Financial Institutions newsletter

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3 David’s Viewpoint

7 President Trump’s first month in office

12 Barclays PLC – 2016 Financial Results

18 Psychology – the art of the scam

21 The Barclays View

24 Business and sustainability: the six Ps

Contents

David’s Viewpoint

Brexit and beyond

I’ll start with geopolitical events. We’ve featured an article in the newsletter looking at the Trump administration’s key 2017 legislative priorities and what they could mean for business, markets and the global economy, but Brexit is clearly another landmark event this year. The historic referendum result on 23 June highlighted clear differences in UK attitudes toward its relationship with Europe. The country has given a legal and democratic instruction to the government that it wishes to leave the European Union, and the government’s intention is to trigger Article 50 before the end of Q1 2017, with Theresa May’s cabinet positioned to favour those who backed Brexit.

The prime minister’s Brexit speech on 17 January provided clarity and certainty; the central goal of negotiations appears to be maintaining a real partnership between the EU and UK. This is reassuring for business, particularly with the suggestion that a period of implementation will allow businesses time to adjust and support planning.

An introduction from David Scola2017 is well underway and has picked up right where 2016 left off with continued uncertainty on the geopolitical landscape – with more to come with elections across Europe throughout the year – plus fraud continuing to be front and centre for banks and businesses alike. In my introduction this quarter, I’ve focused on these two areas – how we see them evolving and the impact they could have on our industry.

We remain hopeful that the UK government and the EU will reach agreement on mutual market access. From a Barclays perspective – and under the heading of planning for the worst but hoping for the best – we have robust contingency plans in place based on the assumption of loss of passporting. These plans will continue to ensure that

Barclays remains very well placed to continue supporting our clients post-Brexit, will leverage our existing EU legal entities/presence and in some cases will leave us even better positioned to offer enhanced services to our clients. We’ll continue to keep you updated as negotiations continue.

The historic referendum result on 23 June highlighted clear differences in UK attitudes toward its relationship with Europe.

At Barclays we remain hopeful that the UK government and the EU will reach agreement on mutual market access.

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Demonetisation and the ongoing fight with fraud

While current attention around fraud prevention and mitigation focuses on digital and cyber fraud, cash – which continues to be a significant payment method both in the UK and around the world – is one of the areas most vulnerable to fraud through counterfeiting. A survey by the Royal Mint in 2015 found that one in 40 (2.55%) of all £1 coins in circulation were actually fakes – ultimately costing the economy £45m.

Therefore, on 28 March, they will launch a new £1 coin to replace the current round coin, and have stated that the new design makes it the most secure coin in the world, with key features including a latent image, milled edges, 12 sides and the all-important – and top secret – hidden high security feature built into the coin. The coin uses technology already used in banknotes that allow its authenticity to be established incredibly quickly with a simple scan.

Meanwhile, in November 2016, the Indian Ministry of Finance announced the removal of the R500 and R1,000 notes as legal currency in an attempt to clamp down on ‘black money’ (the name for unaccounted wealth in India). The decision to take the notes (which represented 86% of the cash in circulation) out of use, alongside restrictions on how they can be exchanged for the new notes, was made based on serious concerns about terrorist financing and the forgery of banknotes – and demonstrates an insistence from the government that the cash must enter the banking system and, therefore, the tax system.

According to reports, only 1% of the country’s 1.3 billion people pay direct taxes, and the Modi government has been trying to find ways to widen the tax base to improve public finances.

The announcement was met with protests, strikes, prolonged cash shortages and significant disruption throughout the economy – unsurprising given the significance cash plays in India’s economy. However, there has also been a subsequent net increase in the collection of taxes. If the decision succeeds in the long term and ultimately tackles India’s black money problem, the country could see greater bank deposits, allowing banks to cut interest rates, boosting investment and economic growth. There are now calls from other markets, including Australia, to scrap their large denomination banknotes. Time will tell if this does actually prove effective.

Digital bank robbers

As countries change their approach to cash to combat crime and corruption, so the bad actors respond. The days of robbers holding bank employees at gunpoint and ordering them to empty the contents of the bank vault are coming to an end. Today – like the rest of the world – robbers are going digital. In a series of attacks and breaches, hackers have forced their way into the SWIFT network’s member banks’ systems and covertly gathered their SWIFT passwords and other authenticating protocols to then transfer funds to other countries.

