ between the Southern and South Coast Branches on the morning of Tuesday 14 May at Portsmouth University (geographically central between both regions). Please keep your diaries free and the final details will come through soon.

Looking at the diary for 2019, we plan the following (subject to variations):

Month 2019	Venue
March CPD event	Reigate Heath Golf Club (PM)
April CPD event	Guildford Central (G Live / AM)
14 May CPD event	Super Event- Portsmouth University (AM)
Late June AGM and Social	Guildford Central (PM)
September CPD event	Guildford (Lunchtime)
October CPD event	Reigate Heath Golf Club (PM)
November CPD event	Guildford Central

We plan to hold our AGM in the early summer, along with a social event in central Guildford and all dates will be confirmed from the central CISI office soon.

I hope this update is helpful and please do pass on the message to anyone who would be interested in joining in. These events are obviously great for CPD and the Committee has looked at topical events to meet this requirement accordingly. If there is anything you would like to see on the agenda, then please let me know.

The Southern Branch is also looking for suitable sponsors for this year and next and please do let me know if you have any suggestions.

We look forward to a great CISI Southern Branch event schedule for 2019 and beyond.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee

This was the first of the CISI Southern Branch events for 2019, held at G Live in Guildford.

With a good turnout, Keith Churchouse, President of the Southern Branch, introduced the speakers for the event on the morning of 15 January 2019.

The Southern Branch was pleased to welcome Azad Zangana, Senior European Economist & Strategist with Schroders, as the first speaker. Azad gave an excellent and thought-provoking presentation on the global macroeconomic outlook over the coming months and years, with a focus on Brexit and its potential outcomes and impacts – a particularly pertinent topic given the meaningful vote scheduled for the evening of 15 January. On a broader note, Azad explored potential future trends for global markets and currencies in the light of factors such as the US-China trade war, the withdrawal of global liquidity with the ending of QE and the fading impact of Donald Trump’s tax reforms.

The second presentation was given by Heather Dunne of The Pensions Experts. Heather is a well-known figure in the financial services world, having worked in the industry since 1985. Her expertise and experience in pension transfers made for a welcome and very timely presentation, covering significant ground in this controversial field. Heather provided a clear, detailed and candid explanation of the reasons behind the recent increase and subsequent slow-down in defined benefit transfers, the significant regulatory and legislative changes that have taken place over time and her views on the future of the transfer of safeguarded benefits.

Our thanks go to both the speakers for two engaging and stimulating presentations. If you would like a copy of the slides, please visit the CISI website or contact a member of the CISI Southern Committee.

Your Committee meets on 24 January 2019 to look at the next events across Surrey and if you would like any financial topic discussed then please let Keith Churchouse know.

Keith Churchouse CFP Chartered FSCI
President, CISI Southern Committee