All Blog Posts

Navigating the Modern Financial News Feed

Regardless of your level of professionalism as an investor, having access to relevant news with different perspectives on your assets is valuable. However, although useful for some, the high volume of the accessible news can be exhausting for non-professional investors. That is why we decided to discuss the way of delivering news in a concise and intuitive manner. Rather than having a large set of news titles summarizing your portfolio, it can be neatly compressed by using natural language processing. To explain, NLP is used to model human language and transform spoken words into written text, translate languages, answer questions and even generate synthetic text pieces. Using technological progress as a tool to increase the value for the client isn’t necessary insignificant as it indeed serves a purpose of delivering information in a way which engages the end user.

FinTech | Management Action | Model | Modelling | Cyber | Machine Learning | Artificial Intelligence | Implementation | Wealth | WealthTech

How to Build the Future of Wealth

Social distancing has pressured wealth managers and credit providers to accelerate the digitalisation of their workflows. Our blog post focuses on how they could choose to do that. First, by developing the IT infrastructure on their own, companies aren’t choosing the “be all and end all” approach, as the strategic direction remains in the hands of the firm. Second, as nascent firms drive innovation, it can be difficult for in-house teams to build competitive technology consistently. That is why outsourcing is another potential option. Third, while both building in-house and full outsourcing have their perks, another strategy displays linking the two together and introducing APIs as a solution – an approach favoured by many incumbent financial organisations. Such a process is allowing the infrastructure provider to build world-class tech while letting the business serve its clients with optimal solutions.

WealthTech | Wealth | Implementation | Management Action | FinTech

Enterprise Cloud Native: Reaching for the Stars or Pie in the Sky?

Modern cloud computing, which in absolute timespan is still very young, has become a pretty much ubiquitous facet in our lives. Most of us now store a majority of our personal data on numerable cloud servers operated by huge companies who are now household brands. Any remaining confusion in nomenclature and etymology doesn’t reside with the young. For those of us old enough to remember floppy disks, we can still get confused by terminology. Here we look into the history and future of cloud computing.

WealthTech | Wealth | FinTech | Insurance | Implementation

Davids and Goliaths: The Role of Big Tech in Financial Services

We shouldn’t be surprised that Fintech firms are pioneering the current wave of mass digital adoption. Account management, payments and identity verification are just three areas where digital technology has and continues to augment products. In the past decade, much of the innovation has decoupled from the mainstream. Firms in hubs such as Stockholm and London have been at the forefront of pioneering fresh ideas and translating them into new consumer-centric tools. Now, as the industry matures, mainstream Tech firms are looking to add their heft into the mix: Will they overpower the relative minnows swimming in the Fintech waters, or will their efforts sink without a trace?

FinTech | Model | Management Action | Risk | Implementation | WealthTech

Humans, Robots or Cyborgs?

We think Cyborgs will win out in the battle for the hearts and minds of the next generation of wealth customers. Human advisors will be empowered, not replaced by AI fuelled solutions. Consumers will welcome a new generation of services which more holistically meet their demands from financial services. In the end, the robots may take their revenge but until then we should expect tech to continue to be a catalyst for positive change in finance in the years to come.

FinTech | Machine Learning | Artificial Intelligence | Implementation | WealthTech

Leaning Into the Curve of the Pandemic

Few would have predicted a few months ago that 2020 would prove to be such a seismic event, notwithstanding that it’s US election year. Decisions made now will reverberate for years, if not decades to come. We will stay in our lane here and look at how FinTech can support better outcomes as we come out the other side.

FinTech | Management Action | Risk | Implementation | Wealth | WealthTech

Retirement Planning Post Covid-19

Several months into the COVID-19 outbreak, it would be foolish not to expect significant and lasting change to both our economies and our societies in general. What does this all mean for our retirement plans? Make sure to check out our latest blog on the impact of the pandemic on peoples' well-being at retirement.

