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good afternoon everybody thank you all for making the time to attend the panel session today i'm liam cunningham the acting deputy director in the banking insurance division and i'll be comparing the panel today on the panel we have david cutter who is the chief exec of skipton building society and he was previously the chairman of skipton international here lately we also have eric bonnet who is the chief executive of climate ambrose based in london and he's currently the chair of sg climate hamburg's channel islands business and also as you mostly know jeremy quick who is the director of the banking insurance division so if we uh okay we'll move on to the the panel session so gentlemen um to start with uh talking about innovation how do you guys feel the the retail and private banking is going to change in the next five years due to their technological inventing innovation and how will the current players survive in that environment um so yeah technology and innovation um there is i mean there's so much technology and there's so much stuff out there and the board asks you know what's your digital strategy etc and i always respond by saying the most important thing is to get your business strategy right and then how can technology be an enabler to do that and just in terms of a bit of background about ourselves we are in a uk building society about 20 billion of assets we don't do current accounts but we do of a lot of retail deposits and mortgages and we also provide financial advice and probably the biggest change that we're seeing is how we can use technology to lower our cost of distribution um so i think for for all banks building societies balls the most important thing is to know what what your strategy is at a business level then how can technology enable that and i'd say the biggest change this year we're seeing is um in terms of our distribution to our customers you know they want to uh deal with us through our 80 a branches or over the internet or over the telephone and they can do that about different methods from one day to the next but providing financial advice is very expensive uh you've got financial advisors who get stuck on the m25 and they can't find somewhere to park and that they they don't achieve these people so we've introduced for example this year uh we're in about halfway rolling it out to every single branch video technology so a customer either from home or going to a branch can uh speak to a financial advisor in another branch or the central hub or an advisor's home so all those permutations to provide financial advice or mortgage advice is really driving down the cost of distribution uh and making it far more easier for our customers and i'm probably number one manager at the moment from a technology play is how can we make life really easy with our customers whether it's on the internet through the telephone so you know innovation there's so much stuff out there and people say you know who should he get into bed with in terms of the fintechs and we do scan the marquee and try to see who the winners and the losers might be but it's very much trying to identify those who are relevant to our business um and i say the biggest change in our business is probably coming through on the use of video technology for distribution david do you have any opinion on kind of how open banking is going to affect a business like yours or retail business across the uh um i mean it's very early days um as i said we're not a current camp provider so we are watching and seeing uh it's coming in in the new year um but i think consensus is nobody has a real idea of how this is going to change things but there are big opportunities as well as some big risks uh on the mortgage side uh just that sharing of data means that i think it's just a another way that the whole mortgage the sales and the underwriting process just gets quicker slicker faster so i can see opening banking helping us as a lender but i just see that part of the sort of evolution rather rather a revolution on the savings side there's obviously a concern that if a customer gives approval to a third party to in effect take ownership of the decision making in terms of whether should place their money that that could create a threat to our savings business actually i think from our type of customer who's naturally a bit older as i say we're a savings institution rather than a current account provider i think they'll actually be quite reticent for a number of years in terms of doing that so i don't see that as a threat to begin with but it's very much watch and see um so it's it's early days nobody knows everybody's watching is seeing um we're not complacent i think from our business we've got some time particularly with our savers but there are you know there's billions of money with the banks paying ridiculously low interest rates in theory they're the ones that could be at risk first eric um with regard to kind of private banking how do you see the that kind of five-year horizon for technical innovation kind of affecting you i agree with david that um it should be seen as an enabler to an existing business model one that once you've got the the model right you should use technology in a way to um to automate and when we talk about digitalization we often really mean automation and that being said um and i hope i don't offend any private banking colleagues in the room private banking itself isn't actually known for being at the cutting edge of technological innovation and i wouldn't pretend uh clement hambrose falls into that camp either but part of the conflict we have within um private banking is that when we talk to our clients which we do we they say to us we want you to have the most cutting edge uh online capabilities or full app capabilities for everything you do blah blah blah and then when we say why do you actually bank with and say well because we like the people so there is that sort of inbuilt