Why we need profound audit sector reform now - Bizweek
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JULIAN MWIKA
Banking on
digital channels
to get ahead in
the new normal
ÉDITION 354 – VENDREDI 06 AOÛT 2021 L’HEBDOMADAIRE DIGITAL GRATUIT
L’ HEBDOMADAIRE ÉLECTRONIQUE GRATUIT
THE TRUTH TELLERS
Why we need
profound audit
sector reform now
Auditors should be the gatekeepers helping to keep such financial mismanagement at bay, yet too often they
are failing to do so. The UK government has recognised this and begun to consider reforms. But three years
after Carillion crash, no significant policy action has been taken. There is a real risk that unambitious reform
leaves some of the central problems unaddressed and that the costs for society will continue to occur year
after year, says a recent report by the Institute for Public Policy Research (IPPR), UK’s leading progressive
think tank
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VENDREDI 06 AOÛT 2021 | BIZWEEK | ÉDITION 354 3
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THE TRUTH TELLERS
Why we need profound
audit sector reform now
Auditors should be the gatekeepers helping to keep such financial mismanagement at bay, yet too often they are failing to do so. The UK govern-
ment has recognised this and begun to consider reforms. But three years after Carillion crash, no significant policy action has been taken. There is
a real risk that unambitious reform leaves some of the central problems unaddressed and that the costs for society will continue to occur year after
I
year, says a recent report by the Institute for Public Policy Research (IPPR), UK’s leading progressive think tank
n 2017, seemingly out of the blue, ently report how they are run. As such, au- retailer and whole seller Conviviality, audi- pectations. The Competition and Markets
the construction giant Carillion col- ditors are supposed to be the ‘referees’ of tors might have helped investors make more Authority (2019) found that:
lapsed. Until just before its failure it corporate Britain. informed decisions about its breakneck ex- “Many stakeholders – including audit firms –
had booked significant profits, paid A well-functioning audit sector should pansion, and its finance and business plans accepted that recent instances of high profile corpo-
out sizeable dividends to sharehold- be expected to flag problematic accounting – which were ultimately unviable. High qual- rate failures have exposed serious concerns around
ers and was employing 43,000 people. What practices and risky business activities to in- ity auditing will of course not prevent all, or audit quality and diminished trust in the audited
happened? side and outside stakeholders before they even most, business failures, and nor should financial statements of large companies overall.”
The Institute for Public Policy Research turn into damaging debacles. However, the it. But it is essential in ensuring markets and
(IPPR) highlights, in a recent report, that current legal set up does not require this wider stakeholders have the information When audit fails
dramas like this one are playing out in small- from auditors. It too often is to akin to a they need to make an informed judgement.
er forms in other UK businesses every year. ‘tick box exercise’. Auditors, in turn, do not While providing significant win-win oppor- When audit fails, it means there are in-
This leaves the UK economy with signifi- regard it as in their remit. In the case of Ca- tunities for business and society, the audit sufficient checks to establish trust in firms’
cant costs. Bad governance and poor man- rillion, better functioning audit could have industry is currently failing to deliver on its finances, sometimes giving a pass to out-
agement with too little accountability in raised red flags for investors, clients and reg- role as trusted referee. right fraud but more often to more subtle,
businesses is at the heart of this problem ulators potentially years earlier. These stake- While UK auditors were closer to their but damaging, forms of accounting. This is
(BEIS 2021). holders could in turn have pushed Carillion’s role in the first half of the 20th century, the partly due to not doing enough to challenge
Audit exists to help establish the truth directors out and replaced them with a more audit sector now seems to have lost its way, the businesses they audit, and partly due to
about business finances. It should help responsible team. This might have saved the with one in three audits found to be prob- them seeing certain tasks as ‘beyond their
demonstrate, to a wide range of parties, company, avoided investments being wast- lematic (FRC 2020a, Brooks 2018). Rather brief ’. As a result, there is almost unanimous
whether businesses are run sustainably. This ed, preserved jobs and ensured contracts than meticulously monitoring on behalf of agreement that audit firms are failing to live
includes checking the financial accounts and were fulfilled. society and to the benefit of the economy, up to society’s expectations and needs.
ensuring businesses truthfully and transpar- In other cases, too, like that of the drinks many audits today are not living up to ex- When audit fails, rather than flagging
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NEXT STEPS: THE PROMISE OF A REFORMED AUDIT INDUSTRY
Profound reform can restore public trust in audit firms and see them become the
trusted referees of corporate Britain. With this status gained, it could lead to a
virtuous cycle in which trust fosters investment. It could also set the stage for the
growth of new business areas for audit firms where their professional expertise and
independence are needed, such as in assessing companies’ climate risks.
In response to the five drivers of audit failure described above, there are five
principles that serve to guide policy. They are:
• a broadened purpose. Auditors should be the trusted referees of corporate Britain,
helping disclosing useful information around business finances and beyond.
• addressing lax rules. Update rules and guidance are updated, including in global
forums, to ensure accounting is able to fulfil its function.
• overhauling oversight. Giving the reformed audit regulators not just statutory powers
but also sufficient resourcing to address them.
• addressing perverse incentives. Structurally separate audit from non-audit
businesses to avoid the risks of conflicts of interest. Ensure that auditors working for
government adhere to the highest standards of objectivity.
• delivering culture change in the audit industry alongside a broadened purpose.
Ensure that auditors don’t just play by the rules, but are their guardians across
business lines. Broaden audit’s remit to satisfy societies demand for a trusted
referee, including around climate, governance and data.
• increasing competition. Ensure shareholders chose auditors not just based on price
but also on high-quality service provision. Put in place measures that increase this
choice.
problems (as they should), auditors are
allowing accounting rules to be used to
emphasise expected future gains, de-em-
phasizing losses, and pursuing a strategy
of expansion and increasing debt. In fraud
cases, such accounting trickery ends up
breaking the rules and is akin to a Ponzi
scheme. And in some cases it is audit firms
themselves that are helping businesses
devise potentially problematic strategies
(DWP and BEIS select committee 2018).
