Lloyds banks on technology in 2020 strategy

Lloyds Bank has set an ambitious three-year strategy to “digitize” the group. In its strategic review for 2018-20, Lloyds intends to use technology like data analytics and Artificial Intelligence (AI) to gain new insights which can transform key parts of its business. This is just the latest indication that financial services firms believe their future success rests on big data and AI.

Digital transformation

In its strategic review for 2018-2020, Lloyds has pledged to make a strategic investment of more than £3 billion, of which more than half has been allocated to “digitizing the group”. It now defines its business model as “digitized, simple, low risk [and] customer-focused.” A key priority is “simplification and progressive modernization through targeted investment in technology, data, and innovation.” To support this change, it will to increase training and development by 50 percent by 2020. This training will include improving capabilities around data and applied sciences. It also aims to double its number of digital experience designers and engineers who specialize in robotics and AI. The bank predicts this strategy will have clear outcomes, including a positive effect on its bottom line. It anticipates that it will make efficiency improvements of up to 30 percent by 2020. The aim of the strategy is ambitious: it wants to be recognized as the best bank for customers, colleagues and shareholders, and to “help Britain prosper.”

In a 68-page presentation on the strategy which was given to analysts and investors, Lloyds spelled out the myriad ways it aims to exploit new opportunities enabled by technology. The bank hopes to use data insights to improve customers’ experience of digital banking. Voice biometrics will reduce the time it takes for customers to verify who they are over the telephone. With intelligent automation, Lloyds expects to reduce manual compliance efforts by 20 percent by using automated speech to text and analytics. Automated voice and chat-bots will improve the capacity of telephone banking staff by a third. By using cognitive and machine learning and building an enterprise data hub, Lloyds plans to enhance business intelligence across the organisation. Automating processes, connecting cross-group and external data and using API architecture and applied sciences for sophisticated analytics will also improve the capacity of its relationship managers. When these individual innovations are added up, they demonstrate a clear commitment to digitizing the entire banking group and embedding technology in all aspects of the business.

Banking on data-driven insights

Recent announcements from rival banks suggest that data and AI technology are becoming the key weapons in financial services firms’ armory. Earlier this year, HSBC announced that it would recruit 1,000 data scientists to grow its digital strategy. This month, Deutsche Bank launched a new enterprise analytics capability which collates and analyses millions of lines of data on securities transactions to identify opportunities for the bank and its clients. In a presentation to investors on 16 November, the Netherlands-based bank ABN AMRO said that innovation and technology would be “a critical enabler for efficiency.” A study by SNS Telecom & IT predicts financial services firms will invest $9 billion in big data this year, rising to $14 billion in 2021.
But big data’s potential is not limited to the financial services sector. Academics are using big data to analyse millions of research papers to inform their own research. The manufacturing sector is using Robotic Process Automation (RPA) to automate functions which previously took up a large amount of staff time. Media outlets such as Xinhua and the Washington Post are using AI to generate news stories. Leaders in sectors like sales and marketing are also using AI-powered big data analytics to find new insights.

Data as a Service complements internal data sources

Companies have access to data about their own customers and operations. Lloyds, for example, has data on the transactions carried out by its tens of millions of customers. But this data by itself is not enough to provide insights which can be applied in its operations. Companies often benefit from external data sources—ranging from news and social commentary to company market and legal data—which can provide added context to their own data.

Next Steps

1. Watch for more about Big Data and AI initiatives on our blog.
2. See how Nexis® Data as a Service can help you to find insights to transform your business.
3. Share this post your colleagues and connections to keep the conversation going.

How forced labor impacts the global labor market

Migration is a recurrent theme in human history. Whether seeking to escape violence, natural disasters or poverty, migrants express their determination for better lives through migration. On International Migrants Day, we look at a particular risk that migrants face—forced labor. The issue is more widespread than you might think. One of the most significant findings of the 2018 Global Slavery Index is that the risk of forced labor is even more prevalent in high-GDP countries than previously assumed. This once again highlights the necessity to take immediate action against forced labor and raises an important question. How can corporations, governments and civil society address the forced labor risk and prevent the exploitation of vulnerable migrants?

Forced labor risk entering global supply chains

To address the question of forced labor and how to prevent it, we must first acknowledge the social depth and economic impact of modern slavery. According to recent numbers published by the International Labor Organization (ILO) more than 40 million people are victims of modern slavery worldwide. Out of these, 25 million are in forced labor and approximately 15 million are in forced marriages.