FinTech | RegTech | Management Action | WealthTech | Wealth | Implementation

The Role of Economic Scenario Generators in the Age of Covid-19

Economic Scenario Generators (ESGs) are fundamental to the analysis of ALM problems. Oversimplifying, they are software tools that facilitate simulated analysis of economic variables and risk factors. 6 months ago, no one in the West could have predicted what we are now experiencing. Nonetheless, we are truly now in un-navigated economic territory globally. Stress-testing and scenario analysis comes in a variety of formats and styles. Many are formulated by benchmarking variability on previous events and crises. None of these would have offered any forewarning of the impending magnitude of Covid-19.  Specific predictions vary and are challenging to make, but we can be confident in seeing a record single quarter decline in global GDP. ESGs are not crystal balls and would not, ceteris paribus, have provided any direct mitigation to these challenges. However, as we prepare to make our first tentative steps into the ‘new normal’ we must surely re-evaluate the role that enhanced analytics can provide for asset allocators.

Risk | FinTech | Insurance | News | Wealth

Paradigm Change for Robo-Advice

A multitude of factors can drive paradigm change. Technological innovation, improved methods and changes in demand are all common instigators of change. While all the latter means would be described as evolutionary, the impact of Covid-19 is revolutionising how we live and interact. Out of necessity, we are now deeply engaged with digital services that we hadn’t even heard of a few weeks ago. This digital awakening creates highly fertile ground for the next paradigm in wealth and financial advice. While the first wave of robo-advisory solutions aimed at promoting greater inclusion, the next wave will focus on digitally transforming the products serving traditional channels.

WealthTech | Wealth | FinTech

It’s the Customer, Stupid! How to Make Your Digital Financial Advisor Awesome.

The financial sector continues to evolve at a rapid pace. As the digital-native generation Z open their first bank accounts and cloud-native offerings rise amidst the COVID-19 pandemic, financial institutions feel an increasing pressure to adapt to new customer demands. Although it is fair to claim that online banking services are widely available in western countries, wealth management services remain a privilege for the most fortunate. However, it has become more apparent that these services have a fair chance of being next in line to experience a dramatic transformation. In this blog entry, we discuss how recent technological advancements could result in significant changes to digitalised customer journeys in wealth management.

WealthTech | Wealth | FinTech

How Social Distancing Contributes to Building Trust in Digital Financial Offerings

In recent weeks, we’ve witnessed a dramatic change in routines for most industries globally. This has revealed a brand-new factor to business continuity – the flexibility to conduct business remotely. Despite lockdowns, the financial sector has continued providing services to consumers and businesses, supporting distressed economies and adjusting to the rapidly changing demands of their customers. A series of webinars, hosted online by Innovate Finance this year, has revealed several emerging trends within the space. One of the most intriguing tendencies is the forced shift towards digital services among consumers and SMEs. Financial technology has become instrumental for supporting people in their daily economic decisions, affording providers of digital offerings an unprecedented opportunity to deliver and build trust. We believe, therefore, that this change is likely to have a lasting impact on the industry in the aftermath of the pandemic.

News | WealthTech | FinTech

Unprecedented Uncertainty

Those of us working in financial services are tasked with trying to quantify the impact the pandemic is having on the global economy.  If for the purpose of this analysis alone, we selectively classify the outbreak as a financial crisis, we see a familiar pattern of behaviour: A flight to safety away from risky assets has certainly been evident in the past 6 or so weeks. Bonds, the dollar and (to some degree) gold have all benefited from the market volatility.  The global financial crisis of 2008-9 is a relatively recent reminder of the last time we witnessed similar moves in asset prices. Therefore, it is absolutely reasonable to look for a correlation between that crisis and where we might head in the coming months and years.

News | Risk | Look-Through | Volatility

Summary: The Impact of the Spanish Flu Outbreak on Swedish Economy

Should we classify the impending pandemic recession as genuinely unprecedented? Global outbreaks of infectious disease have devasted humanity historically, but so far in the past that many could claim this outbreak is indeed unparalleled. The last pandemic of comparable scale took place more than a hundred years ago when the Spanish flu outbreak disrupted Europe in the immediate aftermath of the First World War. Although it’s clear that the world was very different at that time, it is valuable to examine the implications of this pandemic recession. To do so, we summarize the research by Karlsson M. et al, (2014) which provides an excellent description of the context and a thorough analysis of the economic implications of the Spanish Flu outbreak in Sweden in the early twentieth century.