Ultimately, when underlying weaknesses or
misstatements can eventually no longer be
concealed and markets realise the risks, in-
vestors and lenders suddenly pull out, exac-
erbating the underlying problems. The busi-
ness ends up collapsing or survives seriously
weakened. In the aftermath jobs are shed,
investor losses pile up, pensioners and sup-
pliers are faced with losses and the economy
suffers from productivity losses.
Unequal outcomes:
The social costs of
audit failure
The costs of audit failure can be divided
into direct and indirect costs. Direct costs
include, for example, workers losing their
jobs and investors losing their money. Indi-
rect costs are those that affect the economy
at large.
For instance, in the case of BHS, 11,000
workers lost their jobs, and in the case of
Carillion, 27,000 people saw some of their
pension savings at risk.
in the case of the Carillion collapse, £2
billion was owed to suppliers which was not
paid, and the ripple effects of the collapse
were felt across its supply chain network.
Beyond the direct cost of audit failures,
there are ongoing costs exerted by bad prac-
tices in the audit sector.
For instance, Carillion was overly optimis-
tic in its estimates of future profits (DWP
and BEIS select committee 2018, and when
it was finally announced that profits would
be lower than expected, Carillion’s share
price dropped by 70 per cent. This means
money that was invested in Carillion that perspective, unduly optimistic accounts Accounting practices can also exacer- and insufficient concern about systemic
could have been invested in firms whose – not flagged by auditors – drive firms’ bate threats to the financial system which, risks. But these problems overlapped with
accounts were transparently reported. As share prices up which in turn drives them in turn, can have negative impacts on the accounting and auditing issues – accounting
such, audit failures distort the market, di- to expand. When the accounting problems economy. The financial crisis of 2008- 09 rules allowed financial firms to avoid book-
verting resources away to ‘unworthy’ firms become apparent, that value is destroyed. showed that optimistic accounting practices ing losses when they occurred, and continue
that are better at presenting themselves in Moreover, current accounting practices concealed how huge risks were building up to take risks. Rather than highlighting risk
accounting terms rather than being truly may be helping to overstate the benefits of on a system-wide level. First and foremost, as it was building up, accounting rules were
more productive. From a corporate finance mergers and acquisitions (M&As). this was caused by lax financial regulation used to conceal them until it all unraveled.
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VENDREDI 06 AOÛT 2021 | BIZWEEK | ÉDITION 354 5
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This was not confined to a single financial purse. of the UK’s audit watchdog - the Financial objectivity above incentives to land the next
institution. Instead, it led to higher risk tak- Reporting Council (FRC) – found that it contract.
ing across much of the American and Euro- Key drivers of is ‘an institution constructed in a different
pean financial systems.
audit failure era – a rather ramshackle house, cobbled A DYSFUNCTIONAL MARKET
together with all sorts of extensions over
Distortion of public In response to a string of prominent audit
time’. Much of the FRC’s set up – includ-
ing its very funding – is based on voluntary
The audit market is currently somewhat
policy decisions failures (most notably Carillion and BHS),
agreements with audit and accounting firms
of an oligopoly. Of the largest 100 firms in
the UK, almost all (96 per cent) are audit-
the UK government has announced it is
and not fully backed up by law. Currently, ed by the ‘big four’ (FRC 2020a). Switching
Audit firms play an important advisory determined to act to fill some of the most
as the Kingman review argues, ‘audit firms is rare (91 per cent of businesses do not
role to governments. In 2019, the ‘big four’ glaring regulatory gaps (BEIS 2021).
in the UK are still regulated not by an inde- switch auditors in a given year), and 95 per
alone had contracts with the UK govern- pendent body but, in effect, by their trade cent of firms’ switching away from one of
ment worth £718 million. For example, in A NARROW PURPOSE association’. the ‘big four’ switch to another ‘big four’
order for policymakers to assess wheth-
firm. Often the choice for firms to pick an
er the HS2 rail project was good value for The core purpose of audits today is to
money, consultants from the ‘big four’ were make sure business accounts are ‘true and
PROBLEMS WITH auditor is even narrower. For instance, for
brought in as advisors to government to fair’ (Brydon 2019). But in practice informa- CONSULTANCY competition reasons there can be restric-
tions on which work audit firms can carry
do a cost-benefit analysis. Before the green tion could be ‘true and fair’ and yet not be
Next to their role as referees of corporate out – eg to avoid an auditor working for two
light was given, the cost was estimated at useful at all to those requesting it. It comes
Britain, audit firms today play a significant direct competitors. This then excludes some
£15 billion. But this turned out to be hugely as a surprise to many that auditors did not
separate role as consultants of corporate audit firms from bidding for certain con-
optimistic, and the actual cost may now be see it as their responsibility to flag the ag-
Britain. In this role, audit firms advise busi- tracts, and for many FTSE firms, this leaves
above £100 billion. gressive accounting practices at Carillion
nesses on corporate practices such as how only two firms to choose from. Rather than
The £85 billion difference is resulting in that overstated hypothetical future profits.
to present financial accounts, on their busi- a market, the audit industry ends up more
huge costs to the taxpayer that may well So, while the public expects auditors to
ness strategy, regulatory compliance and tax, akin to game of musical chairs with four –
have swung politicians’ decisions in a dif- provide useful information for outsiders, in
as well as helping with takeovers. and often less – players.
ferent direction. At the same time, the go- some ways it is too close to a ‘tick-box exer-
This presents two possible problems. The resulting lack of choice likely leads to
ahead decision has resulted in further con- cise’. Moreover, many areas where a trusted
First, in their consultant role, their aim nat- lower audit quality.
sulting contracts for the auditors involved, referee would be needed – eg around busi-
urally is to be most helpful to management, The dominance of the ‘big four’ also
advising on the delivery of the project. Of nesses climate risks – are also not under the
which is in opposition to their audit role means that the market lacks resilience. If
course, cost overruns are an endemic prob- purview of auditors at all.
where they are supposed to challenge man- one of the firms was to fail, it would severe-
lem in megaprojects such as HS2 and not
agement. As consultants they might suggest ly restrict competition, leaving some firms
principally the failure of audit firms’ advice.