contradiction in terms of why people come to a private bank and how we uh how we automate it um i suppose in in our business probably the most um talked about development and what will will happen in over the next five years is regarding robo advice and how robo advice can under underpin or undercut what a private bank does i mean at the moment i don't want to sound like the uh being a board director of kodak talking about digital cameras at the moment but at the moment the the amount of aums managed by way of uh robo advice is a relative pinprick at the moment that's not to say it won't happen and i i suspect over time the actual development of robo advice will equalize towards the same advice i the algorithms underpinning those models will ultimately um equalize and then successful players will be those that have the most efficient distribution of their their products and the best performance of the underlying investment one of the things i struggle with a little bit at the moment when looking at um some of the the fintech robo advisors is that they are more i.t companies than investment managers so i was talking to somebody from one of the best known ones in the uk and they have about seven it engineers for every one investment management every one investment manager clearly in a private bank the ratio is the other way around plus some you know so i think that the market will needs to find an equilibrium between what it wants in terms of delivering investment advice and investment products as opposed to a technology platform i think in terms of open banking the one part of our market i think could change quite fundamentally is in terms of the mortgage broking market so in our case 95 of our business comes through brokers uk average is about 70 but i do know that some you know there are new businesses which are getting into that space who are already well connected with all the lenders people like experian um and people like uh in terms of the comparison website go compare and people like that whereby if you think about it um you know motor insurance credit cards things like that in terms of price comparison websites have been around quite a bit the mortgage market is the one that's the the least mature on that area but once you've got the connectivity between people like that experience go compare with all the lenders and they plug in and they know what our underwriting rules are it does raise the question well why do you need a broker because you can go on site and these new platform aggregators are the ones that can then um you know say well just give us your detail you know what's your income would they understand the lending rules uh of the of the lender and convert and essentially come up with a list of what's best for you and therefore that might fundamentally change the broker market who might then have to go into sort of niche more complicated areas but for the straightforward and other easy stuff it could fundamentally change the mortgage broking market sure jeremy did you have any thoughts on the uh yeah yeah i mean so the the big players here are psd2 and open banking and i think we have to remember the origins of both of them it's competition that that's the player here i think if you talk outside the the particular industry open banking people haven't quite got their heads around this yet there's a lot of natural concerns about privacy security these new apis that are coming in no one knows who they are the banks are trying to monopolize the position by buying technology firms or hiring people so it's it's pretty early days so i don't see this revolutionizing the world near time soon but but and it's interesting to hear the views of the current occupiers because i think there are a number of ways this could go it could be the current industry um a bit like aggregation in the 90s it just buys up all the competition provides more services to consumers and basically it's just a progression of the current status quo that's one version but i don't think we should necessarily discount the other versions because right at the other extreme is that the new technology firms come in small providers come in backed by all that wholesale money that is around and they basically devastate the current owners and what that would mean is that the clearers for example who have been with us for over 100 years or so they either disintegrate and smaller banks take their place or they just become utility companies they just applied the plumbing and even basel has published a paper looking at this possibility now i'm not saying that's going to happen but you know that's a pretty big change and from a regulatory point of view i think the regulators are beginning to sort of think through this one first of all you now have to regulate more technology bits inevitably um also the firms um become the what were financial firms increasingly become technology-based firms so the chief technology officer is probably sitting on the board i mean that's interesting how do you relate to that there are all these algos around do you do you regulate the algorithm we've looked at that here and then also if it is a period of change and i'm not saying it's going to do but if it has been changed for a regulator you know there are all issues about profits firms being taken over it's it's a male storm so so and i think the regulators are sitting there i i don't think that's the majority of you at the moment but it's it's possible and and one thing you know with technology is once you start it heavens know where you're actually going to end certainly we've spoken so far a fair amount about kind of distribution networks and that side of the innovation market um how do you think um it is going to change banks internally over over there over that same period i'm slightly worried by jeremy's description of david and i as the current occupiers um it's obvious we we we banks need to invest in uh heavily in systems to automate what is currently very very manual i'm very