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Issue 2, 2015 Issue Issues The official daily newspaper of Sibos 2015 Singapore I 12-15 October

T2S: Staying alert to China: A market Ray of hope cyber-threats transformed page 4 page 8 page 10

MARKET Striking a balance INFRASTRUCTURES Facing up to the real With Sibos 2015 in Singapore deal now a few short months away, we hope you enjoy the Real-time payments taste of things to come initiatives offer a provided in this edition’s Transparency long-term future for articles. Don’t forget to must be payments banks. check out www.sibos.com for the latest practical improved. Adoption of real-time retail pay- information to help you plan Stephen Lomas, ments systems (RT-RPSs) is grow- head of market policy, ing across the world, with 18 coun- your Sibos schedule. global transaction banking, Deutsche Bank tries already using an RT-RPS and almost 30 more in various stages Best wishes of exploration or implementation. Sven Bossu, The momentum behind RT-RPS installation stems largely from head of Sibos the same kind of forces that have revolutionised consumer spend- ing behaviour in recent decades, notably in the purchasing of IN BRIEF books, music and other forms of entertainment. “In the era of mo- Standards bile commerce and online selling, How to manage infrastructure change page 6 moving money can’t be the slow- est part of the process anymore,” Corporates explains Robert Kauffman, pro- Looking to the next horizon fessor of information systems at page 12 The complexities of the securities industry Singapore Management Univer- sity. Mark Buitenhek, global head Diversity must accommodate regulators’ demands for of transaction services at ING, Strength through diversity page 13 greater transparency, but not at all costs. agrees. “The digitisation of the world means everything is hap- Innotribe pening faster than ever before, The right mix page 14 but the current payments system Practices in the global secu- tary for terrorism and finan- “Transparency must be im- is based on developments in the SWIFT Institute rities industry are “opaque”, cial crimes at the US Depart- proved,” says Stephen Lomas, 1970s,” he observes. Learning the lessons of the Adam Szubin told delegates at ment of the Treasury, went on head of market policy for glob- Today it is possible to order past page 15 Sibos 2014 in Boston. Szubin, to call for “transparency as al transaction banking at Deut- products online in the morning Reference data then director of the US Of- the fundamental starting point sche Bank. “The question is and receive them in the after- Accurate data essential for fice of Foreign Assets Control of any meaningful compliance how best to accomplish this. noon. Some retailers are even treasury efficiency page 15 (OFAC) and now under-secre- programme”. continued on page 2 continued on page 5 Clearstream Your gateway to T2S

Sibos,Ad Sibos powered pre-edition by 272x67mm SWIFT. 05.2015 RZ.indd 1 www.sibos.com www04.05.15.swift.com 3:17 COMPLIANCE Striking a balance continued from page 1 Ultimately, it is a question of The international system under which but operational efficiency is not neces- efficiency; does securities and mutual funds are held, sarily enhanced by its exclusion; after all, settled and distributed is highly com- it can be a long way to the far end of a the same due plex and involves many different institu- complex, cross-border custody chain. It tions.” In March, however, Szubin reiter- is also true that, not least for pragmatic diligence have to ated the intention of policy-makers and operational reasons, absolute end-to-end regulators to cut through complexity. transparency has never been part of the be performed at “We continue to focus on increasing the securities industry’s approach to due dil- every point on the transparency of legal entities by pro- igence. Marco Zwick, head of compliance posing to require the collection of bene- (Europe) and global head of anti-money chain? ficial ownership information.” laundering (AML), RBC Investor & Trea- Opacity is never the objective of a le- sury Services, says: “Cross-distribution Olivier Goffard, head of group gitimate securities transaction, of course, models currently pursue transparency at compliance and ethics, Euroclear the end of the value chain. This is gen- erally achieved by appointing distribu- tors in local markets which are subject to thorities worldwide while minimising dis- will only be felt later: “If there was no equivalent international AML standards.” ruption to the current system,” he says. intent in the bank to engage in criminal- The compliance obligation thus “cas- ity, you really have to question whether cades” through regulated professionals. Stretched to the limit the strict liability that is imposed works The currently Zwick, also president of the Luxem- against finding the right solution.” pursued objective bourg Association for Risk Management, On the question of transparency of ben- says: “The global securities industry has eficial ownership – Szubin has previously No one’s perfect of transparency tried to strike the balance between trans- singled out omnibus accounts as poten- parency and operational efficiency by tially problematic – Olivier Goffard, head The risk of vast fines and reputational will impact the introducing the concept of ‘know your of group compliance and ethics at Euro- damage dampens the enthusiasm for intermediary’ in addition to the regula- clear, makes a seemingly practical point. business in distant, less familiar markets. efficiency of tory concept of ‘know your customer’.” “If we have to provide the ultimate ben- More importantly for the long term, such Upsetting the balance may also upset the eficial owner information within trans- experiences potentially discourage banks international