For example, a wide-ranging global study LIGHT TOUCH ‘aggressive’ accounting or business practices with no choice at all.
found that costs for rail projects overrun REGULATION that an auditor might want to flag to outside
on average by 40 per cent. But a success- stakeholders.
fully reformed audit sector (including relat- The UK has a very light-touch audit regu- And when auditors advise government, [Source: Jung C and Nanda S
ed consultancy services) would provide a lator that is currently poorly equipped to en- stronger assurances need to be in place that (2021) The truth tellers:
more effective challenge when advising the force meaningful standards in the industry the outcomes are aligned with the public Why we need profound audit
government on them, protecting the public (Kingman 2018). The government’s review interest, backed up by a culture that values sector reform now, IPPR.]
ANATOMY OF AN AUDIT FAILURE – CARILLION
Carillion was a construction and facilities
management service, which provided many services
to the UK government: running NHS facilities, building
schools, transport projects, and managing prisons.
It collapsed in 2018, in the ‘largest ever trading
liquidation in the UK’ (The Insolvency Service 2018).
KPMG, as Carillion’s main auditor, was heavily
criticised for its role in the collapse. But all of the
‘big four’ audit services firms were involved at
some point during the run-up and collapse: KPMG
as Carillion’s external auditor; Deloitte its internal
auditor;Ernst and Young (EY) as consultants; and
PricewaterhouseCoopers (PwC) as special managers
of the liquidation process.
In addition, all four had provided various consultancy
services to Carillion, and all had been involved in
some capacity in advising government in relation to
Carillion’s work, creating the potential for conflicts of
interest.
Between 2008 and 2018, the big four received £72.6
million in fees relating to Carillion.
Carillion put itself into a financially precarious position
by systematically borrowing against ‘optimistically
booked, and in hindsight unrealised’ expected future
profits, and using this money to pay dividends and
bonuses. Auditors did not raise red flags even though
some critical assumptions in the accounts were
‘difficult to justify’. It has not yet been established
whether this constituted a breach of audit standards,
or was simply a result of overly-lax accounting rules. In some cases, this has been found to constitute a initial investigation report: ‘We are cooperating fully
Between 2009 and 2017, ‘Carillion’s debts rose by 297 breach of disclosure standards – the FCA has since with the FRC’s investigation. We have and will continue
per cent, whereas the value of its long-term assets ruled that three market updates in the year before to respond appropriately to the initial investigation
grew by just 14 per cent’. When contracts started to the collapse were misleadingly positive (Construction report’ (Sky News 2021).
underperform, Carillion did not respond by writing News 2020). In July 2017, the company was finally Over 3,000 employees lost their jobs (The Conversation
down their value, but instead responded by submitting forced to issue its first profit warning (Construction 2021), as well as likely further job losses among
more risky bids for new projects, in what was later Index 2018), before going into liquidation in January suppliers, who lost around £2 billion which was owed
likened by the Financial Times to a ‘lawful sort of Ponzi 2018. to them by Carillion (Construction Index 2019). In
scheme’ (FT 2018e). In terms of auditing standards, whether a breach has addition, over 27,000 pension scheme members faced
Market analysts voiced concerns about Carillion’s occurred is as yet unclear. The FRC’s investigation into reduced pensions (House of Commons 2019); there
accounting practices, including around how it KPMG’s audit of Carillion suggested that some possible were knock-on effects for 450 unfinished public sector
presented its indebtedness, in 2015 (Bloomberg 2018). breaches of accounting standards were found, though projects (Guardian 2020); and over £150 million was
But these concerns were not flagged in financial information on what these were is not yet public spent by the government on the liquidation process
accounts or other documentation for shareholders. (Reuters 2020). KPMG have responded to the FRC’s and redundancy payments (Guardian 2018).
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ACTA PUBLICA
GOING DIGITAL
Payments in the
post-Covid world
Across the world, digital payments are now synonymous with mobile payments, with the rate of adoption directly linked to access to smartphones
and telecoms networks. The furious growth in digital payments in developing countries, especially in Asia, demonstrates the impact of the corona-
virus (Covid-19) pandemic in advancing online retail sales, as well as the role that governments and regulators play in facilitating the spread of new
payments systems. The research of the Economic Intelligence Unit (EIU) shows how the digital-payment revolution is transforming business in
different parts of the world. Governments have a crucial role to play in formulating policies that guarantee equitable access to these systems while
encouraging innovation. However, regulators’ responsibilities will increase further with the spread of digital currencies and super apps, which will
allow for more cross-selling while also exacerbating the risks to data security, privacy and sustainable credit terms. Both payments services providers
and conventional financial services companies need to be ready for regulatory shifts as they seek to take advantage of new opportunities
C
ovid-19 forced economies across towards real-time payments. infrastructure has been extended to mobile less experience for both merchants and cus-
the world to modernise their The prevalence of low-value payments in phones and contactless cards. For example, tomers. Mobile apps such as Apple Pay and
payments systems in order to the Indian economy has led to the highest the widely adopted systems of Apple Pay, Samsung Pay will continue to lift the engage-
support commerce and allow real-time transaction volumes of this type in Google Pay and Samsung Pay use tradition- ment levels of their users, incentivising them
a return to economic growth. the world. Similar trends are visible in other al branded cards embedded in mobile apps to use their platforms for a host of other
India offers a prime example of this shift. developing countries, however. In the Philip- to make transfers at improved point-of-sale digital transactions, including utility-bill pay-
Although the country’s population remains pines, the government is making a concerted (POS) terminals. They use the existing infra- ments, personalised savings and credit prod-
largely rural and, therefore, still reliant on effort to achieve a cash-free society by 2025 structure to move money from payer to recip- ucts and online shopping. Meanwhile, players
cash transactions, the pandemic has lifted and aims to make half of its financial transac- ient while allowing in Europe, such as Sweden’s Swish, will con-
digital payments, in terms of both volume tions digital by 2023. The rewards of this are card networks and issuers to continue to tinue to evolve to provide services enabled by
and value, to heights far beyond the expec- numerous, most notably in terms of wider collect fees. Contactless payment, adoption real-time payment infrastructure and other
tations of the policymakers who facilitated financial inclusion. of which was sluggish prior to the pandemic, innovations that the regulators are pursuing
their adoption. has taken off amid fears that the virus is be- in the region, such as QR codes.