In February 2016, instructions to steal from the central bank of Bangladesh were issued via SWIFT using malware. Five hacker instructions succeeded, while the remaining 30 transactions were blocked by the Fed. This incident, alongside similar attacks and breaches, shows that banks could be vulnerable due to the security procedures of other banks and that to penetrate the system, hackers simply need to find the weakest cyber link.

SWIFT has advised banks using the network to strengthen their cyber security and ensure they follow security guidelines. They’ve also recommended sharing information about breaches, circulating technical fixes, and bringing in more self-policing, with the possibility that those members who don’t demonstrate compliant processes and systems be charged more to make transfers.

The days of robbers holding bank employees at gunpoint and ordering them to empty the contents of the bank vault are coming to an end.

The new £1 coin design makes it the most secure coin in the world.

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There are also suggestions that a more robust system is required – potentially running on blockchain for example. The threat to the security of SWIFT aims at the heart of international correspondent banking and therefore poses a threat to the whole financial industry. In response we, as an industry, need to collaborate with SWIFT on finding a robust solution before trust in the network is compromised.

If you have any feedback on the content of this newsletter, please do contact me or your Relationship team.

David Scola Head of Financial Institutions

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President Trump’s first month in office

Financial markets in the US have so far shrugged off uncertainty following the shock election result last November, enjoying what has been reported as a ‘Trump Bump’. But as the new administration’s legislative agenda takes shape, what does the future hold for businesses and markets?

Trump appears to be committed to fulfilling his campaign pledges quickly, with a flurry of executive orders coming from the White House over the last 30 days. “In contrast, the first month of the Obama administration only saw the signing of the Lilly Ledbetter Fair Pay Act, amongst others,” observes Bret Hester, Head of US Regulatory Policy at Barclays.

So far under Trump, there have been two repeals of Obama-era regulations and the Senate’s time has largely been occupied by partisan struggles over the confirmation of the President’s cabinet nominees. With only 30 of over 500 key roles nominated so far, this domination of Senate bandwidth looks set to continue.

President Trump’s first month in officeAs President Trump’s first month in office draws to a close, businesses and investors have been encouraged by a surprisingly bright outlook for the US economy.

What’s next?

It’s early days for the Trump administration but, when considering the economic impact, it’s important to remember that 2016 was actually a year of underperformance for the US economy.

Weaker levels of growth at a global level reduced trade and, while the US dollar was stronger, there was a lacklustre inventory built alongside that which reduced investment in important sectors such as oil and gas.

Yet growth prospects for the US economy look positive and its fundamental strength should allow corporates to flourish over the next few years, stresses Henk Potts, Director of Global Investment Strategy at Barclays: “It’s not all about Trump when it comes to the US stock market; the fundamentals look good as well.”

Of course, the economic outlook continues to be influenced by political events. Six key areas where Trump is impacting policy – and therefore markets, businesses and investors – are deregulation, immigration, healthcare reform, stimulus, tax reform and trade.

Wave of deregulation

“While factors other than Trump’s plans for restructuring, tax cuts and deregulation have influenced soaring consumer confidence, the boom has, at least in part, been driven by his business-friendly stance on regulation. Institutional investors believe this is one area where he has been effective,” says Shawn Golhar, Head of US Public Policy Research.

One of the executive orders that the White House has already released is its principles for financial regulation to achieve economic growth and promote jobs. “Much of the regulatory reform here will be shaped by the financial regulatory agencies themselves which, while technically independent of the White House, will be run by those nominated by Trump,” adds Hester.

Trump appears to be committed to fulfilling his campaign pledges quickly, with a flurry of executive orders coming from the White House.

TRUMP

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“For the time being, any significant changes are more likely to come out of the financial regulatory agencies, but there are multiple avenues along which reform will occur,” he says. “The Chairman of the House Financial Services Committee, Jeb Hensarling, is also expected to introduce the ‘Financial CHOICE Act 2.0’ shortly, an amended version of the act that called for aggressive reforms to the financial system and the rolling-back of portions of Dodd-Frank.”

Building walls

Another focus for the new administration is immigration and border security, which so far consists of the well-publicised wall at the Mexican border, with enhanced screening of those entering the country and deportation.