Millions of men, women and children whose daily lives are brutally affected, are forced to work or offer a service under the threat of violence and without consent. Forced labor is the most severe form of human exploitation and primarily affects more vulnerable groups of society. Migrants are particularly at risk because they may rely on unscrupulous recruiters that promise job opportunities, then extract high recruitment fees and use deceptive hiring practices that leave workers trapped in forced labor situations due to debt. There are numerous contexts which assist the creation of economic dependencies leading to forced labor, including lack of education, thriving corruption, poverty, weak rule of law and high unemployment numbers.

Why International Migrants Day matters

The United Nations recognizes the exploitation of migrants and forced labor on December 18th with International Migrants Day, commemorating the International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families. Its aim is to recognize the contributions migrants make to the global economy and to put emphasize on their basic human rights.

Through the implementation of the Sustainable Development Goals in 2015, the global community has created a universal platform for the fight against forced labor in the 21st century. Sustainable Development Goal 8.7 reflects these ambitious objectives and urges the global community to

“take immediate and effective measures to eradicate forced labor, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labor, including recruitment and use of child soldiers, and by 2025 end child labor in all its forms.”

The ILO recently criticized Thailand for their lack of action concerning forced labor and other cases of severe human rights abuse on domestic fishing vessels, once again raising public awareness to forced labor risk, but other cases often fail to attract the same public attention. Yet, the Thai sample case is only one of countless recent cases of human rights abuse in connection with forcing migrants into labor. The influx in migration in Europe has swiftly put the continent in the center of attention when it comes to the risk of forced labor in supply chains.

Since 2015, vital European border-countries such as Italy, Cyprus, Bulgaria and Romania have experienced a drastic increase in refugees from the Middle East and the Sub-Saharan region, making them notably more vulnerable to forced labor and economic exploitation.

The European agricultural sector is often named as one of the key sectors of concern regarding forced labor of migrants and refugees. In 2017 The Guardian reported, “that thousands of Romanian agricultural workers were being used as forced labor and sexually exploited by their Italian employers.” This systematic marginalization and exploitation of especially female Romanian migrants in the Italian agricultural sector stands out as a serious sample case on how migrants are forced into modern slavery, both economic and sexual.

Taking action, creating chances

Recent activities underline the global efforts of putting forced labor at the center of attention and combating its root causes, such as poverty, gender inequality and lack of education. Corporations can play an important role in helping address forced labor risk by conducting thorough due diligence and implementing continuous supply chain risk monitoring. Regulations like the UK Modern Slavery Act, implemented in 2015, and the 2010 California Transparency in Supply Chains Act represents governmental initiatives to address human trafficking, forced labor and modern slavery in the 21st century.

Although businesses are bound to comply with such governmental regulations, it can also be seen as an incentive within a profound CSR strategy, simultaneously enabling a better reputation within nongovernmental organizations and civil society and facilitating corporate risk management and mitigation.

Enhanced risk mitigation is a must

Here are 5 recommendations on how companies can strengthen their risk mitigation strategies concerning forced labor and modern slavery.

1. Implement robust internal controls including risk-based due diligence, ongoing monitoring and regular assessments of process effectiveness
2. Emphasize the need for transparency throughout the customer engagement process, capturing important details related to political contributions, charitable donations and lobbying expenditures
3. Manage potential supply chain risk by conducting bi-annual due diligence checks on current suppliers
4. Conduct supplemental due diligence into beneficial ownership and control structures when operating in high-risk markets
5. Require full disclosure of the structure and shareholder ownership when engaging with state owned enterprises

Opportunities and Challenges for States in 2019

In the third and final of our annual three-part series looking ahead to the coming legislative year, SNCJ Senior Advisor Lou Cannon takes a look at some of the challenges and opportunities that await lawmakers in 2019.

 

This is also our final issue of 2018, so from all of us to all of you, have a happy and safe holiday season and a wonderful New Year. See you in January! – SNCJ Managing Editor Rich Ehisen

 

States function as laboratories for democracy, as Justice Louis Brandeis famously observed, and they’ll have numerous opportunities for experimenting in the year ahead.

 

For the first time since 1914 a single political party will control both chambers of every legislature except one: Minnesota, where Democrats captured the House in the November midterm elections while Republicans retained control of the Senate.

 

Meanwhile, divided government and probable gridlock will prevail in Washington. Democrats won control of the U.S. House in the midterms while Republicans increased their majority in the U.S. Senate.