India’s UPI illustrates how an enabling Card-backed payment ing spread by handling currency notes.
policy framework and supportive regulation
systems hold sway in the Card-driven contactless payments will China’s super app
can create the infrastructure needed for swift
adoption. Government institutions, particu- developed world
take off at a rapid pace in the Americas and
Western Europe, where consumer wearables
model to dominate
larly the central bank, encouraged the use of (smartwatches, for example) will also emerge emerging Asia
tools such as QR codes for merchants and ra- The most familiar—and least revolu- as a key medium for payments. In contrast to
dio-frequency identification (RFID) tags for tionary—change is occurring in developed chip and pin-based cards, contactless cards A more radical approach has upended pay-
toll gates. This paved the way for India’s drive countries where the existing card-payment reduce transaction time and provide a seam- ments in China and is increasingly doing so
Cont’d on page 7
VENDREDI 06 AOÛT 2021 | BIZWEEK | ÉDITION 354 7
ACTA PUBLICA
data security and privacy—lack of which is a
major criticism of cryptocurrencies.
The Bahamas, an island nation in the
Caribbean, made history earlier this year by
launching the world’s first digital currency,
the “sand dollar”, but the project dominat-
ing the headlines is China’s Digital Currency
Electronic Payment (DCEP). Over the last
two years, DCEP has undertaken more than
70m transactions worth a total US$5.3bn.
Moreover, visitors from across the world will
have the opportunity to experience the e-yu-
an first-hand at the Beijing Winter Olympics
of 2022.
In theory, a digital currency should be able
to transcend barriers between competing pay-
ment platforms, providing a further accelera-
tion to the adoption of digital transactions.
Cross-border payments would also be greatly
facilitated by interoperable digital currencies,
removing the need for the current web of
settlement mechanisms, leading to major cost
and time savings while increasing ease of use.
Opponents of such projects claim they
facilitate state surveillance, erode individual
privacy, and transcend the definition of tradi-
tional fiat currency. Nevertheless, most cen-
tral banks across the world will push ahead
with the introduction of central bank digital
currencies (CBDCs), in part to retain control
of their financial systems, given the growing
importance of cryptocurrencies (in particu-
lar, stablecoins such as Facebook’s Diem),
whose values are tied to real-world currencies
and partnership opportunities from major
in order to reduce volatility.
global payment-platform and technology
firms.
The bigger players will shift focus to create Transform or perish
platform-like structures, adding new verticals
and creating a suite of products and services, Despite the enthusiasm around emerging
such as ride-hailing, food delivery, and enter- modes of payment, numerous sources of
tainment for their users. In other words, they apprehension remain unaddressed. These
will evolve to become more like Asia style include concerns around data security, finan-
super apps. cial fraud, cybersecurity and the role of reg-
ulators, many of whom are behind the curve
Fast-payment systems when it comes to technological advancement.
The absence of common regulatory stand-
are transforming ards among geographically contiguous coun-
developing countries tries, potentially leading to the creation of
regional monopolies, is a related concern.
Governments championing fast-payment Regulators must work towards the stand-
systems indicate that they expand financial ardisation of technology such as quick-re-
inclusion while reducing the leakage of sub- sponse (QR) codes, while also building uni-
in other parts of Asia. AliPay and WeChat, ments in emerging Asia will maintain a benign sidies. Following the success of India’s UPI, versally accessible payments infrastructure,
whose apps link users’ mobile phones to attitude to regulating super apps, looking to several countries are currently in the process such as India’s Unified Payments Interface
existing bank accounts, emerged with the leverage such platforms to attain financial-in- of building instant real-time payment plat- (UPI) or Brazil’s Pagamento Instantâneo
spectacular increase in Chinese e-commerce clusion targets. forms. Brazil, for example, debuted its fast Brasileiro (Pix). These allow for the participa-
at their parent firms, Alibaba and Tencent, payment platform, Pix, in late 2020, while, in tion of private firms, providing an additional
in the 2000s. Originally used for online pur- In Africa, mobile network early 2021, Saudi Arabia unveiled its new ver-
sion of the instant-payments platform, Sarie,
fillip to the digital economy. Equally crucial,
however, will be the ability of regulators to
chases and messaging, they expanded to be-
come “super apps”— all-in-one platforms
operators give way to which facilitates quick transfer of funds using monitor payments platforms to stem any
that offer ride-hailing, food delivery, enter- super apps various methods of identification, including bad-debt or other solvency issues that emerge
tainment services and a full range of finan- mobile number and email address. from buy now pay later (BNPL) companies
cial products, including credit and insurance. A third distinct path has emerged, primari- In the second half of the present decade, or speculative trading involving decentralised
Singapore’s Grab, Indonesia’s Gojek, South ly in less-developed economies where the use adoption of digital payments will mature in digital currencies, such as Bitcoin.