The move to make Mexico pay for the barrier was always going to be contentious but, from a political standpoint, Trump faced pressure from his supporters. Congress may appropriate the $20-22bn that could be required, and there may be other ways to recoup the funding, explains Golhar.

Recent legal challenges to the so-called ‘Muslim ban’ – another crucial element in his pledge to “make America great again” – have actually exposed the limits of the new administration in understanding intergovernmental process.

Trump’s deportation policy is, in reality, likely to align with the previous administration’s; in the course of his two terms, Obama deported around 400,000 people per year1. The main difference lies in the rhetoric surrounding it, believes Golhar; Trump is expected to take more public credit for it. The more challenging areas are healthcare reform, stimulus, tax reform and trade.

Trump’s expedited repeal and replacement of the Affordable Care Act or, as it’s known, Obamacare, would require 51 Senate votes – and there are only 52 Republicans. A full Obamacare repeal would cost around $350bn over 10 years, leaving some 18 million Americans without insurance in the short term. A delayed, partial repeal is more likely.

Trading on tax reform

The Republican tax reform plan must follow the proposed Obamacare repeal, but, as presented at the moment, it is very unlikely to pass, says Golhar.

“While it’s still too early in the process to gain a definitive view, we expect corporate tax rates to decrease between 20-30% in total. Some level of repatriation is more likely on the mandatory side rather than voluntary, but issues like accelerated depreciation and, more importantly, the removal of interest deductibility will remain.”

With over $2trn kept offshore in foreign earnings, a tax amnesty to bring that back could see a good amount of stimulus return to the US to be spent there domestically, potentially on Trump’s proposed trillion-dollar infrastructure investment, of which there are scant details, says Golhar.

“The only problem on the Republican side is that they don’t want to see a one-time repatriation. They want to see a fundamental restructuring of the tax code, something that will prevent this from happening in the future.”

President Trump has some pro-trade, free-market thinkers amongst his advisers, who would be opposed to isolationist measures but, overall, there is a general leaning towards protectionism. Because unilateral withdrawal from the North American Free Trade Agreement (NAFTA) would bring Congressional and legal challenges, the renegotiation of NAFTA is a strong possibility. The introduction of broad-based tariffs will include a 20% tariff on Mexican products, as well as similar punitive charges on Chinese goods. Based on baseline tariffs of 7% and 15%, this would be a drag on growth.

Six key areas where Trump is impacting policy are deregulation, immigration, healthcare reform, stimulus, tax reform and trade.

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From an investment perspective, this particular brand of financial protectionism could signal global trade war, says Henk Potts, Director of Global Investment Strategy at Barclays. “If the proposed trade tariffs do have this effect, we will see weaker projected trade volumes which, in turn, is likely to discourage businesses from investing and lead to a modest squeeze on private consumption, raising consumer and produce prices and restricting growth.”

Promises of a quick trade deal with the UK following Brexit are encouraging, but even without the added bureaucracy of Europe, the reality is likely to be a matter of months at the very least.

Declining debts

The US national debt currently stands at around $20trn and, after seven years of decline, is expected to increase from 2019. One significant factor is increased spending on healthcare and social security, but the additional promises from President Trump indicate these may ramp up spending and reduce taxes. According to projections from the non-partisan Congressional budget, $10trn could be added to the federal debt over the course of the next 10 years.

While the debt-to-GDP ratio is expected to increase substantially, it should still be below that of many other developed countries. “This could be offset by stronger growth,” says Potts, “but the President’s suggestion that fiscal support could raise the growth rate by around 4% may prove optimistic.”

Driving growth

But the US consumer – the driving force behind the economy – is largely in good shape, says Potts. Unemployment rates are projected to fall to 4.6% by the end of 2017, and 4.1% by the end of 2018, and consumption growth has been solid over the past three years.

While the euro-dollar exchange rate is likely to fall below parity, Potts expects it to be back to 0.99 by the end of the year, with sterling back to 1.30.

Trump’s promises of greater government spending, lower taxes and looser regulation have also precipitated a 10.5% gain in the S&P 500 index since the November election.

“Financials (+23%) have been very much leading the way,” says Potts. Industrials and materials also gained around 12%. One notable underperformer, however, is the pharmacy sector, he highlights. “Due to the unwinding of Obamacare, there will be pressure on pharmacy to lower prices again.”

