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What’s Happening In Financial Year 2017/18 And Beyond?

Posted by Ryan Hendrie on 06/10/17 10:22

What Is Happening In Financial Year 2017-18 And Beyond.png

With financial sector changes happening in almost daily - and recent stock market hits -  what trends, predictions, and financial developments are on the cards for the rest of this year and next? Plus, has the election changed anything and will Brexit impact the future?

New Developments in Finance This Year and Next

Here are some predictions and new developments in finance this year and next:


Artificial Intelligence ("AI")

Hedge funds and stock exchanges are using AI algorithms to increase efficiency and make smarter stock market decisions - so, in finance, we may see a shift in focus from the traditional expert (broker or hedge fund manager) to the highly automated.

Artificial intelligence is advancing into the banking industry as a way to interact with customers about their experience, easing employee workload and increasing satisfaction.

AI advancements will increase the ability to provide real-time accounting with reports and charts being available at the click of a button. There’s a prediction that the bookkeeping and accounting industries will see drastic changes as a result. One Boston-based company, Botkeeper, is already automating bookkeeping and giving around the clock support to clients.

What will future clients expect? Do they expect the instant service that AI will provide, or are they happy with more traditional services? Processes are certainly becoming more streamlined, and as AI becomes smarter and more developed, it’s definitely a step in the right direction, as AI can decrease company overheads by reducing the staff needed to take care of its customers. However, Forbes reports that whilst banks look forward to this technology, they are slower to adopt it.

Open Banking

Open Banking is a new term in financial services and financial technology. Open Application Programming Interfaces (APIs) enable third party developers to build apps and services around financial institutions, allowing for greater transparency for account holders - from open data to private data. The goal is to share and access bank data quickly whilst retaining security and cost efficiencies.

Open banking will force firms to compete with smaller, newer banks, resulting in lower costs, better technology, and higher quality customer service. It also allows for individuals and companies to understand their financial management through third party apps, so it may change banking completely as people understand their bottom lines and the bigger picture more clearly, providing a 360-degree view of financial data, 365 days a year. 

This tech is in production, so it’s best to start preparing now for a more open, transparent model of financial reporting and banking. The public will be able to make more informed, smarter decisions about their money, and for banks, this openness may see profit margins squeezed or even decrease significantly. However, ever more transparent practices should be encouraged to protect consumers. Tech World discusses the advent of online only, app-based banks - with cards that track spending - such as Atom, Monzo, Starling, and Tandem. These so called “challenger” banks have the transparent, fast-paced policies that customers expect.

Simplicity and Outsourcing

Large, complex institutions like banks and capital market firms are beginning to simplify their business and operating models for economic simplicity and to reduce organizational complexity. Companies realize they cannot keep their fingers in all of the figurative pies if they want to be an expert in the field, so by realising they cannot excel at everything, they are deciding to outsource any non-essential, non-core activities. If your company wants to focus on lease management, for example, then accounting, HR, and web management may be outsourced to companies who specialise in these areas. Big companies are realising that having external experts handle the tasks they do not excel in is allowing them to save bottom line costs and improve the company focus and operation; they no longer need an HR department, but a single HR manager - no more IT team, but one manager, and so forth.  

For the future, businesses may want to analyse their costs and find where their priorities lie. Can you, for example, lease more economically and tactically assets that can increase profits in the long run by outsourcing these tasks that used to be handled in house? It’s worth considering.

 

The Increase of Leasing

In the UK, the recent political instability has resulted in, an increase in asset leasing. On an individual scale, when it comes to big ticket purchases, consumers are opting to lease their vehicles, rent their homes, and subscribe to services, deciding to pay monthly for assets they may not need to own down the line. Consumers feel that unstable political times deter them from making outright purchases.  This tactic means no bulk payments, or upfront costs (depending on the product), and often the ability to afford newer, more upmarket products than ever before with the add-on costs of maintenance.

For businesses, leasing may be on the rise. Many may not know that many airlines lease - and do not own - their aircraft for reasons that are twofold: they don’t have the burden of owning the craft, and they can more flexibly increase or decrease capacity when they need. A multitude of businesses lease their company cars as well.

For this year and next, the financial sector may see the increase of leases with unique options - from computers to office furniture to farm equipment and more. With start-up or small companies who don’t have the initial costs of buying equipment, leasing is an attractive offer.

However, it’s important to note that a new accounting standard for leases - IFRS 16 - which comes into effect on 1 January 2019, will have a significant impact on companies that lease as this new standard will require lessees to account for their leases under a single accounting treatment, bringing almost all leases ‘on balance sheet’ and recognising a right of use asset and a lease liability. This change will mean that the distinction between finance (capital) and operating leases will no longer exist. Therefore, it is important that any business that uses leasing as a means of asset finance should be aware of what impacts IFRS 16 will or may have on their financial statements and just what options and exemptions are available to it.

The Importance of Compliance

Stricter regulatory requirements are protecting consumers with new laws that limit banking fees and increase transparency. The Government is increasing its control and supervision, changing the industry in significant ways, which will alter how financial institutions report data. Many financial products and services will see lower profit margins and revenue due to an increase in regulatory, compliance and admin work. The Financial sector, as a result, may have to eliminate many of the previously free services to compensate for loss of banking fees, regulated revenue, and so forth - though they may decide to take a hit to retain customers and client acquisition.
 

Will the Recent Election Shape the Future of Finance?

The election has simply made consumers feel uncertain about the pound’s stability and whether and when it will rise or fall, based on foreign investment ebbs and flow. Proposed tax changes and spending alterations could make the market volatile. However, the pound has recovered at times, rising to levels not seen since September after the FTSE 100 stocks were sold to even out the market but presently it is approaching 1:1 with the Euro. Trading and hedging increases around elections, and lower Merger and Acquisitions and Inbound Investment has been seen. Most in the financial sector are used to a fluctuating market, so for many, it may be business as usual.

How Will Brexit Affect Everything?

As much as Europe is trying to keep its calm, Brexit is upsetting the market since it’s unclear if Italy - by late 2018 - will vote to leave the EU too, which will throw European economies into a recession. If Italian banks are not held accountable or obligated, financial panic could happen in the EU. Will Britain be the leader in the EU’s collapse and what will that mean for the economic future? Unfortunately, no one can really predict what will happen or the outcome of such eventualities.

 

Are You Prepared?

IFRS 16 is closer than you think! With all of these changes happening in the financial sector, make sure your business is prepared and compliant. Download our FREE 7-step plan for achieving compliance.

7 Step Guide to Lease Accounting - Click to View

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