customer, Zwick suggests: “The currently action messaging fields, we are limited from engaging in constructive dialogue pursued objective of transparency, also because at the moment we don’t have a with regulators. But that’s what needs distribution models motivated by factors other than AML, standard that might be used for this pur- to happen, and the signs are that it’s not and the associated will impact the efficiency of international pose across the different stakeholders only happening, but also starting to work. distribution models and the associated within the custody chain in an automated In his March speech, Szubin said: “I want costs. costs.” Lomas acknowledges the need for way,” he says. to make clear that we do not expect per- further flexibility. “The balance that must But this is more than a discussion about fection from the private sector. We un- Marco Zwick, global head of anti-money be struck is to implement a new control messaging technology. “Messaging com- derstand that financial institutions are laundering, RBC Investor & Treasury Services framework that satisfies regulatory au- plexity leads to wider complexity within not infallible, and that it is not possible or a given financial institution. If we, Euro- practical for them to prevent every sin- clear, have to deal with all the names of gle potentially illicit transaction flowing beneficial owners, we have to be able to through them.” record them in a uniform way, to process There is a fine but crucial distinction them. The more names, the more we have between stopping criminals at all costs, to control. And furthermore, it is not al- and defending a vital, pivotal industry ways clear precisely who within an organ- against crime. Lomas says: “Transfer- isation you are dealing with, particularly if ring or transforming ownership interests it operates across many times zones and multiple times brings enormous benefits different business lines. Ultimately, it is a to the global economy by achieving sig- question of efficiency; does the same due nificant scale benefits that result in low diligence have to be performed at every transactional costs and a high degree of point on the chain?” Goffard asks. Trans- securities mobility.” parency is a virtue, but so is efficiency. To Efforts are afoot to come to terms with emphasise the former to the exclusion of the regulators’ requirements. In May 2014, all else, could make it mutually exclusive the International Securities Services As- Special interest session with the latter. It would also send the IT sociation (ISSA) launched an initiative to budget through the roof. address compliance with recent interpre- Transparency may have practical limits tations of financial crime regulation in the in other respects too. Stuart Weinstein, securities and funds space. The principle head of Coventry Law School and author objectives are: to provide a meaningful of a SWIFT Institute-funded study, ‘Reg- framework to guide custodians and funds ulatory Compliance – The Extraterritori- distributors in the application of IOSCO al Challenge’ (due for completion in Q3 principles on client identification and 2015), says: “If people are smart enough beneficial ownership; to minimise gaps to engage in terrorism or money-laun- between market practice and regulatory EBA’s vision for payments in 2020 dering, they are fairly sophisticated play- expectations, with particular reference to ers and they do know how to game the issues raised by enforcement actions and system. You can only be one step ahead regulatory comment; and to create a set of the criminals and that’s the hard part. of principles for the securities services You only discover the newest criminal space, similar to the Wolfsberg Question- techniques too late.” There will be a crim- naire for correspondent banking. Lomas, inal ‘solution’ to transparency one day, if who also chairs ISSA, asserts that collabo- regulators come to rely on it. rative work of this nature will bring about Join us at Sibos in Singapore There are also non-criminal but fal- effective change. “The principles are be- th lible individuals in sensitive positions in ing discussed with the wider securities in- on Tuesday, 13 October 2015 the securities industry. Weinstein says: dustry and key regulators across the glob- “If you’re working in the front office of a al landscape to ensure that these deliver at 14:00 in Conference room 2 bank, you have a tremendous amount of in line with expectations,” he explains. volume coming into your operation. You Arguably the most effective approach do your best to keep track, but the reality to striking the balance between trans- is that it’s an imperfect world.” You make parency and efficiency is to do it before mistakes. Crucial details slip through the the regulator does. Weinstein says: “We cracks. Your bank gets hit for a vast fine have to be self-policing. There’s no tol- and withdraws from, say, countries where erance for people using settlement sys- compliance is difficult, or not cost-effec- tems for illicit activity. If we develop the tive. The sanction and the reaction to it standards ourselves, we can suggest to are disproportionate, perhaps, but for the regulator the right approach. I think Weinstein, the more important impact that’s the key.” n

Publisher: Sven Bossu, SWIFT Managing editor: Alan Rowan, SWIFT Sibos Issues is written and produced by Asset International on behalf of SWIFT Advertising contact: Stephanie Gerniers, SWIFT; [email protected]; +32 2 655 4734 Printed by Innovative Print Solutions Pte Ltd Legal notice: SWIFT © 2015 Reproduction is authorised with acknowledgement of source. All other rights reserved SWIFT, the SWIFT logo, Sibos, Accord, SWIFTReady, and SWIFTNet are registered trademarks of SWIFT. Photographs feature SWIFT employees, customers and partners.