Looking ahead

The Federal Reserve has already undertaken one rate hike in December 2016, but there will be real pressure for it to do more throughout 2017 and 2018. Minutes of Federal meetings suggest another hike “fairly soon”, but it is likely that we’ll see two in the third and fourth quarters.

Of course, there is still potential for US debt to ramp up quite dramatically over the course of the next decade, but the reality is that international investors are prepared to lend money to the United States, says Potts. “It’s still considered a very safe bet, and regardless of how tensions play out in the trade environment, the reality is that I think we’ll continue to see that flow of funds into US treasuries.”

“Consumption growth increased by 2.7% in 2016, with further increases of 2.6% and 2.9% forecast for 2017 and 2018. So, despite the fact that higher inflation will reduce the value of take home pay, consumers’ current financial firepower should support economic growth both this year and next.”

For the foreign exchange market, the risk posed by ‘Brexit contagion’ is fragmentation in the Eurozone. This is likely to be enough to undermine the defensive characteristics of the single currency, says Potts. “Sterling looks a little oversold, so we believe that the dollar will strengthen from here, while the euro will weaken quite substantially.”

$20trnThe amount of current US debt.

After seven years of decline, this is expected to increase from 2019.

Promises of a quick trade deal with the UK following Brexit are encouraging, but even without the added bureaucracy of Europe, the reality is likely to be a matter of months at the very least.

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1U.S. Immigration and Customs Enforcement, ‘FY 2016 ICE Immigration Removals’, https://www.ice.gov/removal-statistics/2016

Key takeaways• 2016 was actually a year of underperformance for the US economy

• However, growth prospects for the US economy look positive and corporates should flourish over the next few years

• Six keys areas where Trump is impacting policy are deregulation, immigration, healthcare reform, stimulus, tax reform and trade

• The US is still attractive to international investors and considered a safe bet.

This article is based on a conference call held on 21 February with Shawn Golhar, Head of US Public Policy Research; Henk Potts, Director of Global Investment Strategy; and Bret Hester, Head of US Regulatory Policy at Barclays to discuss President Trump’s first month in office.

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Barclays PLC – 2016 Financial Results 23 February 2017

Barclays 2016 full year results

Core Return on average Tangible

Equity (ROTE)Profit after tax (excluding

notable items) attributable to ordinary shareholders as a

proportion of average tangible shareholders equity

Core Cost: Income ratioTotal operating expenses divided by total income

(excluding notable items)

61%

Core Profit Before Tax (PBT)Total income minus impairment and operating costs

before deducting tax (excluding notable items)

£6.43bn

££

£

Common Equity Tier 1 (CET1) ratio

A regulatory measure of Common Equity Tier 1 capital as a percentage of Risk-Weighted Assets

12.4%

Non-Core Risk-Weighted Assets (RWAs)

A regulatory measure of assets adjusted for their associated risks

£32bn

9.4%

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Strong evidence of strategic progress in 2016

Strong Core business

Africa selldown

Non-Core rundown

Group returns

9.4% Core ROTE1 • Barclays UK 19.3%• Barclays International 8.0%

First stake sold and separation terms agreed

Accelerated progress, closing ahead of schedule

Focused on generating attractive andsustainable Group returns

1FY16 ROTEs excluding notable items.

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Strong Core business performance in 2016

ROTE 19.3%

Robust NIM 3.62%

Low cost: income ratio 53%

ROTE 8.0%

CC&P income growth +21%

CIB income growth +6%

All financial metrics are FY16 excluding notable items. Deltas represent the year-on-year change.

UK consumer and business bank differentiated by scale, data analytics and digital

Diversified transatlantic wholesaleand consumer bank

Barclays UK

Core

Barclays International

Income Cost: Income ratio Profit before tax ROTE Average allocated tangible equity

£22.0bn

7% 4% £4.1bn1% 1.8%

61% £6.4bn 9.4% £41.3bn

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Barclays is a major contributor to the UK economy

Provided c.£70bn oflending to UK businesses

Provided c.£19bn of mortgage lending to c.90,000 households

Involved in c.160 UK banking deals, with c.£250bn of value

Processed c.£260bn of payments for UK consumers and businesses

£1 in every £3 wasspent through Barclaycard

24mBarclays UK

customers andclients

Lent c.£3.6bn to UK SMEs and supported around 100,000 start-ups

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Diversification provides balance and stability

Currency and Geography

Customers and Clients

Product spectrum

1Barclays UK and Consumer, Cards and Payments, excluding notable items.

