Liquidity storm could throw UK into chaos

The Bank of England has warned that global liquidity and the threat of Greek default could throw the UK economy into chaos.

The FPC (Financial Planning Committee), which is tasked with maintaining financial stability at thhe Bank Of England said that liquidity - the degree to which assets can easily be traded - may have become "more fragile" in some markets around the world.

Mark Carney, governor of the Bank Of England said they would be working with the Financial Conduct Authority to assess whether asset managers could cope with a fast paced change in market conditions.

"The Committee remains concerned that investment allocations and pricing of some securities may presume that asset sales can be performed in an environment of continuous market liquidity, although liquidity in some markets may have become more fragile," the FPC said this week.

"Trading volumes in fixed income markets have fallen relative to market size and recent events in financial markets, including in US Treasury markets in October 2014, appear to suggest that sudden changes in market conditions can occur in response to modest news. This could lead to heightened volatility and undermine financial stability."

Although the FPC has highlighted the risk that liquidity poses to the UK, members said the Bank Of England would work with market participants to ensure that they were aware of the risks and price liquidity appropriately in an attempt to mitigate negative effects.

Just last month Mr. Carney warned that diverging monetary policies across North America, the UK, Europe and and Asia may cause further turbulence and "test capital flows across the global economy, including emerging markets."

The FPC was also quite clear that the situation in Greece posed a real threat to the UK, "There also remain significant risks in relation to Greece and its financing needs, including in the near term."

"Any of these risks could trigger abrupt shifts in global risk appetite that in turn might lead to a sudden reappraisal of underlying vulnerabilities in highly indebted economies, or sharp adjustments in financial markets."

Writing to George Osbourne, Mr. Carney said that the risk to financial stability remained "elevated" and added that he would review UK bank capital rules that might result in lenders having to raise their buffers.

The Bank Of England will ask asset managers about their strategies for managing liquidity of their funds. "This would inform assessment of the extent to which markets are reliant on investment funds offering redemptions at short notice," the FPC said.

How do companies deal with the problems posed by in-direct procurement spending?

Is maverick spending by non-procurement employees the biggest challenge relating to indirect procurement? 

Recently Supply Management conducted a market intelligence survey in which 71% of respondents said that a lack of oversight of what employees, with purchasing power but outside the procurement function, spend in categories ranging from work wear to HR services were among the top issues they faced. 

However opinions on how to deal with the issue are split. 34% percent suggest non-procurement professionals must be trained more effectively in procurement processes and a further 16% said supplier numbers should be consolidated. A further 31% percent from the private and public sectors said control of indirect spend should be handed to the procurement function, as this is one way to keep the spending in line to control the problem. This is despite the results showing that indirect costs appear to be a responsibility shared over a number of different departments within organisations: procurement (63 per cent), senior department heads (42 per cent), finance (39 per cent) and operational staff (25 per cent).

“We are a government procurement department so can only advise other departments on spend – rather than take ownership – which is frustrating,” one respondent said. “We can provide the best advice but the stakeholders can decide to overrule our advice and do what they want.”

Many of the other challenges in relation to indirect procurement are linked to maverick spend and stakeholder management. Nearly half (46 per cent) cite misclassified items and poor reporting as a challenge, 45 per cent say little understanding exists of where indirect spend lies and how much it covers. And 49 per cent say lack of ownership by stakeholders is a problem.

Again, respondents were split on the best way to increase the influence and profile of procurement in the organisation. Nearly half (47 per cent) of the 360 people surveyed said a higher status in the boardroom would help, 42 per cent said procurement needs better oversight and reporting metrics of departments’ spend and 36 per cent said more training should be available to stakeholders.

But respondents also admitted that their skills for managing indirect spend fall short in some areas. When it comes to improving their understanding of indirect spend, 54 per cent said they need to analyse supply chain and commercial commitments and 46 per cent said they need the ability to benchmark prices.

“It’s a complicated picture and one not easily overcome with basic strategy or sweeping statements,” said Chris Aston, director, Expense Reduction Analysts.

“The focus is constantly shifting between direct and indirect spend and not always in the same direction. There are huge gains to be made by allowing procurement strategies to be given higher status by businesses, and better analysis of indirect spend can have significant benefits.”

David Noble, group CEO, CIPS, added: “Boardrooms are starting to wake up to the need for professionally qualified supply chain managers because of the added value that best practice, ethical sourcing can add to their bottom line and the role they play in safeguarding their business’ reputation.”