Korea’s KakaoPay and India’s Flipkart and of mobile phones has become widespread most countries as platforms emerge as major Meanwhile, traditional companies, such as
PayTM are aiming to build their own super but few citizens have formal financial ac- distribution channels for savings and credit bricks-and-mortar banks, run the risk of be-
apps. counts. For example, Kenya’s telecoms firm, products. Players with diverse verticals and ing over-run by their digital counterparts and
In China, the birthplace of the super app, Safaricom, and the UK-based Vodafone cre- enjoying a presence across geographies will payment-platform providers, despite their
regulators are now cracking down on plat- ated M-Pesa in 2007 to allow users to trans- then stand to benefit, generating robust fees own significant investments in technology.
forms that have previously benefited from fer funds domestically to friends and family for their platforms from both customers and Many have been unable to create the culture
loose regulatory oversight to gain a monop- using mobile-phone credits. The success of businesses. Payments operators, especially in of innovation that is the hallmark of the
olistic advantage in financial services and ver- the system led to its extension to regular retail emerging markets, will shift their focus to- digital player, although some have hived off
tically integrated e-commerce. After allowing payments and to it being linked to users’ bank wards improving their profitability, moving digital businesses or turned to acquisitions to
simple payments providers to grow into ma- accounts. The mobile-money revolution has on from their current preoccupation with ex- remain relevant in an increasingly digitalised
jor distributors of financial products, even since caught on in Nigeria, which has Africa’s panding their customer bases. world.
offering interest-yielding deposits, regulators largest unbanked population. However, in The benefits of digital payment systems
now want to make them subject to the same contrast with Kenya, the mobile-money in- New frontiers: central significantly outweigh the risks associated
supervision that is applied to banks. This is dustry in Nigeria is dominated by banks and
technology firms, as telecoms operators can- bank digital currencies with them, however. For governments, they
provide an avenue to raise financial inclusion
likely to include capital adequacy require-
ments. not apply directly for mobile-money licences. and further the cause of economic develop-
Over the medium term, mobile-money op- The rapid adoption of digital payments has
By contrast, South-east Asia lacks the cau- ment. Individuals, especially those in develop-
erators will scale up their value-added finan- also accelerated the launch of digital curren-
tious approach of Chinese regulators, with ing countries, can more effectively participate
cial services, such as interest-yielding depos- cies, as governments try to wrest back some
governments largely supportive of indige- in economic activity. Private organisations
its and insurance, supported by the growing control over money supplies, as well as fur-
nous super apps, at least at present. Most of will benefit from the new opportunities cre-
number of people joining the ranks of the ther facilitating the digitalisation of payment
the region’s economies have large informal ated as a result.
middle- and high-income groups. Incumbent systems. Central banks around the world
sectors, which means that significant sec- are advocating that these currencies be built Report by The Economic
tions of the population have limited access to mobile-money players will emerge as major Intelligence Unit
fintech players in the region, alluring capital around a digital identity, thereby safeguarding
banking and other savings products. Govern- 3 August 2021
VENDREDI 06 AOÛT 2021 | BIZWEEK | ÉDITION 354 8
POST SCRIPTUM
POST COVID-19
Banking on digital
channels to get ahead
JULIAN MWIKA
Head of Digital Services
Bank One in the new normal
In Mauritius, as across the world, the move to digital payments has been noticeable following the COV-
ID-19 outbreak. While mobile money wallets, online banking platforms and contactless payments had
been gaining traction even before the pandemic broke, the impact of the COVID-19 crisis on accelerat-
ing the adoption of digital payments in Mauritius cannot be underestimated
I
ndeed, the trend away from cash payments in the island taken and costs involved in making payments, creating a
nation has been marked by an increasing usage of fast and inexpensive way of making payments concurrently.
online and mobile banking platforms and mobile money Convenience is another key factor as this platform allows
wallets; a rise in the threshold of contactless payments customers to undertake peer-to-peer transactions from the
offered by banks; and the launch of new payment comfort of their homes – a crucial factor in a COVID-19
platforms. For instance, at Bank One, we increased our setting.
contactless payment thresholds to Rs 3,000 per purchase and Rs Another recent example of how regulators are gearing up
6,000 per day during the first wave of the pandemic in 2020. to support the digital economy, materialised when the BOM
Following the second wave of the pandemic in the island, the supplemented the National Payment Systems Act of 2018 with
significance of the holy trio of mobile money, online banking, new regulations for National Payment Service providers in
and contactless payments has only increased. With the Budget June 2021 as it sought to provide clear guidelines to prospective
Speech 2021-22 further announcing that the Bank of Mauritius operators.
(BOM) will introduce a national QR Code standard to facilitate It is clear then that the central bank is unfolding the path for
digital payments and set up an Open-Lab for banking and FinTech firms to form a more significant part of the payments
payment solutions, the scope for digital banking is clearly set to landscape in Mauritius and to ensure that electronic money
expand exponentially. and digital payments become increasingly accepted locally
in a COVID-19 context. Against this backdrop, banks should commitments to be undertaken under the agreement.
Why digital payments make sense in not be afraid to form smart partnerships with FinTech firms In a most significant move from a regional perspective, the
a COVID-19 context to accelerate scale and speed to market, even as they invest in AfCFTA Secretariat has been busy coordinating with the
African Export and Import Bank (Afreximbank) to implement
developing in-house expertise and resilience.
the Pan-African Payment and Settlement System (PAPSS)
If we assume reliable security features as a pre-requisite, digital
payment systems have been recommended from a health and
How is Africa faring project. This overarching project would help extend the benefits
hygiene standpoint. Against a COVID-19 backdrop, it is feared on the FinTech front? of multi-currency conversion among the 42 currencies used
across the continent to all traders and provide a huge boost to
that microorganisms could transfer during cash handling or
Looking at the wider continent, a report by McKinsey cross-border trade.
card transactions when point-of-sale terminals serve multiple
notes that in Africa, applying measures such as the WHO The AfCFTA also provides a platform for regional financial
people.
recommendation to avoid cash payments means not just safer, services hubs such as Mauritius to contribute significantly to
A recommendation from the World Health Organization
cashless payments to facilitate social distancing during the the new African impetus by offering an ecosystem to investors
(WHO) asking consumers to use contactless payment methods
pandemic — but in the longer-term, a shift towards financial and businessmen that not only scores high on ease of doing
and avoid cash payments sparked new initiatives by banks
inclusion that could help get economies back on track faster business but also ensures safety of their investments – while
and payment companies to cope with the new reality while
after the crisis. opening the wider continent to them, based on the free trade
regulators and government agencies responded to the threat
Keeping this in mind, it is indeed fortuitous that the pact’s promise of enlarged market access.
by limiting cash in circulation and quarantining bank notes.
