Better data use can ‘avoid mis-selling’
HSBC chairman looking to the future of new technology as profits increase
THE large-scale collection and storage of banking data may help avert mis-selling but poses new threats to financial stability and customer security, HSBC’s chairman has warned.
Douglas Flint, the Glaswegian who chairs Europe’s biggest bank, said banking was in “a period of fundamental change”, due to advancing technology which allowed “storage and analysis of an almost unlimited amount of data” and direct customer access to third party providers when transacting or investing.
Mr Flint was unveiling a 10 per cent rise in half-year profits at the bank, which has been pondering a headquarters move from London to Asia.
The chairman said that although the opportunities created by the technological revolution were significant, so were the risks.
“Better use of data will allow more accurate knowledge about the customer to be built, leading to improved customer segmentation and therefore less risk of mis-selling in the future,” Mr Flint said.
It could also lead to lower costs for customers, and more banking services for under-served communities, but the scale and pace of change highlighted “new risks to financial stability that need to be addressed”.
Mr Flint went on: “The sheer scale of data to be collected and stored demands clarity over responsibility for data security, and transparency over who has access to that data and for what purpose.
“Customers need to understand the value of their data so that they can assess the bargain that is being offered by non-traditional providers in return for their financial footprint. Customers also need to know.... to whom they should complain if a transaction goes awry. He added: “Finally, ever larger digital databases of financial credentials and transaction data will need best-in-class protection from cyber crime.
“This will require even greater co-operation between the industry and public sector law enforcement and intelligence services than exists today.”
Mr Flint said restoring trust in banks remained a key issue, and he welcomed the growing emphasis in public policy on personal responsibility and accountability. “Recent instances of misconduct have highlighted the inadequacy of legal and regulatory frameworks to attach appropriate sanctions in a timely way to responsible individuals,” Mr Flint said.
That left shareholders “to bear the burden of penalties imposed on the employing institutions, in many cases long after the events in question occurred and where the evidence is either insufficient or too dated to pursue the individuals concerned”. The model was neither desirable nor sustainable, he added.
The bank has posted pre-tax profits in the first six months of the year of $13.6 billion (£8.7bn), up from $12.3bn (£7.8bn) a year earlier and well above analysts’ average forecast of $12.5bn.
They were helped by an investing frenzy in Hong Kong among individual customers earlier in the year, as the Chinese stock market soared.
The chairman said: “While eurozone anxieties over Greece dampened trade flows, and falls in commodity prices led to a lower value of commodity-related trade finance, the resultant volatility in foreign exchange led to a greater volume of activity through our dealing rooms.”
He went on: “Although equity flows into emerging markets retreated, equity volumes in Hong Kong and mainland China expanded markedly with the Shanghai-Hong Kong stock connect system surpassing all expectations in terms of flows in both directions. As a result, HSBC’s wealth management revenues in Hong Kong from equities, mutual funds and asset management increased significantly.”
The market turmoil in China in recent weeks, however, could mean a gloomier outlook for the second half.
The bank has become increasingly reliant on Hong Kong for profits as its businesses in Europe, the US and other emerging markets slow down, and is currently reviewing whether it will maintain its HQ in London.
HSBC said its performance in July was “satisfactory”, but Mr Flint said the banking environment remained “challenging” and the economic environment was particularly uncertain in China and the eurozone.
The bank said it had agreed to sell Banco Bradesco SA, Brazil’s second-biggest private-sector bank, for a higher than expected $5.2bn (£3.3bn).