“The importance of the location for financial institutions and their extended ecosystem is beyond question.”

Frankfurt Main Finance (FMF) continues to grow! In an interview, information service & technology provider Wolter Kluwers | CCH® Tagetik, one of FMF’s newest members, explains why they joined the Financial Centre Initiative at the beginning of the year and where it sees the strengths of the Financial Centre Frankfurt.

Why do your company support the Financial Centre Frankfurt as a member of FMF?

The Financial Centre Frankfurt is of great importance to our clients; thus, we would like to promote it in the best possible way in line with our clients’ interests. We see this as a win-win situation for both sides: On one hand we support the Financial Centre Frankfurt with our expert knowledge and at the same time make our brand better known in the Frankfurt area.

Active participation in Frankfurt Main Finance also puts us in a position to maintain even closer and more sustainable partnerships with other partners in Frankfurt and to exchange information on opportunities and challenges in the Financial Centre.

How does your company contribute to the development of the Financial Centre Frankfurt?

By actively participating as an IT solutions provider in FMF, we would like to make our diverse process and digitisation knowledge in the financial sector available to companies in and around Frankfurt. We also believe that through our complementary network, we can provide great additional value for the FMF community, from which all members will benefit, and the Financial Centre Frankfurt will be supported.

Where do you see the strengths of the Financial Centre Frankfurt? What can be improved?

The importance of the location for financial institutions and their extended ecosystem is beyond question, Frankfurt is a world-renowned Financial Centre. The cultural diversity is strong, but its degree of popularity can be expanded across countries. The Financial Centre Frankfurt is already an emerging digital hub, which can boast many well-known – especially medium-sized – IT companies. As an IT company, however, we still see potential to make this aspect even more visible to and for the city and region.

CFS Index Standardfragen

CFS Index falls slightly

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 1.2 points to 112.8 points in the fourth quarter of 2018. The slight downturn can be attributed to weaker growth in earnings along with relatively constant revenue growth in the financial industry as a whole. In addition, the service providers report significantly weaker growth in investment volume, in excess of the decline predicted in the previous quarter, and a lower number of employees are being hired. At the financial institutions, the investment volume rises slightly and, contrary to their expectations, employee numbers remain constant. However, job cuts are still expected in the current quarter.

“Are service providers more adaptable than banks? A year-on-year comparison points to this conclusion. Capital expenditure is rising among service providers and the number of employees is falling, whereas the situation is reversed at the banks: investments are on the decline, while the number of employees is stable. In light of the deteriorating earnings outlook, this raises the urgent question for banks as to how they will manage the necessary adjustment of capacities,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is rated positively

Notwithstanding the uncertainties surrounding the Brexit agreement, the financial industry continues to rate the future international importance of the Financial Centre Germany very positively. The corresponding sub-index shows a slight increase of 1.0 points to 127 points.

Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., emphasizes: “For quite some time, the prevailing and well-founded conviction in the finance sector is that the Financial Centre Frankfurt will increase in international importance. The Index’s recent, slight increase most likely reflects the UK’s withdrawal from the EU, which draws nearer and becomes increasingly tangible with each passing day.”

Revenue growth in the financial sector largely unchanged / Earnings growth declines

Growth in revenues/business volume among the financial institutions is almost unchanged in the fourth quarter of 2018. The corresponding sub-index rises by 0.1 points to 112.7 points. A slight increase is forecast for the current quarter. The revenues of the service providers, at 120.9 points, are 2.8 points lower than in the previous quarter. The current level is expected to be maintained.

Earnings growth is on the decline among both groups. The sub-index for the financial institutions falls by 3.1 points to 108.5 points, yet still remains at a solid level. As previously anticipated, the service providers record a more significant decline of 4.8 points to 111.5 points. Both groups expect to see a slight increase in the current quarter.

Investment volume of financial institutions remains constant / Sharper decline than expected among service providers

The growth in investment volume in product and process innovations at the financial institutions reveals a slight increase of 1.3 points and remains at a moderate level of 112.1 points. No significant change is expected in the first quarter of 2019. By contrast, the service providers report a considerable decline in the fourth quarter, in excess of the decline predicted in the previous quarter. The sub-index falls accordingly by 6.7 points to 112.2 points. The service providers expect to correct this decline again in the current quarter.

