The proposal is to create a Global Financial Trust Index (GFTI) in order to inform debate on financial trust issues, such as financial crime or money laundering, and to provide a longer-term metric for analysis. GFTI is analogous to two other equally successful indices with similar aims already produced by Z/Yen in different domains – the Global Financial Centres Index (GFCI) and Taylor Wessing’s Global Intellectual Property Index (GIPI). Both are available online –http://www.zyen.com/activities/gfci.htmland http://www.zyen.com/activities/global-intellectual-property-index-gipi.html.
This outline proposal is intended to widen discussion, to initiate support and to provoke thoughts for improving either the GFTI or its potential impact.
Objectives & Scope
The Global Financial Trust Index (GFTI) would provide ratings of different countries by how ‘trustworthy’ the business-financial environment is. The GFTI would be calculated by a ‘factor assessment model’ built using two distinct sets of input:
Every time new assessments arrive, or instrumental factors change, the index can updated, though we would probably suggest issuing GFTI half-yearly. Z/Yen would research the instrumental factors, compile them, survey respondents, analyse the data and produce a report suitable for publication.
Approach & Methodology
The respondent assessments and instrumental factors are used to build a predictive model of country trustworthiness using support vector machine (SVM) mathematics. The SVM used for building GFTI would be PropheZy – Z/Yen’s proprietary system. SVMs are based upon statistical techniques that classify and model complex historic data in order to make predictions on new data. The SVM used for the GFTI would provide information about the confidence with which each specific classification is made and the likelihood of other possible classifications. The predictive model provides the overall index by answering questions such as:
If a Munich-based ACCA member gives USA, Germany, Malaysia and the UK certain assessments then, based on the instrumental factors for USA, Germany, Malaysia and the UK, using the factors for Australia, how would that person assess Australia?
We would propose developing sub-indices around the different categories of respondent – for example, how are different countries assessed by finance directors, practicing accountants or accountants in public service. Further discussion on who might be included in the GFTI survey is needed.
The process of creating the GFTI is outlined diagrammatically below:
A few features of Z/Yen’s factor-assessment approach are worth noting:
Creating the GFTI does not involve just totalling or averaging instrumental factors, rather a statistical multi-variate correlation of perceptions with facts. An approach involving totalling and averaging contrasts with Z/Yen’s factor-assessment model as follows:
We would research factor inputs of financial trustworthiness from external sources. Where indices are already in the public domain, we credit the relevant organisation as the source of the data. There may be organisations that have conducted relevant research, but who do not publish their data, for example PwC’s provision of special tax data for GFCI. Additional data might be obtained at a cost but we believe that there is likely to be sufficient publicly available data for the GFTI without the need to buy additional information. A number of the instrumental factors used in creating the GFCI could be incorporated within the GFTI as they bear on financial trust, for example:
At the outset of this project, we would agree guidelines for instrumental factors. These guidelines would ensure that instrumental factors were selected and used in a way that will generate a credible, dynamic rating of the trustworthiness of business environments around the world.
The guidelines for assessments by respondents might be:
Assessments would be included in the GFTI model for 36 months after they have been received. Responses would be given a reduced weighting by age on a log scale.
The questionnaire should be brief to encourage a good response rate. The questionnaire would be aimed at finance, accounting and tax professionals (and potentially other groups of professionals) from as wide a range of countries as possible. The key issue is that these respondents should provide a good representation of countries. We recommend that the online web-based questionnaire be conducted continuously, but with a ‘recruitment drive’ twice a year.
This note is designed to initiate conversation. Z/Yen is interested in exploring these issues further with all parties. Please contact Michael Mainelli, Director, Z/Yen Group Limited, Michael_Mainelli@zyen.com