UK Financial Professionals Meet after Political Uncertainty Averted

Q (gtnews): This year’s ACT conference takes place two weeks after the UK general election, which saw the ruling Conservative party re-elected – this time with an outright majority. The outlook for the next five years is likely to be debated: what do you expect them to bring for UK companies?

A (Andy Reid):
Following the election result of a majority Conservative government, we are looking at a great deal more certainty for UK businesses than was originally predicted by the polls, which had suggested the possibility of a hung parliament.

The certainty was good news for the pound. As the result of the election was announced we saw the sterling rally against the euro and the dollar. The boost in the pound’s value demonstrates a vote of confidence in the UK’s economic recovery.

We hope to see the country continue on the road to economic recovery. A key driver behind this is ensuring that we continue to encourage ambitious businesses to trade internationally. We hope to see the new government provide support and guidance to these businesses, as well as keeping their interests in mind.

What would you rank as the top three economic and business issues for the incoming administration to tackle?

There are several key issues the new government needs to address. The first would be to reiterate their support for exporting small and medium-sized enterprises (SMEs). The Government announced a target to increase exports by £1 trillion by 2020 and if they are to meet these ambitious goals SMEs need to be at the heart of their work. We need to make sure the barriers to export-led growth are removed where possible, and any red tape is kept to a minimum.

Secondly, one of the key election issues was the referendum on the UK’s membership of the European Union [EU]. How the new government handles this referendum is very important for businesses. A policy of clarity and transparency will ensure that the markets and business confidence remain stable.

We also hope to see a wider long-term economic strategy from the new government, to reinforce confidence in the UK’s economic growth in the years ahead.

How would you rate the performance of the outgoing Conservative-Liberal Democrat coalition government since it took office in 2010? What were its main successes and failures?

One of the main successes of the previous government was leading the UK to economic recovery. Setting ambitious targets for the economy and businesses enabled them to set the standard for the country’s growth and underlined their determined approach.

In addition to this we saw a recovery that was very much led by SMEs, and credit is due to the government for identifying them as a vital cornerstone to the UK’s economic growth.

Looking forward, we hope to see the support for SMEs continue, as well as the focused approach to UK economic growth.

British treasurers face many of the same issues and challenges as their counterparts in the rest of Europe. However, are there also key differences between the priorities of treasurers in the UK – which has become very much a services-based economy – and those, say, of Germany, where manufacturing is still a major contributor?

Whether in the services or manufacturing sector, treasurers still experience the same issues. The focus on cash flow, for instance, is universal, such as working to ensure they maximise the returns on surplus and minimise costs on debt structures. Crucially, treasurers are also guaranteeing cash is available at the right amount, in the right currency at the right time.

This year’s ACT conference agenda also includes a keynote address by NATO’s former deputy supreme allied commander, Sir Richard Shirreff, entitled ‘Geo-Political Risk: Europe’s Periphery in Flames’. Are there fears that developments such as escalating sanctions against Russia could undermine any economic recovery in Europe?

It is fair to say that economic uncertainty can exist with or without sanctions. In fact, sanctions can bring increased certainty to the picture, as it becomes clear businesses are dealing with a high risk jurisdiction. At this point a company needs to question and assess the risks it is willing to expose itself to.

In the past, there have been clients exporting to Russia who chose to accept the financial pain of no longer being able to supply this market, as they would rather see the political and moral debates resolved, and avoid trading in a region with high volatility.

Other recent developments in Europe have been the virtual elimination of inflation and the increasing prospect of deflation, extremely low interest rates and the European Central Bank (ECB) embarking on quantitative easing (QE). Do you expect these to be widely discussed this year and is there a feeling that each will be than a short-term phenomenon?

It feels that these factors are unlikely to exist solely in the short-term. As the US is now emerging now from its programme of QE, set back in November 2008, it suggests that the decisions taken by the ECB will impact the single currency for a while to come.

As a result of uncertainty in the markets we have seen SMEs considering the exposure they face from currency fluctuations. There has been a growing demand from our clients to lock-in forward contracts, which allows them to hedge. A forward contract allows a business to agree an exchange rate in advance, so it knows the rate it will get on the day of the transfer. Locking-in an exchange rate is beneficial as it manages the risk companies are exposed to from significant currency fluctuations.

At last year’s ACT conference, a keynote session was presented by the head of one of the UK’s big banks on how it had ‘cleaned up its act’. Yet the past year has been marked by big fines imposed on many of Europe’s major banks and further evidence of bad practices. Has Europe’s banking sector truly reformed, or is there still work to do?

It is an interesting debate, but at times it can become easy to blame and point fingers at the banks.

While there is no doubt that across the various parts of the banking system people have made mistakes, it is more constructive to look at the non-bank financial specialists who offer compelling and innovative services, to challenge these large banks.

Moving from a commercial bank to a non-bank financial institution, I have seen first-hand that specialists are more able to offer transparency on pricing and more flexible on payments, which ultimately puts them in a more competitive space to develop and create value for their clients.

European treasurers have had to keep up-to-date with various developments in recent years, such as a raft of new legislation and regulation, the introduction of the single euro payments area (SEPA) and new threats such as cyberattacks. What lies on the horizon and does it include risks that perhaps have not yet widely registered?

Since 2007 SEPA has been much debated within the treasury community. The good news is that the banking world has moved forward, and we now have services across the eurozone that allow a simple and cost-effective mechanism for corporate payments.

However, the payments landscape is always changing and developing. This again can be very regional, with providers producing technologies that work within country boundaries but do not translate cross-border. For example, card payments are hot topics in the US where they have been slow to move on from magnetic bar’s (magnetic swipe) to EuroPay, MasterCard and Visa (EMV) chip and PIN. It will transform the US card market later this year when EMV goes live; but for once the eurozone is years ahead.

When looking at cybercrime, we know it increased significantly in the eurozone when EMV was introduced as fraudsters moved from card fraud to internet fraud. I am sure that the US is anticipating an increase in cybercrime when the switch happens later in the year.

Other payments technologies are also becoming topical such as electronic money (e-money) and the use of e-wallets is likely to continue to be a hot debate.

Regulation in the EU, such as the Payments Service Directive (PSD), have helped control the supply and creating a level playing field by harmonising consumer protection and the rights and obligations for payment providers and users.

Blockchain will also be prominent; I feel it is further down the runway than traditional payment methods; however, it would foolish to ignore it from a corporate perspective. Banks would argue that it’s not regulated, nor does it offer the finality associated with traditional payments that ultimately settle through central banks.

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