Sententia Articles April 2020

In this Issue

A New Working Paradigm

We are living in very challenging times.  That’s all relative of course as those on the frontline leading the fight against COVID-19 are really having it rough and in comparison this has been something we just have to handle and work through...

Risk Management During Lockdown

From a Risk Management point of view, there are several areas that it may be wise to focus on during these trying times to help you maintain operational resilience and keep an eye on the emerging exposures we could see...

Bear Markets Past and Present: Is the British Bear behaving in line with other bear markets around the globe?

Looking through history, we can identify the times of Bull and Bear markets in growing and contracting global economies, as indicators of the sentiments and attitudes within the markets....

A New Working Paradigm

We are living in very challenging times. That’s all relative of course as those on the frontline leading the fight against COVID-19 are really having it rough and in comparison this has been something we just have to handle and work through.

One month ago we were looking to run our latest scheduled BCP test, but in the event we just had to tear it up and throw it in the bin as moving to another site wasn’t permitted! Instead, the management got together on a call on a Sunday morning the week before the UK went into lock down and initiated a new plan. That seems so long ago now, but we decided first to mitigate our risk in relation to key decision makers and ensure the management team were working in separate locations. As the week moved on, more planning took place to ensure that we could respond to the predicted government directives, whilst continuing our service unaffected or with as little impact as possible.

The team were fantastic to a person, with everybody understanding the speed we needed to work at and the importance of getting it right.  ‘Soft phones’ were deployed on all laptops so calls could be answered and recorded, new laptops were built and distributed with remote working software, processes were redesigned to allow checks and controls to continue operating, and communication throughout the period was key, both internally to staff and externally to advisers to provide reassurance that services would continue as near to normal as possible. The biggest challenge was, and remains to be, how we handle post and print. Fortunately, we use a print house for our bulk printing, but those ad-hoc items that are used throughout the day needed consideration.

As we moved into the rhythm of remote working, we saw a change of service demand from advisers as they faced their own challenges. More requests, for us to  be flexible with our requirements if possible, so that instructions could be agreed, obtained and submitted, were coming in at greater speed. We have always viewed the most important aspect of our role as being the custodian of our clients’ assets. People are entrusting us with their hard earned cash and have every right to demand that we secure and protect it. We sometimes come under criticism for seemingly asking people to jump through hoops to get their money withdrawn, but this is always to ensure that we are protecting against fraud. Only last week we experienced an incident where a client’s email was hacked and a withdrawal attempted. Our starting point on handling change requests is to fully understand why the control is there in the first place, then working forward we can assess the use of supplementary controls to support a revised or a completely different process to operate in this changed environment. The key point will remain that we are not compromising the security of the assets.

The challenge we didn’t expect was that of interaction and motivation. We probably all take for granted that daily interaction within our teams – the unscheduled meetings, the ‘chewing of the fat’, and the valuable communication that takes place. Management tend to speak to each other every day, just checking in and ensuring there is nothing we need to make each aware of.  Obviously that’s still possible now, but it all seems a little more ‘formal’ over Microsoft Teams calls! Then we have had the knock on effect of motivating people and keeping them engaged and understanding what is happening.  Regular team meetings have been a key element of passing information, and getting that real-time feedback is critical. Trying to get that now has proven to be difficult and different, but not impossible. 

In order to maintain motivation at a distance we have organised a virtual quiz, best (that’s really worst) home haircut, most random food creation and playlist suggestions (we tried to work out a way of having a company playlist, but not everyone uses Spotify/Apple Music!). These may seem inconsequential items and luxuries, however they are key to ensuring that moral remains in such a difficult time.

The silver lining, if there is one, is the drive for innovation and new ways of working effectively. We have changed processes as mentioned above, but are also looking at scanning applications, bio-metric ID verification and a number of other initiatives to help us and our advisers and their clients. It’s a tricky balance to keep service levels high (the team have managed to keep to all SLAs post lock-down) while we also make changes particularly at speed as we know advisers and clients need us to adapt quickly.

It’s a challenge, but one we are responding to.


Risk Management During Lockdown

From a Risk Management point of view, there are several areas that it may be wise to focus on during these trying times to help you maintain operational resilience and keep an eye on the emerging exposures we could see.


Customers and financial services employees will be naturally worried about their health and their finances. Reassurance is important and communication during this crisis is crucial. At Novia we set up the Covid-19 web page to bring together useful updates for you, and customers should be reassured that their investments are safe, protected by Novia and available as normal when they need access to their money.

We have taken early action to ensure staff can feel safe by working from home and can continue to deliver our service to advisers and customers.

We would encourage as much communication as possible with your customers and employees.