News | Wealth | Look-Through

Fourth Quarter 2019: The Most Relevant Trends in WealthTech

The fourth quarter of 2019 was marked by an increased interest in B2B business models among the FinTech robo advisors. Although the shift from B2C to B2B has been in the headlines a few months before, the last three months yielded more concrete examples of how new players tailor their business models to cater to other companies, rather than consumers. Meanwhile, the debate on whether the process of financial advice would be entirely digital or contain hybrid elements continued as well - with many British players robo advisors adding human capabilities to the scope of their services. Finally, in the context of digitalised offerings, it becomes harder for the regulator to tell the difference between financial advice and guidance - and therefore it becomes essential to review the definitions of the services to optimise the consumer protection accordingly.

News | Wealth | WealthTech | Regulations | FinTech

Is there any point to optimising asset allocation in portfolios?

Over the years, numerous studies have shown how complex investment strategies fail to outperform simple asset allocation methods. Other studies emphasise the amount of sheer luck that goes into the favourable performance of the investment strategies; it has been repeatedly shown that in many instances, an attempt to deviate from the market portfolio has odds no better than a coin flip. These findings seem to point towards one cold fact - the optimal portfolio weights are impossible to find. Or are they?

Risk | Wealth | WealthTech

September 2019 News Update

During September, we distinguished three trends gaining prominence in the financial industry's innovation landscape. The first one explores the tendency of the WealthTech FinTechs moving towards B2B business models aimed at the DIY investment platform providers with established customer bases. The second trend concerns the definition of the appropriate customer base for B2C robo-advisors. While many automated financial advice providers still target millennials, the generations approach was widely criticised at the recent Robo Investing conference, with many delegates favouring adjusting the offerings to life situations experienced by the consumers regardless of their generation. The third theme of the month concerned the rising importance of explainability in automated decision-making, already reflected in Article 22 of the GDPR. Such a requirement may hinder the providers of digital services from using some of the machine learning methods without appropriate validation frameworks.

News | Wealth | Machine Learning | Artificial Intelligence

Robo Investing Event Summary

Through September 10-11th, Kidbrooke Advisory attended the Robo Investing 2019 Event in London. Existing for over two years, the event has become an excellent platform for knowledge sharing and communication between numerous FinTechs, banks, consultancies and other players of the emerging industry, all across the world. Today we are summarising the core trends and themes discussed at the event. The main topics led the overall direction of the robo-advice offerings as well as tips and tricks on achieving more customer engagement.

FinTech | RegTech | News | Wealth | WealthTech

August 2019 News Update

In August, we distinguished three themes gaining momentum in the financial industry's innovation landscape. The first one concerns the positioning of the robo-advice on the Gartner hype cycle, from the peak of inflated expectations to the trough of disillusionment. The second trend explores the meaning of sustainability in the provision of financial advice. Finally, looking into the potential flaws of the machine learning-driven models sums up the third theme of the August press on the financial industry's innovation.

News | Machine Learning | Artificial Intelligence | RegTech | FinTech | Wealth | WealthTech

The "Kryptonite" for Machine Vision in Finance

Currently, machine learning algorithms are steadily gaining prominence in multiple different sectors of the financial industry. The use cases include chatbots assisting the customers with small inquiries, valuation of financial instruments, option hedging, marketing and many other tasks which were traditionally performed by human employees. Although it sounds exciting that artificial intelligence takes over huge volumes of challenging human work, it would be irresponsible not to wonder how credible and accurate these systems are. Therefore, in this blog entry, we explore the flaws and opportunities of machine learning algorithms using machine vision solutions as an example.

Machine Learning | Artificial Intelligence | Risk | FinTech

June 2019 News Update

This June, we analysed three topics that gain prominence in the context of rapidly digitalising financial industry. As widely known, the machine learning solutions become more widespread in addressing the operational and compliance issues within banks and insurers. However, we highlight that the interpretability of such models is as relevant as their performance. Moreover, in the context of maturing robo-advisory offerings, we see that the common strategy is to focus on the space of clients which are underserved by traditional financial advisors. Finally, we look into the process of building trust by the emerging challenger banks, which may threaten the positions of the centuries-old incumbents in the industry of tomorrow.

News | Machine Learning | Artificial Intelligence | FinTech

Eight powerful tips for managing complex implementation projects

Managing implementation projects becomes more difficult as their technical complexity progresses. The challenges faced by project managers may include the lack of technical expertise required in quality assessment and staffing activities, failure to address the communicative issues or letting go of the underperforming project staff. This article suggests eight powerful tips for leading convoluted IT implementation projects, which would protect the workflow from the common pitfalls and help you reach your goals.