impressed by the use of your use of video technology to to deal with your clients you know certainly at the smaller bank level like our bank we've got a thousand people in four jurisdictions um so we are uh a small player we have to use it to enable us to overcome what are currently very many many manual processes and you know the the development of regulation particularly in the last 10 years as we all were aware as as has put increased burdens on the business and i hope the pendulum was at the moment we're dealing with a lot of those in a manual way and we're trying to automate as fast as we can and i hope the pendulum will swing back over the next five years and that will become more seamless but for the the the minimum size to be viable as a as a private bank as uh i've talking to mckinsey's about this have basically said that it's doubled um over the past ten years so what are you they were talking about in terms of asset size 5 billion in 2007 is now 10 billion and possibly going up to 15. so the the only solution is uh automation yeah it's uh it's interesting because i t should be a sort of savior in terms of trying to help reduce the costs and the total cost of ownership of a business but they're also particularly the bigger banks have the conundrum they've also got a sport a legacy system as well as building a digital platform so um on the one hand they're being asked to automate and make things efficient and cheaper but at the other hand they're actually having to support two systems and then you overlay that with the real increase in the need to demonstrate yourselves and the regulators in terms of operational resilience um and yeah it's it's it's it's putting a lot of costs more costs on onto all our businesses so they've got their own challenges the big banks as a result of it um you know and it's it it is the one part of the of the of the organization where the costs are however much you try to sort of make things efficient and cheaper you just keep putting in new layers of you know security i.t experts digital platforms et cetera so it's a particular problem for the big banks because they've got this conundrum of trying to in effect look after two platforms um moving on to international standards um i think it's fair to say that some commentators have suggested that since 2008 reforms in banking standards uh some people have said gone too far in both prudential and conduct business or both would you two have any comments on on where you think international standards are and whether they've hit the right level um i think in a forum organized by the guernsey service commission i'm not going to say regulation is too low um i i think um on the prudential side i would say it's probably about right now and i think that's probably what the pra would say um on the conduct side if anything's been more difficult but i do see some differences um on the conduct side in terms of international approach i think uh some some of the european regulators are more focused on in conduct terms the the the the health of the bank as opposed to the outcome for the clients which in my experience has been probably more the the the the priority of the fca but certainly on the prudential side for me i don't know from you from from a more retail angle but from my point of view prudential is probably about right i would say if i'm being honest i can't answer that question ask me after the next recession so it you know there's obviously been a huge amount of change at the international level and um and more locally it's complex by crisis we're just about to submit our eye cap to the board it is really complicated now uh and trying to get your head around it um whether it's gone too far i don't know honestly i don't know i mean the the tools are there um we've got the added challenge in the uk we've got two regulators um in terms of prudential and conduct um and then you know when you add on the fact that still some of the rules are yet to be finalized so we're still waiting to see you know where do the irb floors land and uh our our own firm is i think we're the smallest in the uk that are caught by the emerald requirements so we have to have uh bailinable debt uh anybody smaller than us goes through the insolvency regime those rules have come out we know what they are ut they're still in a flight path um and even from 20 to 22 onwards they're going to sort of check and recalibrate them um the leverage ratio which was brought in as a backstop because regulators had concerns over ib models and how robust were they has moved from being a backstop to being actually probably the biggest inhibitor in a lot of businesses i think they called it a guard rail now it's not a backstop but it's it's uh now very complicated to sort of calibrate your capital requirements your emerald and your bail individual debt as well as your leverage ratio so there's a huge amount of complexity the rules are still not yet finalized this is taking place at a time when we're facing intense competition and very low pricing in the uk mortgage market as i say you know we haven't gone through a recession yet so ask me after the end of that i think the jury's out yeah i do agree i mean what i say isn't helpful is where there are differences between jurisdictions in terms of for a small bank like ours where we're running three different banks to to manage subtle differences between three or four different jurisdictions with the same people doing is very onerous even if they're just it's it's very difficult to manage as usual say an icap process or an isle of process where you're having to deal with a different regime in each time and then consolidate it i think the other thing in terms of what your your point david is um recovery and resolution i don't think has really been tested yet which will we'll only really know i guess post the next recession recovery and resolution yeah no i mean i i i agree with with everything that's been said i mean the next crisis will probably not look