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009.0215004_SIX_Sibos_2015_4c_272x390.indd 1 22.05.15 10:35 SECURITIES Ray of hope T2S is seen as a major step towards securities market integration in Europe, but who stands to benefit and when?

A new era dawned for the T2S, notably via its auto-collater- while also evolving its value European securities market alisation facility, compared with proposition to clients. The firm on 22 June this year, when the functionality offered previ- already processes the majori- TARGET2-Securities (T2S) – the ously by central banks and CSDs ty of its European settlement European Central Bank’s single in smaller European markets. At business in a dedicated facility settlement platform – sprang a time when banks are adjusting in Lisbon, complementing asset into life after years of planning to the new capital and liquidity servicing teams on the ground and months of testing. It may not requirements of Basel III, any op- in locations across Europe. yet be apparent to investors and portunity to access a single pool Alan Cameron, head of re- issuers in participating coun- of liquidity and/or manage collat- lationship management for in- tries, but the post-trade com- eral more effectively is viewed as ternational banks and brokers plexities traditionally involved in particularly welcome. at BP2S, suggests there is sub- T2S will provide benefits as cross-border securities trading stantial scope for sell-side firms an eco-system to support the are already melting away. Evolving business to achieve cost savings through Undeniably, there have been models rationalisation. “Broker-dealers development of other services. setbacks and difficulties along and custodians have a serious the way. After Italian central se- With T2S in its infancy, its precise need to simplify their post-trade Tom Zeeb, CEO, SIX Securities Services curities depository (CSD) Monte impact can only be estimated. processes. For many, T2S is an Titoli requested a delay in ear- As such the business models of opportunity to consolidate their ly June, the first round partic- service providers and market in- settlement operations in one SIX SIS, the CSD for the Swiss tions to clients; and providing ipants were whittled down to frastructure operators are evolv- place. Many firms may be using securities market, joined T2S in value-added services to clients’ just four markets: Greece, Malta, ing cautiously. Nevertheless, two or three agent banks in one the first wave, but Tom Zeeb, middle and back offices, e.g. in Romania and Switzerland. But there are risks for those that do market alone. Each of these re- CEO of SIX Securities Services, the compliance and collateral over the next two years, 23 CSDs not adapt quickly enough. “Over lationships has a cost, so there believes the benefits will only re- management spaces, to help cli- from 21 markets are scheduled time, greater harmonisation of could be significant scale bene- ally emerge once the second and ents achieve greater flexibility in to join T2S in three more waves, post-trade processes in Europe is fits to consolidating with a sin- third wave markets join, lend- their cost base. In this context, after which many expect the likely to reduce the value of the gle provider,” he says. ing critical mass to the greater settlement is fast becoming a long-term benefits of the initia- local agent bank and increase the For CSDs, the effective out- ability of market participants commoditised foundation stone tive to be more apparent. opportunities for service provid- sourcing of much of their set- to mobilise and pool collateral. on which to build greater value. Stemming from the TARGET2 ers to develop new propositions,” tlement business to T2S means system for settling large-value says Philip Van Hassel, T2S pro- a switch of emphasis to asset Break down the euro-denominated payments gramme director at Euroclear, an servicing, either as a scale or barriers! in central bank money, T2S was originally conceived as a plat- In terms of the broader bene- form on which securities and fits to the European financial cash accounts could be inte- To get the markets and indeed the overall grated to effect real-time deliv- full benefit of economy, T2S board chairman ery-versus-payment settlement Marc Bayle views the role of across Europe’s national bound- T2S, we need T2S in the longer-term stra- aries. As such, the main expect- tegic push to harmonise and ed benefits of T2S fall into three to harmonise integrate Europe’s securities broad categories. First, banks, market as two-fold. “To get the brokers and custodians should practices full benefit of T2S, we need to be able to reduce operational harmonise practices across the overheads and back-office com- across the European securities market,” plexity due to the opportunity to European he says. On the one hand, T2S potentially simplify the way they directly dismantles a number of access multiple domestic mar- securities the 15 ‘Giovannini’ barriers to kets today, thereby generating efficient cross-border securities cost savings that may be