Project Management | Implementation | Look-Through

May 2019 News Update

The introduction of automated financial advice services did not go successfully for some of the large and reputable wealth managers. As some of the industry players cease their robo advice offerings, we explore the reasons why big banks struggled to tap into the customers' demands. Meanwhile, machine learning solutions continue to expand to various business functions throughout the increasingly digitalising economies. However, little attention is paid towards the quality and the transparency of the decision-making powered by these "black boxes". Finally, in the world of accelerating personalisation standards, it is crucial to expand the innovation efforts beyond the interfaces and use the technological capabilities to improve the actual offerings.

FinTech | Risk | News | Machine Learning | Artificial Intelligence

April 2019 News Update

We are delighted to present our analysis of the top April trends within the financial industry! This month we identified the growing need for risk expertise among the asset managers striving to provide truly sustainable financial advice. Moreover, we see that a different set of factors determines the competition among the digital offerings in asset management compared to the traditional financial advisory services. Additionally, we firmly believe that it is crucial for the financial institutions to measure and prepare for the impact of the looming -IBOR transition early on, and come up with an appropriate action plan to minimise the adverse PnL effects.

News | FinTech | Risk | Regulations | RegTech

Summary: Swedish FSA releases consumer protection report

The Swedish Financial Supervisory Authority (FI) releases a yearly consumer protection report featuring customer security highlights in the Swedish financial industry. As in the previous years, the main risks related to customer security relate to mortgages and loans. The interest payments can potentially threaten the economies of the individuals in case of the economic downturn or the increase in interest rates. Another threat that is amplifying in the context of the digitalising society relates to customer data protection. The FI calls for more advanced security systems that would protect the consumer at all stages of a payment transaction. The improvement of these solutions is especially relevant in the context of increased instances of financial fraud. Finally, FI announces that the protection of the wealth management customers and the enforcement of the MiFID II requirements regarding third-party inducements becomes a vital area of the regulators' future work.

News | MiFID II | Risk | Regulations | RegTech

March 2019 News Update

We've selected the most relevant global news within the fields of automated financial advice, data intelligence and balance sheet risk this March. The rise of the robo-advisors concern the brokers, although many see this development as a helpful complement to the traditional wealth management business, stressing the regulatory burden as well as IT legacy systems' challenges. Meanwhile, Brexit leads to a spike in risk-aversion among the customers of Do-It-Yourself investment platforms. On the balance sheet risk side, the experts stress the importance of timely preparations to IFRS 17, FRTB and the transition from LIBOR. The machine learning tools are put to use in fraud detection in the banking industry context, and the Positive-Incentive ESG-based Loans gain prominence among the banks and corporations.

News | RegTech | Regulations | Machine Learning | FinTech

February 2019 News Update

We are excited to present our news selection for February 2019! Although anticipated to be a conventional means of providing investment advice in the longer term, automated financial advice is still an emerging subsector in the global wealth management industry. Some sources anticipate that the expansion and specialisation of such services would bring the developing digital advice providers to their maturity, while the early adopters evaluate the lessons learnt from the implementation of robo-advisers. Meanwhile, the large banks do not rush to engage in the FRTB implementation projects before the local regulators come up with the final version of the new rules. At the data intelligence side, the data scientists deploy artificial intelligence to assess the ESG practices of companies.

News | FinTech | Risk | Basel | Insurance

The Stockholm FinTech Week 2019: Summary

Last week Kidbrooke Advisory participated in the Stockholm FinTech Week 2019! More specifically, we had a chance to attend the events within the following areas: FinTech & Market leadership collaboration, RegTech, InsurTech, Sustainability and Impact Tech and finally Regulation & Nordic Collaboration. The discussions centred on the best practices in building cooperative relationships between the emerging industry participants and the traditional financial institutions, the role of the regulations and the regulators in a changing industry, the rising awareness of climate change as well as the potential of the cutting-edge technology adopted by the market participants.