Greece too slow to address mounting debt, says president of EU commission

Jean-Claude Juncker, President of the European Commission has criticised the sluggish pace of progress in talks over Greece's mounting debt.

In meeting with Greece's Prime Minister Alexis Tsipras, Mr. Juncker said he was not satisfied. The Greek PM is in dire need of EU support for reforms in order to unlock vital funds for his country and avoid the possibility of bankruptcy and being ejected from the Eurozone.

Mr. Tsipras has pledged to end austerity measures in Greece, such plans have been opposed by Greece's EU creditors. Greece managed to negotiate a four month extension on its bailout terms last month after heated talks with creditors.

Hoping to persuade EU leaders of its promise and worthiness of credit, Greece has announced a series of reforms, but it would still like the EU to agree new, more lenient terms for the repayment of its debts.

In the eventuality that no agreement is reached, Greece risks being unable to meet its agreed payments. In the next two weeks alone it will need to find €6bn to pay its creditors.

Mr Juncket also said that he was "not satisfied with the developments in recent weeks".

"I don't think that we have made sufficient progress, but we'll try to push in the direction of a successful conclusion of the issues we have to deal with."

"I am totally excluding a failure, I don't want a failure. I would like Europeans to go together. This is not the time for division," he said.

Speaking alongside Mr Juncker, Mr Tsipras said he remained optimistic. "If there is political will, everything is possible," he said.

In a previous meeting with Martin Schulz, president of the European Parliament, Mr. Tsipras urged the EU to back growth in Greece. "Now is the time to give hope to the Greek people, not only 'implement, implement, implement' and 'obligations, obligations, obligations,'" said Mr Tsipras.

Analysts described last months's interim bailout agreement as a climbdown for the Greek government, which gained power in the country under the promise that it would have half of the Greek debt re-written off.

Even if the bailout extension is approved, Greece still has a huge mountain to climb in meeting its debt obligations.

Cloud is slowly gaining popularity within the financial sector, but many companies have been slow to adopt it...

Cloud is slowly gaining popularity within the financial sector, but many companies have been slow to adopt it and put in place a proper strategy for cloud. Unsurprisingly, the main concerns are over the security of cloud systems.

A survey recently conducted by Cloud Security Alliance revealed that 61 per cent of respondents had a cloud strategy in the formative stages in their company. 47 per cent of those said they had plans to use a combination of in-house IT, public and private cloud. 18 per cent planned to use private clouds. None of those surveyed had plans to primarily use public cloud.

The survey also revealed a link between use of electronic transaction channels and cloud policy. The more an organisations customer base used electronic transaction channels, the less strict the cloud policy in place.

“The results of this report are insightful into understanding how the financial services industry is progressing in terms of cloud adoption and how cloud providers can best serve their interests and needs,” said Jim Reavis, chief executive of the Cloud Security Alliance. “We hope that cloud providers and financial institutions can use this as guidance to help accelerate the adoption of secure cloud services in the financial industry.”

Financial service firms are keen to see more transparency and more control of auditing from their cloud providers, this was desired even more than improved data encryption. The top reason for those moving to the cloud, according to the survey, was flexible infrastructure capacity. This was closely followed by the need for reduced time for provisioning. The top services and uses of cloud amongst those surveyed was CRM, application development and email.

When looking at compliance requirements when moving to the cloud, top of the list was data protection at 75 per cent, corporate governance at 75 per cent and PCI-DSS at 54 per cent.

“The responses overall showed a very active market for cloud services in the financial services sector,” said Chenxi Wang, vice president, cloud security and strategy at CipherCloud, which sponsored the report. “Cloud has made solid in-roads in this industry with many firms looking to harnessing the power of cloud. There’s plenty of room for growth, particularly for providers who can fill the void for the auditing and data protection controls that are at the top of respondents’ cloud wish list.”

The survey also looked at how finance, insurance, security and government decision makers take action within their organisations. From standardising cloud services, to identifying which policies will have most impact, to understanding how best to educate users.

Over 100 professionals were surveyed, with organisations varying in size and from locations across the Americas, EMEA and APAC regions.

While financial organisations have been slower to adopt cloud services, it's clear that they are catching up and starting to reap the rewards of these new services. If you would like to know more about how cloud can benefit your organisation, financial or otherwise, give us a call or email and we will be happy to discuss the best tailored solutions for your business.