Despite expected job cuts, financial institutions keep number of employees constant / Service providers hire fewer employees

The employee numbers sub-index for the financial institutions rises by 0.4 points and, as in the prior quarter, signals a neutral sentiment with 100.5 points. As previously expected, the growth in personnel among the service providers continues to slow. Despite falling by 6.4 points, the corresponding sub-index remains at a good level of 111.5 points. For the current quarter, the service providers expect to be able to maintain this level of employee growth. The financial institutions, on the other hand, continue to forecast job cuts.

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

CFS Index Sonderfragen

CFS survey: Majority of German financial sector expecting “no-deal Brexit”

The United Kingdom’s legally binding withdrawal from the EU is due to take place on 29 March 2019. Due to disagreements over the nature of a withdrawal agreement, there is the potential for a disorderly “no-deal” Brexit.

Aside from the potential consequences of a no-deal Brexit, a recent survey by the Center for Financial Studies revealed that the majority of the German financial industry (66% of respondents) feels that the EU should not make any further concessions, even though almost half of respondents (46%) are expecting a no-deal Brexit. 52%, on the other hand, expect the outcome of the dispute to be less severe.

While 51% of respondents do not believe that financial institutions in Germany are prepared for all scenarios, including a no-deal Brexit, 46% consider the German financial industry to be adequately prepared.

“Certain parts of the financial sector have placed too much confidence in an orderly Brexit. This could lead to market turbulence if indeed no deal is reached,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results.

Since the British rejected the EU’s proposal for a withdrawal agreement in January, concerns over the implications of a no-deal Brexit have grown considerably. With the consequences of Brexit being so difficult to predict, the German financial sector is in firm agreement (83%) that the Financial Centre Germany would derive less benefit from a no-deal Brexit than from an orderly Brexit.

“It is not only the financial sector that requires reliable frameworks. A disorderly Brexit will lead to great uncertainty on the markets, hinder investment decisions and cost many jobs,” Professor Brühl adds.

In case of a no-deal Brexit, London will most likely be unable to maintain its position as the most important European financial centre in the medium to long term. 57% of respondents agree on this point.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., emphasizes: “The importance of the Financial Centre Frankfurt has increased due to Brexit. The distribution of business units will be realigned throughout Europe’s financial centres, competition will be tough, but without London it will also not work in the future either.”

 

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.

Fintech Interview with Compendor

„A shift of business consciousness is required”

Elmo Olieslagers | Compendor GmbH

Elmo Olieslagers | Compendor GmbH

RegTech (short for Regulatory Technologies) aims at providing time-efficient, configurable and reliable regulatory solutions for businesses. A few years ago, complex Excel spreadsheets were needed to process compliance-related issues. Today, young and emerging RegTech companies offer software solutions addressing regulatory requirements in a simple and efficient manner and support and document their implementation. Following the implementation of MiFID II / MiFIR regulations, RegTech companies gained considerable attention in the financial community. One of these companies is the Frankfurt Main Finance member Compendor. Elmo Olieslagers, founding partner of Compendor, shares his insight into the world of an upcoming RegTech company in an exclusive interview!

What led to the founding of Compendor? Were there any specific triggers that led to the launching of the company?

MiFID II / MiFIR became effective on January 3rd, 2018 and being comprised of 7,000 pages, the legislative framework is not always easy to apprehend.

In order to implement MiFID II / MiFIR a client required a structured, detailed and pragmatic gap analysis. At the time, law firms offered gap analyses in – often not structured and still complex – Excel spreadsheets. In other words, it was not always clear to clients what the specific requirements were that needed to be fulfilled unless they hired law consultants. This was one reason why one client asked us to come up with a solution. Our solution combines the knowledge and expertise of lawyers, bankers, and compliance specialists into an online application. Using structured decision trees as a basis, we established an innovative way of mastering regulatory changes by Financial Institutions.

In the meantime, we service clients around the most important regulations concerning Investor Protection and GDPR for banks.

Where does Compendor fit into the RegTech eco system?

To answer that, let us take into account the typical actors and typical solutions along the lines of a generic Regulatory Response Process.