passed market. clearing and settlement in Eu- on to clients. Second, as a major rope. On the other, T2S serves step forward in the integration of Marc Bayle, chairman of T2S as a catalyst for action: a com- Europe’s securities market infra- board, European Central Bank mon platform requires the adop- structure, T2S will help to make tion of common practices. This cross-border activity not just international CSD. “It is possible niche service provider. Cameron “T2S will provide benefits as an influence can be seen already cheaper but considerably simpler that the chain of post-trade in- says most CSDs do not have the eco-system to support the de- in the smooth migration of Eu- for issuers and investors. Mid- termediaries will reduce in due scale to compete with custodian velopment of other services,” rope’s securities markets to T+2 sized domestic corporate issuers course. It seems likely that the banks. “But they can build out says Zeeb. settlement effected in Q3 2014 that are currently constrained in market will divide between ser- from their existing core services, As both a domestic and as a pre-condition of T2S (with their range of investors by na- vice providers that can invest suf- effectively doing better what cross-border CSD, SIX SIS’s the exception of Spain, which tional borders will be more able ficiently to deliver broad pan-Eu- they already do now, for exam- strategy in the post-T2S environ- will migrate in November 2015). to reach a wider market; while in- ropean coverage and those which ple by providing better linkages ment has two core dimensions: However, some Giovannini barri- stitutional investors should find choose to pursue niche plays, between issuers and investors,” working with partners to bring ers require political rather than it easier to access a wider sweep such as tax servicing.” he says. new combined service proposi- technical solutions, such as the of euro-denominated investment As a pan-European post-trade harmonisation of withholding opportunities. Third, the ability services provider and custodian, tax rules, and resolving the dif- of banks to access and manage BNP Paribas Securities Services ferences between local laws on collateral should be significantly (BP2S) is looking to rationalise the issuance and distribution of enhanced by the introduction of its cost base in response to T2S, securities. Euroclear’s Van Hassel agrees with Bayle’s assessment of T2S’s potential, but if this is a new dawn, the warm glow of success is still some distance in the fu- ture. “Over time, cross-border settlement via T2S should lead Broker-dealers and custodians to a higher volume of cross-bor- der securities trading, a great- have a serious need to simplify er pooling of liquidity and in- their post-trade processes. creased self-collateralisation of credit. But it will not happen Alan Cameron, head of relationship management for international banks overnight, it will be a progres- and brokers, BNP Paribas Securities Services sive undertaking,” he says. n

Sibos, powered by SWIFT. Sibos Issues 4 www.sibos.com www.swift.com MARKET INFRASTRUCURE Facing up to the real deal The digitisation of the world continued from page 1 means everything is happening trialing drone technology that Europe’s elimination of faster than ever before. will enable them to deliver cross-border payments in the products in a matter of hours. euro-zone via SEPA facilitates Mark Buitenhek, global head of transaction services, ING Yet with conventional end-of- migration to real-time pay- day settlement of retail pay- ments, but regulators have gy innovation in recent years. tion of a core market to an RT-RPS ments there is a high chance also played a direct role in the “This is part of the natural evo- might cause more banks to revis- that goods will be received be- adoption of RT-RPSs. In the UK, lution of banking,” says Buiten- it their payments strategies. It is fore money has moved between government legislation mandat- hek. “First we started to offer telling that many of the countries accounts. ed the introduction of Faster banking services online, then that are most advanced in imple- Having to wait until the end Payments, an industry-owned made those services available menting RT-RPS already have rel- of day is not likely to be a major non-profit initiative created to on smartphones.” However he atively consolidated banking sec- issue for a big retailer, but inter- speed up retail payments. accepts that the next stage of tors, such as the UK or Australia. net-based commerce is also a A recent SWIFT white paper development for payment sys- On business case grounds critical – indeed, for some, only found that regulatory initiatives tems will be the hardest part of alone, RT-RPS adoption may not – channel for small businesses. were the key driver behind the that evolutionary process, which appeal to many banks. In its re- These small business owners are move to real-time payments in explains why it has taken longer port on migrating to faster pay- most likely to suffer from any 73% of countries that have al- than many