They also promoted digital payments through measures such groundwork for Africa’s speedy adoption of digital payments
as increasing the limit on contactless transactions in dozens of has been laid by its natural ascendancy in mobile money. What is the way forward for Mauritius?
countries around the world. According to the GSMA report on Mobile Money issued in
A poll conducted by the Mauritius Africa FinTech Hub (MAFH) March 2021, there are now over 300 million monthly active Meanwhile, the island economy is not resting on its laurels as a
when the first wave of the pandemic washed over the shores of mobile money accounts globally, of which more than half, or de-facto financial services hub for Africa but rather pushing the
the island over a year ago showed that Mauritius was already 161 million, are in Sub-Saharan Africa, compared to South Asia frontiers of FinTech in the region with forays into innovative
moving swiftly in the direction of online payments. The which is the second-largest region in terms of mobile money areas like Central Bank Digital Currencies (CBDCs). Indeed, as
respondents noted that the main payment channels used by them market share with around 66 million such accounts. recently announced in the Budget Speech 2021-22, the BOM has
were digital platforms, with cash trailing far behind. Indeed, While the foundation for this transformation was first laid in been tasked with rolling out a CBDC on a pilot basis.
as many as 58% of all respondents noted that they used online the year 2007 with the inception of M-Pesa in Kenya, today Having said that, the introduction of CBDCs would present both
banking platforms to conduct transactions, with my.t money there is a deepening of mobile finance management services challenges and opportunities for commercial banks such as
also featuring high in the list at an almost 10% adoption rate. (MFS) which include a wide array of financial services like Bank One. A major implication would be the new compliance
insurance, credit and international remittances. Indeed, the and risk control standards that would have to be implemented
How are regulators gearing up pioneering M-Pesa itself now has less than a quarter of total
MFS users in Africa, showing how this sector is flourishing with
under the BOM’s guidance. Banking operations will also
have to be adjusted to accommodate working with CBDCs for
to support digital payments in the advent of new players. One such success story is Equitel, handling and exchanging such currencies and, ultimately, adapt
Mauritius? an example of a bank-led mobile money model under which staffing requirements in retail banking due to reduced cash
parent company Equity Bank collaborated with international transactions.
On the part of regulators in Mauritius, a notable achievement telco Airtel. By sending agents throughout Kenya, even to At the same time, it also presents a huge untapped opportunity
to promote real-time payments is the implementation of the remote areas where other banks and telcos had not ventured, to for re-channelling skillsets towards the development of the use
Mauritius Central Automated Switch (MauCAS) that makes demonstrate usage, Equitel grew to capture 22% of the mobile of CBDCs to promote efficiency and reduce costs for banks.
banking, e-commerce, and mobile payments inter-operable. money market in just five years. From a customer’s standpoint, the convenience of undertaking
Indeed, being a payments system managed by the BOM that Another area where Africa is expected to reap the benefits of transactions from home, and the inherent safety of using
acts as a centralised payment system between banks, MauCAS FinTech, especially with the implementation of the African digital payments in a COVID-19 context cannot be emphasised
has enabled banking customers (for banks running on the Continental Free Trade Agreement (AfCFTA) since 1 January enough.
MauCAS payment system) to make “round the clock” payments 2021, is cross-border payments. Indeed, with cross-border Ultimately, if banks can form smart partnerships with FinTech
without depending on bank opening or processing hours. payments being almost exclusively digital, such payment players to leverage digital channels for the benefit of their
MauCAS ensures that transactions are settled instantly with services will be better able to proliferate across the continent if clients, and develop in-house skills and expertise over time, it
all banks operating local payments on a single network. It barriers to cross-border operations are reduced via the AfCFTA, would culminate in a win-win situation for banks, FinTechs
also increases efficiency gains for customers by reducing time while greater integration can be achieved via the regulatory and customers alike.
VENDREDI 06 AOÛT 2021 | BIZWEEK | ÉDITION 354 9
DEBRIEF
« NOW FOR TOMORROW »
Bank One doublement primée
Le nouveau programme de aux CFI.co Awards 2021
La Bank One est à
développement durable de
l’honneur. En effet,
pour la deuxième année
consécutive, elle s’est
VLH lance les premiers sé-
vue décerner le prix
de ‘Best Internation-
al Banking Services’
dans l’Océan Indien
jours zéro carbone par la publication fi-
nancière de renommée
internationale, CFI.
Il s’agit d’un projet inédit et innovant pour le secteur hôtelier à Maurice. « Now for co. La Banque Privée
de Bank One a quant à
tomorrow », un programme de développement durable et inclusif, a été lancé par elle reçu le titre de ‘Best
Veranda Leisure and Hospitality (VLH), le pôle hôtellerie du groupe Rogers, le 4 aôut Custodian Bank’ dans
2021. Digne de l’historique de Rogers comme pionnier de l’hôtellerie et des loisirs à l’Océan Indien. CFI.
co récompense chaque
Maurice, VLH aspire, entre autres, à réduire et compenser l’empreinte carbone des année « les personnes
complexes hôteliers de Heritage Resorts. C’est à travers le lancement d’un site web et et les institutions qui
contribuent de manière
d’une campagne digitale que VLH a fait le bilan de plusieurs années d’actions et réitère significative à la con-
son engagement envers l’environnement et les communautés au sein desquelles il opère vergence des économies
‘N
et apportent une réelle
ow for tomorrow’ comprend valeur ajoutée à toutes les
cinq domaines d’action, parties prenantes. »
en accord avec le pacte Les membres du jury ont souligné les efforts remarquables de la
SigneNatir de Business Mauritius, Bank One en Afrique subsaharienne et le soutien qu’elle apporte
nommément la transition énergé- aux entreprises dans les marchés clés de cette région. La banque se
tique, l’économie circulaire, la dit fière d’appartenir à une ‘Star Alliance of Banks’ qui propose une
protection de la biodiversité, des valeur unique pour répondre aux besoins des institutions en Afrique
communautés vivantes et intégrées, subsaharienne grâce à des services personnalisés et des solutions sur
ainsi que le développement in- mesure.
clusif. La durabilité faisant partie
intégrante de l’ADN de VLH, les
deux marques hôtelières du groupe, The Grove : Lancement des
à savoir Heritage Resorts et Veranda premières unités bâties de Uniciti
Resorts, sont appelées à intégrer ces
cinq piliers de durabilité dans leurs
opérations.
