Daniele Previati

Managing compliance risk after MiFID

The research focuses on changes in the compliance function within major European banks and other financial intermediaries and on the effects of MiFID implementation. The research: a) focuses on multinational groups based in Europe and operating in investment services, such as banks, asset management companies and investment companies; b) highlights the critical areas in terms of compliance after MiFID implementation within international groups, with growing operational complexity in a framework of principle-based regulation. The four areas of research seek to answer the following questions: 1) Is the positioning of the compliance function “at the top�? of the organizational structure, as suggested by the Basel Committee? 2) Are the roles attributed to the compliance function, their knowledge and their instruments consistent with their responsibilities? 3) Do the methodologies applied in investment services for measuring and mitigating compliance risk follow a qualitative and/or a quantitative approach? 4) Is the interaction between the compliance function inside and outside the structure appropriate to the goals of compliance? Thirty-one top international groups based in Europe were invited to take part in the research. Sixteen of them accepted. The research was carried out using a structured questionnaire and the qualitative analysis of public reports. Due to the sample size, this analysis can only be considered indicative, but ‘knowing what is actually happening’ is essentially to avoid subjectivity and support action, providing ideas for organizing systems, designing paradigms and thus facilitating efficient, effective and consistent approaches to self-regulation and to implementing external regulations.

Central Banks’ Communication Strategies: Just Words?

This chapter assesses the communication strategies of the Federal Reserve (FED) and the European Central Bank (ECB), as well as their respective effectiveness. We explore the multi-dimensional aspects of the information embedded in more than 800 statements released by the heads of the EU and US central banks. Using tools from computational linguistics, we analyse the information released by these central banks on the state of economic conditions, as well as the guidance they provide about future monetary policy decisions. First, this chapter looks at some dimensions of the communication (tone, growth, ambiguity). Subsequently, we pay attention to the scenario’s impact on the communication strategies of the ECB and FED, assessing whether these strategies are influenced by certain variables that depict the scenario of the financial and real economy. Our results confirm the title of this chapter: most of the time, there is no significant difference between the communication strategy of the FED or the ECB, whether or not there is an improvement in the economic variables under consideration. We found that changes in communication strategy are mainly linked to changes in the health of the financial system.

Why Do US Banks React Differently to Short Selling Bans

Financial crisis brought significant decreases in market indices, led to active selling of stocks, and raised the possibility of a total collapse. Short selling ban was expected to bring lower stock price volatility and raise investor’s confidence. In this context, a policy intervention can change the net expected present value of an individual bank, basically because such kind of interventions aims to reduce the speculative selling pressure on a single title stock, according to policy regulators. Consequently, it should calm down the price reduction and net expected present value of every single stock. Second, the intervention may reduce both volatility and probability of default of financial companies.

Asian Fund Manager Performance: Factor Specialisation and Financial Crisis Impact

This paper investigates the relation between portfolio concentration and the performance of emerging market equity funds. We focus on Asian emerging markets finding that funds with higher levels of tracking error display lower performance than funds with less diversified portfolios. According to a study conducted previously, overall we found that the local factor market model provides quite a good representation of local average returns for portfolios formed on the basis of size and style factors. On the other hand unlike a number of other preceding studies, we find that Asian (excluding Japan) equity funds with higher levels of tracking error and more concentrated portfolios display lower performance than funds with less diversified portfolios. Moreover, as an additional analysis beyond what has been conducted in previous papers, we also tested the effects of the financial crisis, finding that the main result has not affected by it.

The ‘Wisdom of the Crowd’ as an Antidote to the Credit Crunch: A Preliminary Analysis of Crowdfunding

Crowdfunding is a very recent financial (and social) phenomenon all over the world. When we met at the beginning of our research effort, analysing the different topics and issues arising with reference to crowdfunding, we decided that an interdisciplinary and pluralistic approach was the best path to understanding the phenomenon from a theoretical and methodological point of view. The literature about crowdfunding has very few academic contributions at the international level, and we find more practitioners’ and institutional attention than academicians’ [see Sections 2 and 3]. Putting together banking and finance, economics and statistics’ perspectives and tools is, in our opinion, a good way to develop the research about crowd-funding in a deeper mood.

Good news, bad news: a proposal to measure banks’ reputation using Twitter

The amount of literature and the research produced about reputa-tional risk in banking has grown rapidly (some of the contributions are: Fiordelisi, Soana and Schwizer, 2012; Gillet, Hubner and Plunus, 2010; Sturm, 2013) due to the obvious responsibilities of the banking and financial industry in the economic crises that have emerged since 2007. In banking studies attention has been paid to reputational damage stemming from operational risk events and losses: as often, when debating risks in banking, more effort has been dedicated to measuring effect rather than understanding the real determinants of risks and losses, and offering suggestions about how to manage risks and their causes. Having noticed a lack of or insufficient information on corporate reputation (CR) and reputational risk (RR) in the banking industry in the mainstream literature, we try to go back to basics and justify, both theoretically and practically, the need for new approaches and practices. We think that it can be useful to pick up information on how stakeholders observe and exchange opinions about reputational facts and events connected with decision-making processes and actions inside the banks.

A Multi-Criteria Decision Analysis Framework for Prioritizing Investments Evaluation in Banking Sector: An Application on ASEAN Market

The purpose of the present study is the development of classification model taking into account a set of different criteria that could be used in the evaluation of strategic investment alternatives in the banking sector. The model takes into account the main criteria required to enrich the quality of a companys information system. The global financial crisis has exacerbated the problem of seeking new markets for financial intermediaries as well as competition between them. The same crisis has also highlighted the problem of limiting errors in the strategic decisions for the development of each banking institution new business. The planning and appraisal of a new business projects involve rather complex tasks. Multi-criteria methods provide a flexible tool that is able to handle and bring together a wide range of variables appraised in different ways and thus offer valid assistance in supporting financial economic decision processes. Unfortunately a great number of determinants can create problems with the evaluation. Thus it is necessary to select a limited number of important indicators. In this paper we build a synthetic index, starting from a selection of a set of indicators, and weighting them via linear and non linear multivariate analysis. We use a sample of 42 criteria, extracted from World Bank database, that includes indicators of the macroeconomic, institutional and regulatory environment, for all ASEAN countries, during 1995-2011, as well as basic characteristics of the banking and financial sector. The resulting ABA (Attractiveness of Banking activity) Index could be an useful tool in financial business opportunities evaluations.