The Regulatory Response Process typically consists out of three steps:

  1. “Signaling” of a regulatory requirement and a first quick scan for impact
  2. “Implementing” a detailed gap analysis and corresponding solutions
  3. “Monitoring” for compliance on a continuous and detailed basis

Various German banking associations and law firms already provide “Signaling” solutions. We provide the solution for “Implementing & Monitoring” regulatory compliance. The main difference is that a more detailed level is required to conduct high-quality compliance monitoring.

Why should an asset manager/banks consider using your solution?

We see that many asset managers and smaller banks do not have the capacity nor the knowledge to keep up with all the new regulations. And even if they succeed in dedicating (available and trained) resources to a certain legislation, this is often concentrated within one or only a few employees. This results in concerns regarding continuity. How do you deal with key-people leaving or being unavailable for a longer time?

Our solutions can help organizations with addressing these issues. By using our RegTech solutions, knowledge is secured and less resources are needed to cope with the regulatory burden.

Compendor in 3 sentences. What makes Compendors Compliance Monitoring Solutions so successful?

  1. Knowledge is secured. Both with regards to the regulation as well as to the interpretations made during the implementation process (full audit trail)
  2. Always up-to-date with the latest status of regulations
  3. Resource (and cost) friendly, by using technology rather than human resources

What are currently the biggest challenges for RegTechs in the financial industry?

To fully capture the benefits RegTech can bring, a shift of business consciousness is required.

Management should:

  • Accept that regulation is a hygiene factor, not a strategic differentiator
  • Ensure that legal and compliance departments accept technology as an opportunity
  • Embed industry best practice solutions instead of in-house developments which often are cost and time intensive and do not incorporate industry-wide knowledge
  • Adopt a unified, value-chain based approach, instead of fragmented autonomy of business lines and entities

Why is Frankfurt the ideal location for (FinTech) start-ups?

Frankfurt is becoming more important in the European financial landscape. More Banks and other financial institutions settle in Frankfurt, resulting in a huge demand for financial and regulatory expertise. This scarcity of financial/regulatory resources functions as a catalyst for alternatives like FinTech/RegTech.

PIC Galper, Josh Finadium_neu

“Collateral is an unusual asset class”

On February 21st, the Business of Collateral Trading conference will be held in Frankfurt. Frankfurt Main Finance talked to Josh Galper, Managing Principal of the organizing institution Finadium, a the global specialist consultancy on securities finance, collateral and derivatives, about the idea of the conference and why he decided to hold it in Frankfurt. Read more

Frankfurt Main Finance at the Toronto Global Forum: “Fintech and the Future of Money”

With a strong start-up culture, a globally-leading Fintech cluster, proximity to established banks and thus access to potential clients and funding, the Financial Centre Frankfurt has a thriving FinTech ecosystem. Therefore, Frankfurt Main Finance’s Managing Director, Hubertus Väth, was invited to share the views and perspectives of the Financial Centre Frankfurt in a panel discussion on Fintech and the Future of Money at the Toronto Global Forum.

The Toronto Global Forum is an international conference fostering dialogue on pressing economic issues with the most recent conference being titled “Navigating a World in Disruption” and held under the auspices of the International Economic Forum of the Americas (IEFA). Heads of states, central bank governors, ministers and global economic decision-makers as well as industry experts partake at the conference. With 3.000 participants and 170 speakers, it’s a good opportunity for all stakeholders involved to leverage business synergies and engage in discussions with actors of the global economy.

The conferences first forum Fintech and the Future of Money addressed the impact of rapidly developing technology on financial services and traditional banking. The forum moderated by Alexandra Posadzki, Financial Services Reporter at The Globe and Mail featured the speaker Hubertus Väth, Managing Director, Frankfurt Main Finance, Al Goldstein, Chairman and Chief Executive Officer at Avant, Shuman Ghosemajumder, Chief Technology Officer at Shape Security and Rafael Funes, Executive Chairman of LOVIS.