like the last crisis so it's difficult to create a regime that's going to be appropriate but if you look at before the last crisis and baseball you know that they didn't have a liquidity policy they didn't have a large exposure policy and there was perhaps too much reliance on models and so on and leverage wasn't really talked about now basel covers all those areas and i think that's a far more complete menu for national regulators to look at um two areas where i think um work is still in progress and i agree one is cross-border resolution in particular not quite apart from national resolution how regulators would operate uh in a resolution across several countries generally uh this hasn't been tested either either in theory or in fact uh much at all the other one i think is non-performing loans because the accountants don't really cover that space very well it's got to be the regulators and of course for the regulators to do that it's quite controversial so i don't think this issue united kingdom but um it's it's an area that i think it's a bit of a gap yeah thank you jeremy um you touched on non-performing loans there and um moving on to to mortgages in general and i suppose this is more for david than than ferric but what's your view on the uk regulator and whether it's got its level of mortgage regulation correct um yeah i mean there's been a complete sea change um in recent years and i think they've got that about right um and and it's not it's not just the regulator it's also they've introduced the financial policy committee which is looking at more macro impacts and has requested for and been granted some tools some of which is deployed so it's a combination of i think in particular the introduction of affordability stress testing um means that uh you know the days have gone of line mortgages and things like that um and and irresponsible lending should have should be a thing of the past um so you know there's been there's been a lot of change in that space and there's as i say the fpc's introduced rules in terms of um we now have to limit the amount of high loan to income ratio a certain proportion of that um and and so yeah i think they've got uh i think they've got it um about right uh you've got the boundaries of sort of unregulated and regulated is is an area which i'm not too sure they've got right and interesting this is one for the prudential regulators the we went through an exercise this year of de-risking by selling one of our non-performing adverse books um and that's clearly a very good risky exercises so from the pra's point of view is great go ahead and do it from the fca's point of view they absolutely hate it because the people who are buying those assets are outside the regulated regime it could be private equity banks people like that and typically those customers are the ones who are more vulnerable uh who have been included by definition of being non-performing so you do see this real tension which i don't think has been squared off yet in terms where's the regulatory perimeter and on the one hand you know you've got the prudential regulators saying yeah it's a great deal risky exercise and on the other hand you've got a conduct regulator who absolutely hates it and my response was don't blame me on me go and talk to the treasury who sets the rules yeah jeremy what's going to give you well that's right sorry as i'm saying especially uh kind of maybe the the guarantee context on that as well of where we are on mortgage regulation yeah well i i think um actually hearing david talk it talks like securitization all over again there in terms of the interface with the actual um holders of the assets but um i i agree i think clearly the setup of mortgages before the financial crisis was a mess in the uk two derived on ltvs we've now got affordability i i think there is a frustration i certainly think we feel less here that the process of actually getting a mortgage is is long drawn out and i think that's possibly um providers gold plating the process b possibly because they're afraid of the regulators and i think we never quite get that message over that we we are interested in uh mortgage supply um as well as it being done correctly um it's interesting i think the mortgage side is only a part of a bigger story about which perhaps people haven't quite totally focused on and that is the abandonment of the interest rate it's the sole area of monetary policy in the uk because the fpc actually has got power now to determine mortgage lending on macroeconomic grounds so it's a little bit like a sort of monetary tool and that's true with other areas not sure it's used that yet but but those powers are available now in a way that they they weren't uh before i mean i think in in guernsey um i i share the view that we haven't got enough mortgage suppliers here i think there is money to be made to be honest and um somehow people should be encouraged to come in interestingly if we think it's the first question innovation if we do go down the route of apis you could actually see an increase in credit supply to slightly out of the way places like guernsey through apps so instead of trying to entice mortgage suppliers to come here physically and all that guernsey people could just get on an app and and get a get a mortgage loan i mean that could be the case in a few years time through open banking so you know that that that may solve some of our problems yeah fantastic thank you um eric moving on to um something that's maybe slightly more london focused but we'll put a guaranteed context on it as well what what do you think the impact that brexit is going to have on london's position as a global wealth management center and specifically how that's affecting the private banks in in london right it's obviously a very big question i don't know the answer anymore anybody else but um if you ignore the movement of staff from some of the big banks to to to the continent to cover their passporting requirements for them which i think