Current accounts

Mortgages

Wealth and Investments

Personal loans

Payments

Credit cards

Corporate banking

Merchant acquiring

Capital markets

Investment banking

c.50% income

£10.5bn income

Corporate and Investment Bank

c.35% income

Consumer businesses1

£11.4bn income

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Psychology – the art of the scam

As a behavioural economist, my interest is in the tactics the scammers use to defraud an organisation. Social engineering scams are effective because they recognise that the weakest point in a security procedure is often human psychology. The study of behavioural economics has many demonstrations of how our decisions can be manipulated. In this article, I look at why social engineering can be so effective by examining the CEO fraud scam.

In this scam someone claiming to be the CEO unexpectedly approaches a colleague in the finance department to make a prioritised payment. This pulls three psychological levers which can lower our defences against the scammers: authority, urgency and consequence. When combined, they create an effective way to defraud an individual.

In the 1960s psychologist Stanley Milgram conducted experiments into how individuals respond to orders from someone in a position of authority. The rather uncomfortable (and somewhat controversial) experiment involved a participant trying to teach pairs of words to a fellow participant.

If the ‘learner’ got the pair wrong then the ‘teacher’ would have to administer larger and larger electric shocks. In fact, the learner was an actor and there were no electric shocks involved. However, the experiments found that many individuals would continue to apply the electric shocks even after the actor had stopped describing the pain of each shock and had fallen quiet. When questioned, the experimenter just informed the teacher to continue the experiment.

Psychology – the art of the scamSocial engineering scams have come more into focus through the Take Five campaigns run by Financial Fraud Action UK, and industry participants and regulators. They typically focus on the warning signs to look out for, rather than explaining why they continue to work.

The scammer’s toolkitCreate a sense of authority We tend to comply with authority rather than follow our conscience

Create a sense of consequence We tend to be loss-averse and will seek to avoid a negative consequence

Create a sense of urgency We make worse decisions under stress and time pressure

Appeal to our vanity or greed We struggle to resist opening that email attachment which promises to tell us how much our colleagues get paid.

The study of behavioural economics has many demonstrations of how our decisions can be manipulated.

In the CEO fraud scam the scammer establishes their position of authority (albeit falsely) and makes an instruction. If the Milgram experiments are to be believed, we tend to be obedient rather than defiant in a situation like this. The success of this element of the scam depends upon how successfully the scammer can trick you into thinking they are the CEO. Once that is done, the scam has a good chance of succeeding.

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Another important element that will likely increase obedience is to create a sense of consequence upon the person being targeted. This is often done through the threat of a complaint or some other disciplinary measure – an important tool in the scammer’s armoury.

We all naturally tend to avoid the possibility of bad outcomes, or in other words, we are loss-averse. Here the scammer will try to make you focus on the personal downsides of not complying with their instruction. That triggers an emotional reaction and our psychology takes over to look for ways of limiting downside. Of course, one way to limit that downside is to carry out the instruction – exactly the result the scammer is trying to guide you towards.

Thinking fast and slow

We will all recognise that we normally make better decisions when we take some time to think things through. In the CEO fraud scam the scammer will often introduce an element of urgency to apply more stress on their target. Nobel Prize winning psychologist Daniel Kahneman described how we make decisions in his book Thinking Fast and Slow. Kahneman described how the majority of our decisions are taken by our instinctive and fast-thinking processes.

For instance, when you happen to touch something hot, you don’t actively think – you just move your hand quickly away from the heat. Our more thoughtful and slow-thinking processes sit in the background validating instinctive actions and doing what we all recognise as thinking when we need a little more contemplation. The scammer knows that their chances are diminished if you get time to think so they will apply pressure, urgency and stress to get you to make a quick decision.

Authority, personal consequence and urgency are important to the scammer’s toolkit because they can collectively pull many of our psychological levers. The effects of psychological manipulation are difficult to defend against but awareness and training provide a starting point. Can you better establish that the request is coming from a person of authority rather than accepting it at face value? Is the threat of a personal consequence reasonable or just someone trying to trick you into doing something? How can you build more time and prompts into business processes so that the slower parts of our thinking processes are given a better chance of catching the warning signs? I believe that a little understanding of how humans are influenced by scammers gives us a better opportunity to change our way of thinking and make scams less effective.