You’ll have the kit and no doubt ordered extra paper and ink but as we become hyper reliant on these tools, what about their maintenance? It’s going to get harder and harder to order a replacement set of miked headphones, a new mouse or extra RAM. We're not advocating bulk buying but having back-up peripherals is good sense, when you used to be able to pop to the store to get these on the same day.

Good cyber hygiene is important, with regular updating of your PC with latest security fixes as it’s a sad fact that somebody out there will be trying to exploit the situation. Check daily for updates; make sure your passwords are robust and sufficiently varied for your different applications.

When we switch to home working there is of course increased likelihood that more of the business data flowing between parties will end up copied into higher risk locations, such as on laptops rather than just the firm’s servers. Some steps you can take to help mitigate this exposure include using encrypted or password protected files in emails where possible, disabling autocomplete addresses in your email so you don’t accidentally send to the wrong recipient and clearing out your local drives daily of unnecessary information. 

3rd Party Relationships

Social distancing is making things much harder and while the customer facing exposures are self-evident, it is sensible to consider the impact on the service providers you work with as more of their workforce could become affected or unavailable.

The online platform world is well prepared for dealing with this crisis. We're proud of how our Novia colleagues have adapted to continue to provide unaffected services and been flexible where possible with processing requirements to support advisers and customers.

The situation can change rapidly and the best thing you can do is communicate with your 3rd Parties, review their web updates and be as flexible as possible, as we’re all going to have slightly different requirements for servicing customers during this period.


As you know, processes - especially those involving multiple parties - can be put at risk because of timings: a piece of post delayed here; an email sent to the wrong person there. Novia is well placed with appropriately robust controls but we’re not the only link in the chain. Where in the past you may not have tracked every piece of business through the cycle, now might be a good time to keep a closer eye on these things. Use the Novia online tools we provide to keep abreast of your customer’s journey, as when things do go wrong, catching them quickly helps immeasurably.

Now is a time of increased fraudulent activity. The disruption can be exploited by criminals. Everyone should be more vigilant during this crisis, especially with client instructions that are not face-to-face such as email instructions, or with any other communication.  Identifying who you are dealing with and verifying an instruction is important.  Verification by phone with your client could be beneficial for additional checks in the current climate.

Horizon scanning

Trying to keep a handle on what could be coming down the line is tricky. We urge you to spare some time to participate in the industry’s webinars on COVID-19 planning. Of course, some will be a sales pitches but in this time of crisis there is genuine altruistic sharing of information out there, so take advantage of it.

In summary:

  1.     Communicate with customers and employees
  2.     Maintain your technology
  3.     Have back-ups for critical kit
  4.     Check regularly for security updates
  5.     Use encryption where possible
  6.     Keep your passwords strong and varied
  7.     Clear unnecessary data from your emails and local drives
  8.     Keep in contact with your 3rd Party Service providers
  9.     Use the Novia online tools to track your customer journey
  10.     Be more aware of the potential for fraud
  11.     Keep up-to-date with the industry guidance

Stay safe and keep well. By adapting to these unusual times, we’ll emerge as more resilient businesses.



Bear markets past and present: Is the British Bear behaving in line with other bear markets around the globe?

Bear markets and market corrections

Looking through history, we can identify the times of Bull and Bear markets in growing and contracting global economies, as indicators of the sentiments and attitudes within the markets. As opposed to a strong bull market, where there is a general feeling that stocks are going to continue to perform well, in a bear market stocks are generally not performing so well, share prices are dropping and there is a general feeling of anxiety and under-performance in the market. This can have knock-on effects on the economy and GDP. But it’s important here to note the difference between a Bear market and a stock market correction.

A stock market correction usually occurs when something has happened in the country or globally to shock the market. This causes a drop in the market, but usually it rebounds within 3-4 months. A recent example of a stock market correction would be the FSTE 100 during 2018. The FTSE All Share index lost roughly 15% of its starting value over the course of the year. However, it did see a recovery in 2019 as would have been expected. A stock market correction usually relates to a drop of up to 10-15% of any one index.

By comparison, in a Bear market an index usually drops by at least 20%. It can develop over a longer period of time, so you might not see a sudden drop in stocks, but more of a steady decline. For example, some in the industry believe in the “Two Percent Rule” meaning that at the start of a bear market, stock prices may decline by roughly 2% per month, showing more of a steady decline than a large initial correction.

Historic Bear markets

The UK is no stranger to the Bear market and has experienced roughly 10 such periods since the 1970s. The most recent bear market in the UK was the financial crisis of 2007/2008. This global crisis was demonstrated by two key events: first the collapse of the American Bank, Lehman Brothers (whom the US government refused to bail out), and second the collapse of the British Bank, Northern Rock. There had been an increasing amount of distrust in the financial system at the time, and there was a lack of regulation in place to protect both consumers and financial transactions.