Pour Thierry Montocchio, CEO
du groupe VLH, ‘Now for tomorrow’ Pionnier dans l’offre de séjours contribution volontaire à ces mêmes
n’est pas qu’un discours creux. « neutres en carbone Dès octobre projets sera proposée aux clients. À
Nous lançons ce programme avec des résul- 2021, VLH renforcera son engage- partir de janvier 2022, 100% des
tats chiffrés quant aux actions que nous ment et sera le premier groupe fruits et légumes, des fruits de mer,
avons déjà menées ces dix dernières années. hôtelier à offrir des séjours « neutres de la volaille et de la viande con-
Notre programme d’entretien de 10 mod- en carbone » au sein de ses établisse- sommés dans les établissements du
ules de récifs artificiels dans le lagon de Bel ments Heritage Resorts à Bel Om- groupe proviendront de fermiers
Ombre a, en outre, permis une régénéra- bre en compensant l’intégralité des et producteurs mauriciens, ou de
tion importante des coraux et l’observation émissions de CO2 inévitables d’un partenaires régionaux dans l’océan
de 20 nouvelles espèces de poissons. Notre séjour. Cet objectif sera notamment Indien. Le groupe vise également le
Heritage Training Academy a autonomisé réalisé à travers l’achat de crédit car- recyclage de 75% de ses déchets d’ici
Uniciti entame une nouvelle phase de son développement rési-
les communautés locales, leur ouvrant une bone auprès du Groupe Aera mais 2022, et ambitionne de développer
dentiel avec le lancement de ses premières unités bâties, situées dans
carrière dans le secteur hôtelier. Notre aussi à travers des projets locaux une approche scientifique pour ré-
le très recherché quartier de “Central”, positionné au cœur de la
nouvelle unité d’embouteillage d’eau pour de « compensation carbone », dont la duire le gaspillage alimentaire dans
smart city du groupe Medine. Longé par la Promenade de Magen-
l’approvisionnement de nos hôtels nous a construction d’une ferme photo- plusieurs hôtels du groupe, et ce, en
ta et niché à l’orée d’une petite forêt vallonnée, The Grove allie un
en 2019 permis d’éviter l’utilisation de voltaïque et le reboisement de terres s’engageant dans un projet pilote
cadre verdoyant à une architecture qui fait la part belle aux matér-
l’équivalent de 27 tonnes de bouteilles en non-utilisées actuellement. mené en collaboration avec le label
iaux naturels. The Grove propose ainsi 49 unités résidentielles com-
plastique. » Quant aux hôtels Veranda, une The PLEDGE on Food Waste.
prenant 35 appartements, 8 townhouses et 6 villas au style de vie
résolument tourné vers l’extérieur. Accessibles aussi bien aux Mau-
Survey on Directors’ Fees and riciens qu’aux étrangers, ces résidences bâties sont commercialisées
à partir de Rs 5.5 M.
Board Composition conducted Courts Mammouth poursuit
son action caritative
by Korn Ferry in Mauritius Dans la lignée des efforts réalisés par la compagnie pour soutenir
les plus défavorisés, Courts Mammouth continue de répondre aux
appels d’ONG nécessitant des dons. La chaîne d’électroménager
Korn Ferry, in association with et d’ameublement a ainsi rapidement répondu à un appel à l’aide
the Mauritius Institute of Di- de l’association Elles C Nous, qui favorise l’intégration d’enfants
rectors (MIoD), has released its originaires de quartiers défavorisés dans la région de Beau-Bassin/
latest report on Directors’ fees Chebel.
and Board composition in Mau- Comme l’explique Andrew Cohen, CEO de Courts Mammouth,
ritius. The report analyses the « Elles C Nous a fait appel à Courts Mammouth pour l’aider à mieux
remuneration data for Non-Ex- équiper la cuisine de son refuge, qui nécessitait une remise à neuf. A la
ecutive Directors (NEDs) from The median value of annual the median rate, Total Annual demande de l’association, nous leur avons offert un set d’ustensiles de
53 companies, representing a retainer fees for the board chair Remuneration paid to the board cuisine. C’est tout naturel pour nous d’aider en cette période difficile, et
total of over 600 directorships have significantly increased since chair is Rs. 1,000,000 per year – nous sommes ravis de contribuer au bien-être des bénéficiaires de cette
in Mauritius across a wide range the last Korn Ferry study con- this figure represents the annual ONG. Les femmes et les enfants sont la priorité de nos actions sociales,
of industry sectors. It provides ducted in 2018 – from Rs. 240,000 retainer fee plus meeting fees and donc cela tombe à pic ».
key insights into current trends to Rs. 825,000. In addition to other allowances. It is interesting Le travail d’Elles C Nous dans sa région d’intervention consiste à
in NED remuneration and board retainer fees, where companies to note that the median annu- offrir aux jeunes dans le besoin des cours de rattrapage, du matériel
governance (board composition, also pay meeting fees to their al retainer fee for independent scolaire, des repas gratuits, des activités sportives et de loisirs ou
structure and meetings) among directors -these typically range NEDs is noticeably higher than encore des sorties éducatives.
the participating organisations. from Rs. 20,000 to Rs. 25,000. At that for NEDs.
VENDREDI 06 AOÛT 2021 | BIZWEEK | ÉDITION 354 10
DEBRIEF
DÉVELOPPEMENT DURABLE
CIDP met à l’honneur
des ONG et des artisans
locaux
Sensibiliser ses employés aux différents aspects du développement durable.