Dr. Peter Brooks Head of Behavioural Finance Barclays Wealth and Investments

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The Barclays View

The Barclays team share their thoughts on the factors impacting our European and MENA clients, as well as the innovation trends to look out for in the financial institutions space this year.

The Barclays View

This year’s B2B BAFT conference in Madrid was a great success. More than 200 participants – mainly from European banks but also from other global regions – joined the event.

During the conference, the international banking community had the chance to listen to and participate in very interesting panel discussions looking at compliance, the digital revolution, the impact of FinTech companies on banks, as well as the future of correspondent banking.

It was not a major surprise that, during the conference, participants also expressed their concerns about the impact the new policies of the Trump administration could have on Europe, as well as the forthcoming elections in the Netherlands and Germany. Concerns were expressed about the presidential elections in France, the outcome of which could have a major impact on not only the future of the European Union but also on the euro, especially if France votes in favour of the Front National, led by Marine Le Pen.

Andreas Jackisch Senior Relationship Manager, Financial Institutions, Europe

For 2017, we’re seeing a number of factors that could feed into your strategic thinking around innovation:

• Customers want financial services pushed to the background; mobile, voice activation and biometrics will be key areas

• There will be further developments in blockchain but distributed ledgers will still not (really) land; this is a 10-year bet on cost reduction

• Cost pressures will remain; the smart firms will look at integrating AI, machine learning and natural language processing into core business models to improve customer experience while removing cost

• Regulatory change will start to loom large. PSD2 and the adoption of the open banking standard will be ‘danger close’ by the end of 2017 and GDPR not far behind. The best strategic decisions will treat these changes as opportunities to build strategic advantage from data and identity.

George Osborne Innovation Director, Financial Institutions Group

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The MENA region never finds itself wanting for change; it is the only constant here. The regional FIG team, however, has become very adept at responding to the changing political and economic conditions and marrying them with Barclays’ strategic objectives. Our strategy remains to partner select correspondent banks in the region; push a joint Corporate and Investment Banking approach; focus on building long-term relationships; protect franchise credibility; prioritise returns; and ensure that in every decision we make, we treat our customers fairly.

This strategy has held us in good stead and we continue to win clearing and trade mandates from key banks across the region. We have built a leading market share in GBP clearing and continue to win several EUR clearing mandates and take business away from Commerzbank and Deutsche Bank. We remain the bank of choice for all trade flows into UK. We have also ensured that our clients understand Barclays’ global strategy, appreciate the need to reduce our stake in Africa, and buy into our commitment to the region.

We have played a key role in setting up the BAFT MENA franchise and we are chairing the inaugural BAFT MENA forum scheduled for 22 and 23 March 2017. The event has been titled ‘The future of correspondent banking – innovation and challenges’, and has seen significant interest from regional and global banks and we expect to significantly overshoot our target of 100 participants.

KP Sunil Rao, Regional Head, MENA Financial Institutions

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Business and sustainability: the six Ps

In this article, I’ll provide my thoughts on the top sustainability issues at the moment, and what they could mean for businesses in 2017 and beyond.

People

Can you confidently say that you’ve taken an active interest in your company’s most recent supply chain audit? The Modern Slavery Act 2015 is a landmark piece of legislation requiring any company that does business in the UK (with an annual turnover of more than £36m) to publish a statement on what steps they are taking to tackle slavery in their direct operations and supply chains. The Modern Slavery Act has successfully brought the issue onto the agenda of all big businesses; since the ‘Transparency in Supply Chains’

Business and sustainability: the six Ps2016 was a year of profound change. The EU referendum and associated Brexit decision, Donald Trump’s election as US President, a rise in cybercrime, growing technology disruption and more rigorous legislation… When you consider all these factors, companies have multiple factors to manage to ensure their operations are sustainably, ethically and environmentally sound, both today and in the future.

clause was enacted, a survey by the Ethical Trading Initiative1 showed that more than twice as many CEOs and senior executives were actively involved in tackling modern slavery. Many are increasing their activity in clamping down on modern slavery, and 50% of the companies surveyed were seeking external support to achieve this. 97% identified reputational risk as being the biggest driver for addressing the issue.