 

Opportunities for partisan action will be most available in states in which one party controls both the legislature and the governorship. Going into 2019, there are 23 such states with unified government in Republican hands and 14 states controlled by Democrats. Thirteen states have governors of one party and legislatures of the other.

 

States newly unified by the Democrats in the election are most likely to “push the progressive envelope,” said Tim Storey, an analyst with the National Conference of State Legislatures (NCSL). These states are Colorado, Connecticut, Illinois, Maine, Nevada, New Mexico and New York.

 

As an example, New York Senate Democratic leader Andrea Stewart-Cousins, poised to become Senate majority leader, said she will continue a tax on the wealthy due to expire in 2019 and also support gun control measures. Stewart-Cousins will be the Empire State’s first female and first African-American Senate majority leader.

 

Power in the New York Senate had been wielded by a coalition of Republicans and maverick Democrats. The midterms dispersed the coalition and handed power to regular Democrats.

 

There are fault lines between the two parties in the states on issues of energy, gun control, taxes and voting rights.

 

In state after state Republicans have pushed for photo ID laws at polling places and opposed early voting and same-day registration. Republican-authored legislation in North Carolina this year resulted in many fewer polling places. Democrats say such efforts are intended to dampen voting by minorities.

 

Another partisan issue is global warming, which most Democrats decry and many Republicans deny. California and Hawaii, both Democratic bastions, aim to obtain all of their electrical energy from sources that have no carbon emissions by 2045.

 

“It will not be easy,” said California Gov. Jerry Brown (D) last September in signing legislation aimed at reaching this goal. “It will not be immediate. But it must be done.”

 

Without having such ambitious targets, some Republican-controlled states are making notable progress in using renewable and alternative energy. Four states – Oklahoma, Iowa, Kansas and South Dakota – obtain about a third of their energy from wind power. Texas, a GOP redoubt, has in the past year added more wind capacity than any other state.

 

Criminal justice reform is explicitly bipartisan. The United States has the highest incarceration rate in the world, but a decline in crime and sentencing reform has brought the total number of those incarcerated — about 2.2 million people — to a 20-year low, according to the Pew Research Center.

 

Republican and Democratic states alike have reduced sentences for minor crimes, provided treatment for drug users and reformed bail practices. Since 2007, 35 states have reformed sentencing and corrections policies through the Justice Reinvestment Initiative, a public-private partnership that includes the U.S. Justice Department, the Pew Charitable Trusts, the Council of State Governments and other organizations.

 

Voters in California approved a significant bail reform in the November election although its implementation has been delayed. In Florida voters passed a measure that will allow felons who have served their time to vote. The Florida initiative received 64 percent of the vote in a state otherwise split down the middle between Democratic and Republican candidates. It was endorsed by both the American Civil Liberties Union and Freedom Partners, an organization affiliated with the conservative Koch brothers.

 

Florida’s restoration of voting rights to former felons suggests that voters may be less divided than the parties representing them. This is true on other issues as well. Arkansas and Missouri voters in the November election approved increases in the minimum wage that Republicans had opposed in the legislature, boosting pay for a million workers.

 

Health care is another issue where voters may be ahead of the politicians. Voters in three Republican states — Idaho, Nebraska and Utah — this year overwhelmingly approved ballot measures to broaden Medicaid eligibility to people earning up to 138 percent of the poverty level.

 

States will face fiscal challenges in the year ahead. Unlike the federal government, most states are required to balance their budgets, which 30 states do annually, while 20 states operate on a two-year budget cycle.

 

Many states enter 2019 in their strongest fiscal position since the Great Recession of 2007-08. A fiscal survey of the states just issued by the National Association of State Budget Officials (NASBO) found that after relatively weak revenue growth the past two years, “tax collections accelerated in fiscal 2018 with total general fund revenues growing a robust 6.4 percent, led by a large uptick in personal income tax collections.” Forty states saw revenues come in ahead of budget collections. Only seven states made mid-year budget reductions.

 

A less rosy picture was painted in a 15-year survey of state revenue and spending by the Pew Charitable Trusts. Barb Rosewicz, who heads the state fiscal health project for Pew, found that “total revenue in 10 states fell short, jeopardizing their long-term fiscal flexibility and pushing off to future taxpayers some past costs for operating government and providing services.” New Jersey had the largest deficit, with revenue covering only 91.3 percent of expenses. Illinois, second worst, had revenue covering 93.8 percent of expenses.