C’est dans cette optique que le Centre International de Développement
Pharmaceutique (CIDP) a organisé une « Sustainability Week » au sein de Socota
Phoenicia, à Phoenix
Emtel réunit 58 donneurs pour sa
collecte annuelle de sang
Emtel se mobilise, une nouvelle fois, pour le don de sang. L’en-
treprise a organisé, le mercredi 28 juillet, sa collecte annuelle, à
son siège social, Emtel World, à la Cybercité d’Ébène, en collabo-
ration avec la Thalassemia Society of Mauritius. « Nous sommes
très fiers d’avoir atteint notre objectif avec 58 pintes récoltées, cette
année. Il est important pour nous d’apporter notre contribution à ce
type d’événement, non seulement dans le cadre de notre responsabil-
ité sociale, mais aussi en tant qu’entreprise qui a à cœur la santé des
Mauriciens. Chaque jour, ils sont nombreux à avoir besoin de trans-
fusion sanguine, et le stock à la banque de sang doit être réapprovi-
sionné régulièrement », soutient Kresh Goomany, CEO d’Emtel.
Nomination : Raoul Maurel
à la tête des opérations
À cette occasion, six organi- sensibiliser nos employés, mais également Rainbow Foundation gère plusieurs au Heritage Resorts
sations non gouvernemen- le grand public, au développement durable. activités pour aider les personnes
tales (ONG) et entreprises En donnant de la visibilité à ces ONG en situation de handicap. « Tous nos
locales avaient été sélectionnées, et entreprises, nous souhaitons encourager programmes sont orientés vers l’éducation
notamment The Good Shop et le plus de personnes possibles à adopter et la formation des personnes souffrant de
la Global Rainbow Foundation, une consommation responsable et démon- différents types de handicap. Le but de nos
pour participer à une exposition le trer que la notion de durabilité n’est pas activités est de les rendre autonomes, et in
mercredi 14 juillet. L’initiative s’est uniquement liée à la préservation de l’en- fine, améliorer leur qualité de vie », a fait
poursuivie, le vendredi 16 juillet, vironnement. Elle inclut également l’émer- ressortir Julian Tarbox, Program
par un atelier sur les teintures natur- gence d’une économie inclusive, notamment Manager – Employability chez
elles pour textile. à travers l’autonomisation des groupes Global Rainbow Foundation.
En sus de l’exposition, le CIDP vulnérables », a déclaré Rajini Nai- Ecostyle, La Savonnerie Détente
avait convié son personnel à un doo Cartier, Group Quality, Health, et la Mauritius Glass Gallery ont
atelier, animé par The Good Shop Safety and Environment Manager également participé à cette initiative
Repair and Renew, sur la fabrication chez CIDP. du CIDP. Cela a été une occasion
de teintures naturelles à base de L’inclusion et l’autonomisation pour ces entreprises de présenter
plantes pour les vêtements et autres des groupes vulnérables représen- leur gamme de produits, tels que
textiles. tent également un axe important des sacs réutilisables, des savons
« La ‘Sustainability Week’ est un du développement durable. En tant naturels ou encore des objets fabri-
rendez-vous annuel, dont l’objectif est de qu’association caritative, la Global qués à partir de verre 100 % recyclé.
SWAN SafeDrive : Une application Renforcer le positionnement de la marque Heritage Resorts
en tant que référence mondiale du luxe raffiné dans le secteur
pour améliorer votre conduite hôtelier ! Il s’agit de l’une des nombreuses missions que devra
mener Raoul Maurel qui sera, à partir du 1er octobre, le nouveau
Il se veut comme un « copilote » Chief Operations Officer (COO) de cette chaîne d’hôtels haut
qui vous accompagne chaque jour de gamme du groupe Veranda Leisure and Hospitality (VLH).
pour vous aider à perfectionner Il succèdera, ainsi, à Jacques Charles, dont le contrat arrive à
votre conduite, améliorer le ren- terme le 30 septembre prochain, après un mandat de six ans à
dement de votre véhicule et, plus ce poste. Le nouveau chef des opérations, qui compte près de 20
important encore, maximiser vo- ans d’expérience dans le domaine de l’hôtellerie, prévoit de miser
tre sécurité… SWAN SafeDrive, sur l’innovation continue et le maintien de standards de qualité
lancé officiellement par le groupe élevés auxquels il est fortement attaché, à l’ouverture totale des
SWAN le vendredi 30 juillet, est frontières en octobre prochain.
une offre d’assurance automo-
bile tous risques qui s’accom-
pagne désormais d’un petit boîtier
Le Groupe MCB double le paternity
télématique autonome, placé dans leave pour ses employés
Quelques semaines après la publication d’un MCB Focus sur
le sujet de l’égalité des genres à Maurice et une première an-
nonce concernant l’objectif de 40% de représentation fémi-
le véhicule, ainsi que d’une appli- sonnel, le boîtier analyse en temps nine au sein de son senior et middle Management d’ici 2026, le
cation mobile. Cette innovation réel la conduite de l’automobil- Groupe a adopté une Gender Equality Charter ainsi qu’une série
technologique vise à encourager iste, le respect de la limitation de de mesures concrètes pour accélérer la dynamique d’égalité des
les automobilistes à adopter une vitesse, la maîtrise du freinage, le genres. Les premières actions concrètes à voir le jour sont : Le
conduite plus responsable. Cette rythme de l’accélération et les dis- doublement du congé de paternité légal qui passe à 10 jours - y
offre d’assurance automobile, tractions au volant, notamment compris pour les pères non-mariés - pour toute naissance à partir
basée sur la télématique em- l’utilisation du téléphone, entre du 1er juillet 2021 ; La mise en place de salles d’allaitement sur
barquée, est une grande première autres données, tout en respectant les deux sites principaux de la MCB, notamment à Port-Louis et
à Maurice. Plus qu’un coach per- scrupuleusement sa vie privée. à Saint-Jean, entre autres.You can also read