Another people-related issue whose importance you simply can’t underestimate is how to access good talent and the skills gap, particularly as new technologies become mainstream and the nature of work changes.

Companies are increasingly automating their operations, replacing humans with machines, with artificial intelligence, drones and driverless cars just three of the technologies starting to have a profound impact on business. Consensus is that the future workforce is likely to shrink and the nature of those jobs that do remain will change drastically. So people need to equip themselves with digital skills to future-proof their career, as well as keep their personal data and devices safe.

97% identified reputational risk as being

the biggest driver for addressing the modern slavery issue.

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Product

Since 2008 a number of factors have called into question the role of banks. The financial crisis was a key driver of this but, combined with tech firms such as Apple, Google and Amazon resetting customer expectations; millennials demanding fast, digital solutions; and the reduction in the cost of launching a start-up, the question of ‘FinTech vs. bank’ has come to the fore.

Like banking, several other industries – travel, music, video – have also opened up, splitting their business into three distinct lines: infrastructure, product and customer management.

Traditionally, larger, more established companies have experienced success in infrastructure (scale) and customer management (trust and relationship as well as scope of offering), while FinTechs are disrupting product through both speed and quality. In financial services, payments are the main area impacted by FinTech, but not the only one; increasingly, the trend is extending to lending and insurance, for example lower premiums can be offered to customers that use a fitbit to demonstrate a healthy lifestyle.

In my opinion, I think the ‘them vs. us’ dialogue is wrong; our offerings are complementary with start-ups and for me, collaboration is the key. Start-ups cannot often achieve scale without a bank, while banks can benefit from the agility of a start-up in design and delivery.

At Barclays we are trying to play a prominent role in accelerating FinTech growth, specifically through the Rise programme, our open innovation ecosystem where we aim to identify and support the growth of start-ups through collaboration.

Some of the main themes we see emerging from Rise are the use of data, the shift to a cashless world, and emerging payment rails such as blockchain and P2P, and we’re excited about the role we can play in making these themes a reality.

Protection

In 2015 69% of large organisations were attacked by an unauthorised outsider.2 With the average cost of an attack being £193,000,3 the price of ignoring this issue can become costly. Combined with notable incidents reported in the press throughout 2015 and 2016 – TalkTalk and Yahoo being two of the more notable – cyber security and how clients can protect themselves has become a topic of great interest.

When thinking about cybercrime in the context of sustainability, a few key themes come to mind: the robustness of your business, its reputation, and the bottom line. Machine learning will accelerate the number and sophistication of attacks in 2017 and beyond, particularly as the Internet of Things (IoT) gathers momentum, and malware has the potential for cybercriminals to access connected homes and businesses. Companies – particularly IT, utilities and automotive – are therefore under increasing pressure to improve system security and protect their customer data.

At Barclays we’re focused on providing insight to our corporate clients so that they understand the latest terminology, tools and training to protect their sensitive financial flows, system vulnerabilities, and emerging types of cyber intrusions. Ultimately, the aim is to stay safely on the grid, minimise financial loss and business disruption and, increasingly important, stay out of the press, particularly as the cyber criminals tricks and methods become more sophisticated.

At Barclays we are trying to play a prominent role in accelerating FinTech growth.

Cyber security and how clients can protect themselves has become a topic of great interest.

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Partnership

Many companies are exploring new and innovative ways to drive growth, enhance profitability and ensure long-term sustainability – in ways that build trust and deliver against societal expectations. However, for large companies, developing and testing innovative new business models is often no easy task, particularly when they need to focus on servicing their current customers. This is where partnership plays a key role: joining forces – and sharing ideas, skills and resources with what can be considered a competitor – is a brave decision that can lead to an even bigger prize than going it alone.

85% of CEOs see cross-sector coalitions and partnerships as essential to accelerating transformation, and a further 78% believe these partnerships will help them deliver positive outcomes in the next five years.4 A handful of companies – and in some cases industries – are beginning to explore how they could benefit from combining their skills and resources to drive shared value.