The panellists discussed how the financial sector will look like in a few years, what impact new technologies are having on financial services and in what ways regulation can support innovation and promote confidence between consumers and financial institutions. During the debate, Hubertus Väth highlighted that while Technology has changed or even fundamentally replaced some forms of traditional financial services, established financial institutions are at times losing sight of, or under-investing in potentially industry-changing trends such as Artificial Intelligence, Big data, Blockchain, cloud storage –  all of which are technologies that may have a disruptive character for the financial industry and may revolutionize future pricing, trading, clearing, settlements.

Strengthening Relations with the City of Toronto

During the latest visit to Toronto, Frankfurt Main Finance met with Thomas Schultze, Consul General of the Federal Republic of Germany to Toronto and Michael Thompson, Deputy Mayor of Toronto to further the collaboration between the two financial centres, adding Artificial Intelligence to areas of cooperation.

Building a strong international network

Frankfurt Main Finance (FMF) is highly engaged in strengthening the financial centres’ international position and providing dialogue platforms. An integral part of those efforts are high-level delegation trips to partner cities. As such, FMF representatives recently travelled to Qatar and Kuwait to share best practices with representatives of the respective financial centres and to foster the dialogue on an international level.

As part of the latest visit, Frankfurt Main Finance met with representatives of the Qatar Financial Center (QFC) Authority. The organisation manages and maintains the QFC legal and tax environment, and licenses firms to conduct business in or from Qatar. Moreover, it develops relationships with the global financial community and other key institutions, both within and outside of Qatar.

Furthermore, Hubertus Väth, Managing Director of Frankfurt Main Finance, conducted an exclusive interview with the television channel Al Jazeera English, which focused on the consequences of Great Britain’s decision to leave the European Union. “London will remain one of the world’s leading financial centres,” said Hubertus Väth. However, as Väth stated, London will lose its passporting rights to the EU27, which currently allow the selling of financial products throughout the entire Union. Moreover, he emphasised FMF’s stance: “Brexit is neither good for the European Union nor is it good for Great Britain.”

This trip is an excellent example of FMF’s efforts to establish a vast international network of financial centres, which continuously grows and within which Frankfurt Main Finance represents the interests of the Financial Centre Frankfurt. Just in July 2018, FMF representatives travelled to the Global Finance Forum at Kazakhstan’s capital Astana, at which they discussed the challenges and changes in a globally interconnected financial industry with well-renowned industry experts and politicians.

Frankfurt Main Finance is a founding member of the World Alliance of International Financial Centers (WAIFC)

In an era of breakthrough technologies and rapid social change, Financial Centres are key to sustaining economic growth. Thus, the objective of the Word Alliance of International Financial Centers is to create a transparent network that facilitates cooperation and sharing of best practices to further the understanding of the importance of international financial centres for national and international economies as well as social development.

International Network FMF

Stock market breakfast

Stock market breakfast on the trading floor with Burkhard Balz, Board Member of the Deutsche Bundesbank

The stock market breakfast on the trading floor of the Frankfurt Stock Exchange has become a unique communication platform for financial market players. The event series aims at strengthening relations between all participants by facilitating an informal exchange. Keynote speaker Burkhard Balz, Board Member of the Deutsche Bundesbank, emphasised this in his speech Economic Education – Challenge and Tasks for Everyone in the Financial Centre at the stock exchange breakfast on Thursday morning. According to Balz, Financial actors at the Financial Centre regularly exchanging ideas is necessary to ensure the success of measures taken.

While December is usually filled with end-of-year-reviews, the recent stock market breakfast focused on the future: Keynote speaker Burkhard Balz highlighted the importance of increasing economic education. The Bundesbank has already provided numerous lectures and materials online. With having organised 400 lectures, the Museum of Money is an integral part of that educational work. The Bundesbank’s position paper “Sharing central bank knowledge” – the Deutsche Bundesbank’s economic education activities“ summarises the core ideas of ​​the Bundesbank’s educational program. The desired outcome of that program are economically aware citizens: people who have the knowledge, abilities, skills and attitudes, to manage everyday situations in which economics play a role and have answers to questions concerning economic issues. This applies to personal finances as well as to economic and financial matters at the corporate, national and international level. Additionally, the media bears the responsibility to report on economic issues, said Burkhard Balz in his speech.

