On the second evening of UBS’s International Cash Seminar 2016, held between April 6 and 8 in Thun, Switzerland, participants were invited to take part in an ice sculpture contest. While most groups produced something easily recognizable, the prize went to the team whose sculpture went through so many iterations it was hard in the end to tell what it was. Entitled “The Learning Curve,” participants felt it best captured the spirit of the event: as with the teams learning to form the unfamiliar ice, banks active in the cash space today are learning to work in a radically changing environment.
A balancing act
Held under the title “Balancing Innovation and Regulation,” the event attracted 26 invited guests from banks around the world. In her keynote address Claudia Colic, Head of Transaction Banking at UBS Switzerland AG, set the scene by explaining how the role of bankers is changing. As the environment transforms, clients increasingly rely on banks for expertise and advice, not just execution. These transformations are forcing banks to react too. While most recognize the need to be innovative, too many focus solely on incremental innovation. To succeed today, transformational innovation is called for as well. The stakes are high. New entrants from outside the industry offer clients a better experience in many areas. If banks do not want to end up solely clearing and settling transactions, they will need a “digital structural change” to allow them to better deliver their core competencies of compliance, risk control, lending and fighting cybercrime. Regulators, Colic added, need to get more involved too, understanding and defining standards for today’s rapidly evolving technologies, and making platforms available for banks to exchange regulatory information.
Picking up on the innovation theme, Annika Schröder from UBS’s Group Innovation team said the great technological challenges for banks today are to provide a better client experience while improving efficiencies. This kind of innovation needs to be seen as a multiyear journey requiring new ways of thinking. To illustrate, Schröder talked about UBS’s new Group Innovation Board and its innovation labs, for example the one at the famous Level39 tech incubator in London. The purpose of such labs, she explained, is to provide an environment for experimentation: giving small teams the chance to generate ideas without the pressure to make them workable. Even if only a small number of the ideas can ultimately be used, it can have a great impact.
Turning to regulation, Niklaus Wirz, Head CIC Pricing & Analytics and UBS Entities at UBS Switzerland AG, talked about regulation’s effect on balance sheet management. In the new regulatory environment, banks need to manage the quality of their balance sheets. That means among other things capturing all the costs of a product in the pricing; not just development costs, but true cost of capital, potential collateral costs, and the like. In a jurisdiction like Switzerland, which with its Swiss Finish has some of the highest capital requirements in the world, this can be particularly difficult.
The next set of presentations explored one of the technological developments which could potentially cause great disruption in the cash space: the rise of Bitcoin and blockchain. The blockchain – basically a new way to synchronize data among different entities – offers enticing possibilities in the payments, clearing and settlement space. But behind the current hype, many fundamental questions remain unanswered, particularly around end-to-end processes. Using blockchain, Bitcoin and other cryptocurrencies are providing alternative rails for exchanging value. Largely unregulated, they have raised a number of thorny compliance issues. On the other hand new entrants are offering cryptocurrency services and there is growing interest in them among clients. Here too, banks need to find a balance.
Further presentations and workshops delved into themes from how to cope with reduced operations resources to the importance of standardization and harmonization of services to the changing role of the cash client advisor. As event host Daniel Magro, Head Global Cash Solutions at UBS Switzerland AG, summed up, the learning curve is steep but manageable.
“Coping with the needs of changing regulation and technological innovation is certainly no easy task,” he said. “But as we learned in Thun, there is a great deal of innovative energy and creativity in banks. If we make use of our strengths but also remain willing to learn, we should be able to strike the necessary balance.”