will be relatively manageable the success or otherwise a lot of the continued success otherwise of london as a um a center for high net worth individuals to have their assets managed or indeed to live will largely be dependent on the i think the success of the uk i mean i'm a i'm a relative optimist because i have to because my business is there and here and we're very dependent on on that to happen but at the moment um i haven't particularly seen any decline in the number of people um so i haven't seen any notable trend of people leaving the uk from our client base i don't know who would have hasn't come who might otherwise have come but um things like the non-dom um regime are not brexit dependent they change the rules on that change every year anyway generally in a tighter direction so non-doms as a number have been declining over a number of years but that's quite often because of non-doms becoming doms rather than leaving our business is not particularly dependent on the eu most of our clients are either uk resident or not eu residents so i'm relatively um confident from that point of view and otherwise it will then depend on the success or otherwise the uk economy which uh you know your view on that rather depends which side of the fence you voted on i guess but uh and do you see that there's been much difference in the reaction or the the view of say european private banks versus uh the u.s colleagues that are based in london um i think for you not so much private bank but you european banks be the non-european banks there is obviously a very um strategic difference in our bet our business is owned by sussette general which is obviously a french bank they don't need london to passport anyway so they use london as a base for market activity etcetera for them in one sense brexit doesn't really make any difference um or very little difference other than at the edges for the americans which are you have been using london as a means to passport both in london and and in the rest of europe it's a bigger strategic decision but it's quite interesting i've seen a little bit no i'm not a a soothsayer on this but some of the recent press articles have seen some rowing back of the initial forecasts of jobs being moved abroad i think you ubs for example uh ubs hsbc i think um played played uh pulled back a little bit from their initial forecast so early days and we'll see but um i think that in itself shouldn't be overplayed as the impact for london as a center for asset management high net worth management jeremy do you have any comment on how do you think the clearers are reacting in the same market well i think retail subsidiation has already happened in the uk uh irrespective of brexit um the uk banks large ones will have no difficulty getting licenses in in the eu and already have done but inevitably uh they will have to uh subject to transitionals uh you know they are looking to move uh european business out of the uk site into a european side now and that will be as as the germans have made perfectly that must be minded management and substance so inevitably that means uh some of the spay the business from london will move into europe for european business that will diminish london um given what we've spoken about so far so innovation understand international standards as well as well as brexit what kind of strategy on banking do you think guernsey needs to adapt to make sure that we grow our banking business or at least protect what we have as a as a banking industry um you've been on private banking yeah um so for private banking i think guernsey has to follow the path it's followed which has no choice but to be the very highest common denominator of regulatory standards in in in every respect in terms of uh uh prudential conduct transparency etc um but all the advantages that guernsey we all know guernsey has in terms of the infrastructure the uh the time zone the english language that that none of that is as far as i'm aware change by brexit unless we're going to move it um and so i think guernsey still has a very valid very valuable role to play in in the management of international wealth as it has done for the last uh two or three decades jeremy do you here's my own thoughts um we are fighting against very tough headwinds there's no doubt about that largely to do with the huge diminution of uh cross-border service trade i i compared to 10 years ago nothing to do with guernsey it's just a global reality i think uh we have uh had one brick uh bank open here and i think that potentially is the area that we should we should fish in the bricks which includes of course china and david do you have any view on how best to adapt and grow maybe from the lending side or from anything more touching the retail savings market i think as long as you you're relevant and you're giving a good proposition and service to your customers there's no reason you know certainly in the retail space why businesses can't provide thrive so you know for our own um you know that means um great services to brokers or direct to the consumers themselves in terms of the lending side and on the retail side which is very diverse around the world anyway there's no reason why that can't thrive but as somebody who lives in the uk i mean i think it's as eric said it's fundamental that the standards are kept very high the reputation anti-money laundering and you keep retaining and attracting talent because at the end of the day that's that's what the economy will thrive on actually have um as mentioned yesterday one of the questions yesterday was regarding the decision of the eu on the uh their own uh black listing and that we uh uh i think that's a relevant concern at the moment we hope that uh um that goes the right way as it should do excellent now i think um what we'd quite like to do now as well is open up the floor to given that we've got the panel we have to to any other questions to see whether there was any particular views or or comments that people had