 

The eight other states with the “symptom of structural deficits” were Massachusetts, Hawaii, Connecticut, Kentucky, California, Maryland, New York and Delaware. Revenues ranged from covering 96.1 percent of expenses in Connecticut to 99.5 percent in Delaware.

 

Some of these states, most notably California, have shown marked improvement in recent years.

 

California was a budgetary basket case when Gov. Brown took office in 2011, facing a deficit of more than $25 billion. It now enjoys a $2 billion surplus and has put away $14 billion in a rainy day fund for use in the next economic downturn. S&P Global Ratings says California experienced “one of the strongest credit recoveries that we have seen among all the 50 states.”

 

Nonetheless, the Golden State will be vulnerable during any recession because of its dependency on high-end income taxes.  The state has the highest top-tier income tax (13.3 percent) of any state in the nation. 

 

When will that downturn come? That’s what fiscal officials in every state and city would like to know, for states and local government revenues usually lag during recoveries from economic recessions.

 

The United States is now in the 10^th year of a boom, with an economic growth rate of 3.5 percent in the third quarter of 2018.

 

State revenues and spending have increased moderately for nine consecutive years, according to NASBO. But a September poll of 51 economists by the National Association for Business Economics found that two-thirds of them expect a recession to begin by the end of 2020. 

 

It could come sooner. Such recent events as a global stock market retreat, prospects of a protracted U.S. trade war with China, a home building slowdown and Britain’s difficulties in exiting the European Union (“Brexit”) have prompted some analysts to forecast a slowing of the economy next year.

 

An economic forecast for 2019 by Jon Hilsenrath of the Wall Street Journal found less growth and more uncertainty over such issues as trade policy, border security, military spending and inflation.

 

States have made progress in providing fiscal cushions for the next recession. According to Pew, the 50-state total of rainy day funds in the states increased for a seventh straight year in fiscal 2017 to $54.7 billion with indications it will be even higher in fiscal 2018.

 

The NASBO survey found that the median balance of state rainy day funds is expected to reach 7.3 percent as a share of general fund spending in 2019 compared to a measly 1.6 percent in 2010.

 

This speaks well of the states, for fiscal rainy days are certainly coming. We just don’t know when they will arrive.

 

More States Under Unified One-Party Control in 2019

As a result of the November elections, in 2019 Republicans will control both the legislature and the governor’s office in 23 states, three less than the number of states under unified GOP control this year. Democrats will control the legislative and executive branch in 14 states, twice as many as currently under unified Democratic control. In the other 13 states -- four fewer than this year -- control of the governor’s office and the legislature will be split between the two parties.

Politics of Sustainable Investing by Public Funds

Sustainable, or ESG, investing – choosing investments based on environmental, social and governance considerations – has been around for decades. But such investing has really taken off in recent years. According to global investment research and management firm Morningstar, assets in sustainable investments grew more than 500 percent between 2006 and 2016, from 3.78 trillion to 22.89 trillion.

 

Public pension funds have helped fuel that growth, as state and local governments have sought to attract ESG-inclined millennial investors, as well as respond to calls for ESG investments or divestments from some investors. For instance, after the American Federation of Teachers urged teacher pension funds earlier this year to divest from companies that supported private prisons used to house migrants separated from their children at the U.S.-Mexico border, Chicago’s teachers fund did so. Some funds have also faced growing pressure to sell off investments in gun retailers and fossil fuel companies.

 

Critics argue that sustainable investing places political and emotional considerations ahead of the fiduciary duty to provide the best return for investors. That very argument was used to oust the president of the California Public Employee Retirement System’s board of directors, Priya Mathur, an internationally recognized leader in the sustainable investment community, in October.

 

Recent research by the Boston College Center for Retirement Research found that ESG funds haven’t performed as well as unrestricted funds, although the center noted that the underperformance was due at least in part to the much higher management fees charged by ESG funds rather than to the performance of the investments themselves.

 

But Ohio State University law professor Paul Rose makes the case that fiduciary responsibility for public funds extends beyond return on investment. He says such funds also have to consider the fiscal impact of investments on taxpayers, such as whether they will raise government costs for health care or water quality.

 

“You could create a colorful argument that [certain types of] ESG investing does help taxpayers over the long term,” he said.

 

Ohio University’s Rose notes that regardless of the type of investments you’re advocating for or against, “You need to be able to demonstrate that you’ve run the numbers.” (GOVERNING, MORNINGSTAR)