We have gathered the most relevant news from the fields of digital investment services, data intelligence and balance sheet risk this month.

Automated Financial Advice

How Natwest built the first high street bank robo-advice service – The head of the digital investing at Coutts, Nick Johnson, tells about the hurdles faced by his team during the implementation of the automated financial advice service at Natwest. The challenges, resolved by the wealth manager to the varying degree of success, included, among others, risk profiling, system integration, compliance and pricing. Link.  

Are Pensions About to Change Robo-Advice? - Although digital financial advice is anticipated to become the most prominent form of investment advice in the long-run, it is currently serving only 1% of all the wealth management customers in the UK. The author of the article suggests that bringing pension accounts to be managed digitally could be a way of bringing the emerging subsector to its maturity. Link.

HSBC bides time on robo-advice as profits rise again - Despite announcing the launch of an automated financial advice offering in December, HSBC does not make any reference to the new service in its recent annual report. Link. 

5 ways robo advisors will change in 2019 - The article outlines the trends in automated financial advice sub-sector. As the digital advisers will carry on the competition with more pricey human advisers, the niche markets such as belief-based or eco-friendly investments will continue to expand, and the robo-advisors may vertically integrate to provide banking services, while non-financial companies such as Amazon or Google may enter the industry through offering digital financial services. Link.  

Balance Sheet Risk and Data Intelligence

Quants use AI to cut through the murk of ‘sustainability’ – The article describes how quant funds use statistical methods to incorporate environmental, social and governance (ESG) factors in their decision-making. The authors outline the techniques such as image-processing and natural language processing that the industry deploys in the context of limited ESG data to help the investors form an accurate picture of the sustainability practices in the evaluated organisations. Link. 

Replacement for Libor benchmark suffers volatility spike – The SOFR, the secured overnight financing rate, is considered a leading candidate for the replacing the London interbank offered rate, and it is used in setting interest rates on hundreds of trillions worth of financial instruments. On December 31, SOFR abruptly rose from 2.46% the day before to its all-time high 3%. If SOFR continues to show unusually high volatility and proves to be hard to predict, it would diminish the benchmark’s appeal to companies tying their financial instruments to it, creating more uncertainty in the search for Libor replacement. Link. 

The FRTB is here – now it’s up to local regulators - After the final FRTB rules have been finalised, the banks seem cautious to enter the active implementation stage. The reason for such cautiousness is the review of the 2016 version of the law that postponed the deadlines and drove some of the banks’ initial efforts obsolete. Therefore, the industry incumbents wait for the local regulators' review of the coming framework before adjusting their operations to be compliant with FRTB. Link 

HKMA asks banks to start working on FRTB implementation - The HKMA (The Hong Kong Monetary Authority) has issued a circular to financial institutions urging them to begin working on their firm-specific implementation of the new market risk framework, also known as FRTB. Link. 

The questions insurance firms should be asking about IFRS 17 - Insurance companies globally prepare to implement IFRS 17 – a new international accounting standard for the insurance contracts. The article outlines five aspects of strategy and operations that the insurers should consider regarding the implementation of the framework. Link.