The discussion of the stock market breakfast goes beyond the trading floor

By commenting on a Frankfurt Main Finance Tweet concerning the stock market breakfast, Marc Richter, Senior Trader Equities Frankfurt at Baader Bank AG, highlighted another aspect of the debate on economic education: “Likewise, economic education in schools should be of further focus.” A statement Sven Schumann, Director – Head of Section Community Relations & Initiatives of the Deutsche Börse, showed agreement to with a like – the stock exchange breakfast does not only guarantee for an exchange of ideas but also facilitates an (online) discussion.

Here you will find further follow-up reports to the event series:

Apr 2018: „Economic success is a necessary stage of transition if you want to be physically successful”: Axel Hellmann at the stock exchange breakfast on the Frankfurt Stock Exchange Parquet (german article)

24. May 2017: Stock market breakfast on the floor with Hauke Stars (german article)

At home in Europe – FMF and Eintracht welcome Frankfurt’s newest banks

CFS-Index takes a clear downturn

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, falls by 4.5 points to 113.9 points in the third quarter of 2018. The significant decline is primarily due to weaker growth in earnings and employee numbers among service providers as well as slower growth in revenues and investment volume throughout the financial sector. Among the financial institutions, however, the downturn in revenue growth is offset by an increase in earnings, while sentiment regarding employee numbers is neutral.

“Given the contrary trends in the earnings of banks and service providers – rising for the former, falling for the latter – the question arises as to why their investment behaviour is so similar. It appears that macroeconomic and political uncertainties (Brexit, Italy, USA, China) are the primary cause of the slowdown in investment,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany is still rated positively, albeit to a lesser degree.

Since the Brexit vote in 2016, the future international importance of the Financial Centre Germany had been rated at historically high levels. In the third quarter of 2018, the corresponding figure of 126 points remains at a good level, despite recording a significant decline of -5.3 points.

“The downward trend in the assessment of Germany’s future international significance as a financial centre is seeing the glass half empty. In recent months, other financial centres in the European Union have indeed also benefited from Brexit. In this context, the positive developments in Frankfurt could seem less significant,” comments Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., on the survey results. “But when you look at it closely, the decisions by more than 30 financial institutions to move their European headquarters to Frankfurt speak for themselves. In 2019, the Financial Centre Frankfurt will gain considerably in international importance.”

Financial industry revenue growth declines / Positive earnings growth among financial institutions, negative among service providers

As forecast by the financial institutions in the previous quarter, growth in revenues/business volume declined in the third quarter. The corresponding sub-index for the financial institutions falls by 6.1 points to 112.7 points. Service provider revenues are 5.3 points down on the previous quarter at 123.7 points. Both groups are anticipating a further slight decline in the current quarter.

There is a stark contrast between the earnings growth of the two groups. After a weak second quarter, the financial institutions have returned to a good level. The corresponding sub-index rose by 9.8 points to 111.6 points. The service providers, on the other hand, recorded a sharp decline of 11.3 points to 116.3 points. For the current quarter, both groups expect a slight decline in their earnings growth.

Investment volume down

Contrary to expectations, the growth in investment volume in product and process innovations at the financial institutions fell by 5.3 points to 110.8 points. This low level is expected to persist in the current quarter. The sub-index for the service providers also fell by 3.4 points, though at 118.9 points it still remains at its third-highest level since the surveys began in 2007. However, a further downturn is expected in the current quarter.

Financial institutions show neutral sentiment on employee numbers

After the brief period of job cuts at the financial institutions in the second quarter, the employee numbers sub-index rises by 3.6 points and now signals a neutral sentiment at 100.1 points. As expected, the growth in employee numbers at the service providers has slowed. However, even after falling by 8.4 points, the corresponding sub-index remains at a good level of 117.9 points. As for the current quarter, the service providers expect employee growth to decline further, while the financial institutions are forecasting job cuts.

 

The results are based on a quarterly management survey in the German financial sector.

The Center for Financial Studies (CFS) conducts independent and internationally-oriented research in important areas of Financial and Monetary Economics, ranging from Monetary Policy and Financial Stability, Household Finance and Retail Banking to Corporate Finance and Financial Markets. CFS is also a contributor to policy debates and policy analyses, building upon relevant findings in its research areas. In providing a platform for research and policy advice, CFS relies on its international network among academics, the financial industry and central banks in Europe and beyond.