News | Risk | FinTech | RegTech

January 2019 News Update

We have gathered the most exciting news in the areas of financial technology and regulatory changes this month. The latest revision of the FRTB framework receives mixed reviews from the industry. The automated financial advice providers around the globe expand to accommodate the demand from new types of customers - from large banks and insurers to self-employed entrepreneurs. The UK's Financial Conduct Authority changes its focus from the charges and costs aspects of MiFID II to implementing new rules around product governance and research within the scope of the same framework. The rapidly evolving AI technology is anticipated to change the accounting profession as it exists presently.

FinTech | News | Insurance | RegTech | Regulations | Risk

December 2018 News Update

We've summarised the most exciting news in the areas of automated investment advice and balance sheet risk. The large participants of wealth management industry explore the automated financial offerings, driven by the anticipations of double-digit growth of that market until 2023. The opportunities of automation have been contemplated by the UK's DIY investment facilitators and mortgage providers this month. Furthermore, in December the Basel committee published the report analysing and comparing the banks' cyber risk practices; the potential AI applications to accounting are being explored by the experts and the FRTB framework going live may be postponed.

FinTech | Basel | Regulations | Risk | News

November 2018 News Update

We've selected the most intriguing news from the domains of automated financial advice and balance sheet risk. The biggest global financial institutions carry on expanding their offerings with robo-advisors, while some of the established automated investment advice providers launch an option to pursue sustainable investments or compliment the digital experience with "human touch". Meanwhile, the industry continues to discover new applications of AI - for instance, modelling illiquid assets as a means of preparing to upcoming FRTB directive, or reducing the time spent on populating tax return forms.

FinTech | RegTech | Regulations | News | Basel

October 2018 News Update

We selected the most prominent news from the wealth management industry and balance sheet risk domain. Although the doubts are still there, more banks expand their product lines with digital financial advice offerings as the fees for traditional financial advice services gradually diminish. Meanwhile, the implementation of MiFID II still raises questions in the industry, especially in regard to research cost allocation. The ESMA has updated its Q&A to ensure a common interpretation of the imposed MiFID II and MiFIR directives. The challenges in regard to implementation of FRTB spark more discussion in the industry, while cyber risks and cloud technologies are being discussed by EBA in their new regulatory framework.

News

September 2018 News Update

We have gathered the most exciting highlights from the digital advice innovation landscape as well as the latest news related to balance sheet risk. Overall, the news indicates positive ground for the growth of automatic financial advisers although the industry has been surprised by the large player's withdrawal from the emerging digital advice offering. On the balance sheet risk side, cyber risk is gaining prominence as an operational risk, while the IFRS 17 is increasingly viewed as a catalyst for business model innovation for the insurers. Additionally, the use of machine learning is penetrating accounting industry, though it is not expected to cause disruption in terms of massive unemployment.

News | Cyber | RegTech | FinTech | Operational Risk | Regulations

The Automated Future of the Wealth Management Industry

Drastic changes in regulations governing the wealth management industry promise to alter the way these businesses operate. While the regulators are dedicated to make the private banking industry more transparent, stable, reliable and customer-centric, the industry is challenged to look for innovative solutions to keep the margins at sustainable levels. A half-day conference organized by Kidbrooke Advisory, Ortec Finance and Microsoft that took place in Stockholm on April, 19th 2018 featured a panel discussion among the most prominent wealth management industry professionals. The industry leaders shared their vision of the current challenges within the sector as well as their opinions on the future of automated financial advisories.

RegTech | FinTech | Regulations

The Dark Side of Digitalisation: Addressing Cyber Risks

The minimal criterion of success is an absence of failure. However, when it comes to information security breaches, it is safe to claim that this criterion is far from being met. A few prominent scandals in recent years demonstrate the scope and impact of such risks on the financial industry, influencing the EIOPA to include a cyber security questionnaire in its Cyber Risk Assessment Package. Gauging cyber risk is a challenging endeavour, marked by the sensitive character of the underlying data and a lack of established academic research within the field. However, Kidbrooke Advisory has formulated its take on the cyber risk assessment.

Cyber | Risk | Operational Risk | Regulations

Do No Harm: The European Commission Action Plan Urges Financial Advisors to Go Green

Corporate sustainability and responsibility has historically been regarded as a controversial topic both among the academic world and practicing professionals. As early as in 1970, the free market advocate Milton Friedman put forward a view that any sustainability-related actions are likely to destroy shareholder value. Nowadays, the reality of rapid depletion of resources as well as accelerating global warming drives the regulators to promote an opposite view of the sustainability impact on enterprise value.