From 2013 to 2016 Barclays and GSK collaborated on a B2B partnership focused on increasing access to affordable healthcare and medicines for people living in Zambia, while promoting economic development. Some key lessons learnt along the way include:

1. Identify the right partners

2. Create a compelling vision

3. Understand the opportunity and environment in depth

4. Focus on innovation, impact and commercial sustainability

5. Build dynamic teams that have local ownership

6. Start small, move fast and fail quickly

7. Ensure resilience and patience.

By successfully combining skills and sharing resources, this partnership has demonstrated that collaboration can generate significant positive outcomes: faster learning, greater impact and enhanced relationships, while significantly reducing the costs and risks associated with innovation at scale.

We encourage companies to challenge the ‘go it alone’ approach and move toward more collaborative models for generating shared value at scale.

Policy

Following the COP-21 Climate Change Conference in Paris 2015, there has been a material shift by governments, businesses and regulators to enable the transition to a low-carbon world. Combined with COP-22 in late 2016, attention is turning to how to meet the agreements, the investments required to do so and the role the financial services industry plays in supporting these goals. As a result, the sustainability and environmental agenda is gaining increased momentum at a pan-macro level, spanning all sectors, and we are seeing this theme feed into decision-making practices.

On 9 February 2017 the London Stock Exchange Group (LSEG) issued guidelines on how companies should incorporate environmental, social and governance (ESG) issues into disclosure statements alongside traditional financial reporting. Issues including climate risks, labour and human rights, and transparency have become core factors in making investment decisions, the LSEG said in a statement.

We have also seen companies increasingly pursuing greener business models and investments: in an effort to achieve the goals of the Paris Climate Agreement – to limit temperature change to 2°C or below – clean energy and energy efficiency investments are poised for rapid growth, and there is unprecedented momentum building in the investor community towards a green marketplace, e.g. the ‘Portfolio Decarbonisation Coalition’, which is a group of 30 institutional investors with combined AUM of $3.4tn, who have committed $600bn to decarbonisation.

The sustainability and environmental agenda is gaining increased momentum at a pan-macro level, spanning all sectors.

85% of CEOs see cross-sector coalitions and partnerships as essential to accelerating transformation

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Sources: 1www.ethicaltrade.org/resources/corporate-leadership-modern-slavery 2www.pwc.co.uk/assets/pdf/2015-isbs-technical-report-blue-03.pdf 3www.nwbib.co.uk/document/nwbib_inside_track_cyber_attack160129.pdf 4Agenda 2030: A Window of Opportunity”, The UN Global Compact-Accenture CEO Study, 2016

The six Ps

People Are you actively managing your supply chain to ensure you’re compliant with the Modern Slavery Act? And what does the digital revolution mean for your business when thinking about talent and skilled staff?

Product Are your industry and your company ready to compete with FinTechs?

Protection Do your Operations and Finance teams know how to keep cyber-savvy, particularly as IoT and malware advance?

Partnership Have you thought about collaborating with another company to generate shared value at scale?

Policy How is your business contributing to the sustainability and environmental agendas? Are your business model and investments green?

Planning How can you ensure your business leads the way? What role can you play in supporting the UN SDGs?

Resources

www.home.barclays/citizenship.html

www.home.barclays/citizenship/our-reporting.html

www.barclayscorporate.com/insight-and-research/managing-your-business/modern-slavery-act.html

www.barclayscorporate.com/insight-and-research/managing-your-business/applevy.html

www.un.org/sustainabledevelopment/sustainable-development-goals/

Planning

Taking a considered and creative approach to supporting the transition to a low carbon, digital economy is a strong driver for business growth, as well as positive stakeholder engagement with investors, clients, governments and public interest groups. Businesses have an opportunity to lead the way – whether that be through actively managing their supply chain, managing their energy efficiency, protecting their systems, or collaborating with new partners. I see the UN Sustainable Development Goals as a key way for businesses to do this: 17 goals agreed by world leaders to end poverty, protect the planet, and ensure prosperity for all. The goals have specific targets to be achieved over the next 15 years, and everyone will need to do their part – governments, the private sector, civil society and individuals.

I hope that these points prompt some thinking for your company in its efforts to work towards a sustainable future. If you’re interested in any of the topics discussed, or to discuss Barclays’ Citizenship agenda, please get in touch using the details below.

Nazreen Visram Head of Citizenship, Corporate Banking M: + 44 (0)7766 364 820 nazreen.visram@barclays.com

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Barclays is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No. 122702). Registered in England. Registered number is 1026167 with registered office at 1 Churchill Place, London E14 5HP.

March 2017. BD05200.

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