Bear markets usually last for a shorter duration than Bull markets. Based upon historical averages, the average bear market duration is 1 year and 8 months, compared to the bull market average of 7 years. When looking at return, the average return (or loss) in a bear market is -36.5%, compared to a 507% return during a bull market. In the case of the last bear market, the global financial crisis, the duration was 1 year and 4 months, with a 41% loss in stock market values.

The UK markets have been in a bull state now for just over 10 years, and have returned on average 212% of their starting value. The Covid 19 virus has triggered the beginning of a bear market not only in the UK, but throughout the rest of the globe. We will now see how the British Bear is competing alongside its international counterparts.

The British Bear – February 2020 onwards

We can see from the chart below that the FTSE All Share has now entered a bear market. This is as a result of stock values dropping more than 20% since the start of the year. Highlighted below are two key dates, the first being 19 February 2020, which is when the US S&P index suffered its biggest daily loss in 2 years; the second is 16 March 2020 where some indices started to show some recovery.


Source: Yahoo Finance

The UK’s journey with Covid 19 started to accelerate in February following the drastic increase in cases across northern Italy. While the UK had been able, to some degree, to control exposure to Chinese cases, its exposure to Italian cases seemed to be much greater. By 5 March the UK passed 100 cases and recorded its first Covid 19 related death and by 18 March, had passed 2000 cases and 100 deaths.

The FTSE has of course reacted to the increasing concern in UK cases and deaths. The UK introduced social distancing measures in the middle of March and went into lockdown on 24 March. The UK government has also introduced a number of measures to support businesses, employees and notably the self-employed amongst others, to try to support and rescue those that are in great need of help. This has helped lift spirits and regain a little optimism in the market, but the FTSE still sits much lower than where it started the year.

So how does this compare to Global markets?

The global markets have all followed a similar trend, but at different paces and entering different phases based upon their own domestic Covid 19 situation, plus how they are affected by other international markets. China for example had the first known cases and as it stands has reported just under 82,000 in total and over 3,300 deaths. Therefore, China’s stock market saw its biggest reaction in January as opposed to Europe and the Americas which saw their initial drops later in February. China has since seen a slight recovery in the Shanghai Index, which is reflective of the fact that China has been able to lift some of its lockdown measures and open some businesses.


Source: Bloomberg

Europe on the other hand experienced its entry into a Bear market during mid to late February. So far, different countries in Europe have suffered different levels of severity with their Covid 19 situations. For example, within mainland Europe, Italy, France and Spain have suffered the worst in terms of the number of deaths and the death rate as a percentage of the number of tested positive cases. This has naturally had an impact on individual stock markets, and we can see that those countries in a more difficult situation have reacted more significantly than some others.

The below chart shows that the highlighted red indices; IBEX 35 (Spain) and MIB (Italy) have suffered the most during the period of February 19 to March 16, showing a 39% drop and 41% drop respectively over the period. This shows correlation as Spain and Italy have currently experienced the highest number of Covid 19 related deaths, Spain over 13,000 and Italy over 16,000. Conversely, the best performing indices here (within Europe) are the Copenhagen 25 and Swiss MI, who have lost 26% and 27% respectively over the period. If we compare the death rates of these countries, Denmark has had just under 200 Covid 19 related deaths, and Switzerland just under 800. Therefore, both show death rates of less than 5%. Both countries took on social distancing measures early in their journeys, and are now beginning to discuss easing lockdown restrictions.


From the above chart you will see that the FTSE 100 in the UK has experienced a 31% drop during the period February 19 to March 16 2020. This seems like a large amount, but is lower than the most extreme countries such as Italy and Spain and is in fact the average decrease across the markets if you remove Shanghai. We have for this purpose removed Shanghai’s 6% drop because it experienced its larger drop earlier in January.


Source: Bloomberg

Each country is different, each with its economy and domestic struggles being in different places before the virus. There is some reassurance to be taken from the fact that the UK stock market is performing in line with other Bear markets across the globe.

What comes next?

One key aspect that countries are starting to think about is “what comes next?” It’s been said that through research and testing it could be 12-18 months before a vaccine for the virus is available. Therefore, countries need to start preparing their exit strategies from lockdown so that they can begin to allow businesses to open and for the economy to continue to operate under some kind of normality.

In the UK, the large majority of retail and hospitality businesses have been closed for almost three weeks and might well be closed for at least another 6-8 depending on the progression of cases and requirements of lockdown. This means on average people are earning less and spending less and therefore the pressure on industry and the economy has increased. Countries that have managed to squash the curve of the virus such as Austria, Denmark and Switzerland are now considering their exit strategies and this will help lead thought for countries that follow.

We can expect that the UK may be in a Bear market for the next 12 months or more, but can also be confident in the continued hard work of businesses to innovate and grow during this period. History has shown that companies and new developments can be born during difficult economic periods.