Regulations | Risk | MiFID II

Balancing Innovation: Use Both Hands in Establishing Robotic Advice!

In the wake of rapid technological advancements and looming regulatory challenges, large players of the British financial industry turn to innovation as a tool to preserve the margins high and keep the customers satisfied. However, the extent to which the multinational giants commit to letting their new offerings cannibalize their traditional businesses varies dramatically.

FinTech | Modelling | Operational Risk | Management Action

Mitigating Risk: A Joint Model for High-Yield and Investment-Grade Credit Indices

Today, there are many flawed corporate bond pricing models. However, there is also a novel credit-spread approach that can simulate index prices and accurately capture probability of default, enabling better risk management and regulatory compliance.

Modelling | Solvency II | MiFID II | Basel | Risk | Volatility | Dependence

MiFID II: Are the ETFs the way to go?

MiFID II creates a downward pressure on the conventional investment companies’ margins and influences them to either turn to ETFs as a low-cost solution or take on a full-scale digital transformation of the business. However, there are some pitfalls on the ETF direction side.

MiFID II | Regulations | Risk | Operational Risk | Management Action

Capital Asset Pricing Model (CAPM)

The main objective of this article is to overview the well-known capital asset pricing model which is widely applied by financial analysts. Moreover, we discuss the crucial notions uCapital asset pricing model (CAPM) is a classical method in finance and economy that states the relationship between the risk and expected return. It is based on the fact that every investment's expected pays-off depends on the level of risk taking on. More precisely, the return of a portfolio consists of two components of time value of money and an extra rate (usually called risk premium) to compensate exposing excess risk.sed in the calculations of this model.

Risk

Machine learning: A regulatory concern?

With the rapid adoption of artificial intelligence in the financial sector, banks are looking towards machine learning to stay regulatory compliant.

Regulations | Risk

The Past, Present and Future of Central Bank Balance Sheets

In a recent interesting post on the Bank Underground a blog where Bank of England staff can share their views James Barker, David Bholat and Ryland Thomas write about the past, present and future of central bank balance sheets.

Risk | Regulations

ESMA has published a Consultation Paper on the Money Market Funds Regulation, Part II

ESMA has published a Consultation Paper on the Money Market Funds Regulation (MMFR). The paper represents a first stage in the development of technical advice in regards to liquidity requirements and credit quality requirements for assets received through reverse repurchase agreements, technical advice on credit quality assessment, technical standards for reporting and guidelines on the stress tests performed within the MMFR framework.

Risk | Regulations

ESMA has published a Consultation Paper on the Money Market Funds Regulation, Part I

ESMA has published a Consultation Paper on the Money Market Funds Regulation (MMFR). The paper represents a first stage in the development of technical advice in regards to liquidity requirements and credit quality requirements for assets received through reverse repurchase agreements, technical advice on credit quality assessment, technical standards for reporting and guidelines on the stress tests performed within the MMFR framework.

Risk | Regulations

The volatility components and their effect on the macroeconomy.

It is well known that the behaviour of volatility can be characterised by two components, one slowly varying long run component and a strongly mean-reverting short run component, but how do they differ in their impact on the macroeconomy?

Modelling | Volatility

KIIDs SRRI and the Swedish mutual funds market

One of the key components of the KIID is the Synthetic Risk and Reward Indicator which is used in the process of identifying funds' risk and reward disclosure. Whilst its relationship to risk is trivial, its connection to return might not be as trivial. In order to study this relationship, we have analysed return data over 5 years from a large number of Swedish mutual funds with varying SRRI levels.

Regulations | Volatility

FinTech and the Regulatory Road ahead

In a recent speech by the Managing Director of the Monetary Authority of Singapore (MAS), Mr Ravi Menon discusses, among other topics, his view on FinTech and the regulatory future the industry faces. Below we summarize some of the key points Mr Menon presented.

FinTech | RegTech | Regulations

Valuation Frameworks

We present some technical concepts regarding different valuation structures both from a financial point of view and a mathematical perspective.

Risk | Model

Libor Market Model

In this note, we explain Libor Market Model for interest rate. Furthermore, we go through the calibration of LMM conforming to Solvency II.

LMM | Model
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