other innovations. ments, the US Federal Reserve payments delays as they may be ready implemented an RT-RPS, It’s not simply a process of up- Bank estimated implementation operating with relatively limited while for remaining countries phone technology to send and grading existing technology to costs of US$ 0.9 to 1.8 billion and finance capabilities, meaning there was an even split between receive payments. cope with real-time processing, a reduction in per-transaction the completion of one sale may third-party competition and com- But Kauffman says technology asserts Buitenhek: the entire ar- costs from US$ 0.47 to US$ 0.27, provide the funding for the next. mercial issues. Indeed, the com- specialists have been relatively chitecture of banking payments adding up to neutral or negative For this army of entrepreneurs – petitive environment has changed slow to move into the payments IT has to be redesigned from the business case. But, as the SWIFT widely seen as the true engines significantly for payments banks space. “At the moment, there’s ground up. white paper points out, other of economic growth – having to in recent years, with many new not that much competition from “Under the current system of factors need to be taken into wait for payments could be dam- entrants looking to use technolo- fintech companies. There’s a lot batch processing, we do all of consideration, such as customer aging for business. gy and increasing market sophis- of interest, but the banks do have our testing and system upgrades expectation, disintermediation tication to encroach on territory time to marshal their forces and overnight or at the weekend threat, and the potential to de- Regulatory support traditionally dominated by banks. take action,” he says. “We’re also when the system is out of use. velop new products and services. Payments has long seemed an seeing banks invest in the next With real-time this is no longer Can banks that simply cannot Combine the advance of e-com- extremely secure area for banks, generation of payments inno- possible, so we will need to cre- afford to support RT-RPS find merce and consumer technol- with barriers to entry erected vation. For example, in 2012 Citi ate new systems that can cope some way to fit into this new ogy with policy objectives of by high and increasing levels of Ventures invested in payments with this,” he observes. world? “This is a natural, long- governments to provide better regulation as well as many de- start-up Square. Banks shouldn’t Payments banks have long term evolution and the short- support for SMEs and it is un- cades of expertise and invest- try to do this on their own and been divided between those that term business case is negative,” surprising that regulation is the ment in underlying systems. But should look at opportunities to continually invest in the systems explains Buitenhek. “If you want second major factor influencing now competition is being felt make strategic investments.” required to clear and settle pay- to remain relevant then you will the adoption of RT-RPSs. “The and many major internet-based ments across multiple markets need to follow this path, and introduction of the Single Euro technology companies are offer- “A natural evolution” and those that outsource much over the long-term you will get Payments Area (SEPA) will be ing viable alternatives. In large of the heavy lifting, specialising to a position where you can do the final frontier of achieving parts of the developing world, A major driver of RT-RPS adop- in delivery to end-customers. But everything instantly, which will real-time payments across Eu- while many people remain un- tions, of course, has been the the sheer cost of adapting exist- ultimately benefit your business rope,” says Buitenhek. banked, they are using smart- range and pace of technolo- ing systems to handle the migra- and your customers.” n

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Sibos,SOGE_1505_SIBOS_GTB_SGSS_272x186.indd powered by SWIFT. 1 Sibos Issues 5 www.sibos.com www21/05/2015.swift.com 17:31 STANDARDS Getting it right: how to manage infrastructure change Domestic payment market infrastructures are implementing ISO 20022-based projects to ensure international interoperability. We contemplated the negative business case [for using ISO ISO 20022, the transformative (EDI) – have now been mapped to Payment market infra- 20022] as seriously as the open standard for the financial ISO 20022 and targeted investi- structure operators today are services industry, is the acknowl- gations are currently taking place well-connected with their coun- positive one. edged first choice for infrastruc- with key stakeholders ahead of a terparts across the globe, and ture renewal across major pay- public consultation phase later alive to the dangers. “We’re most Richard Dzina, group head, wholesale product office, ment systems and jurisdictions this year. The plan is to make the focused on replacing our exist- Federal Reserve Bank of New York worldwide. From early imple- AFT message and rules available ing legacy standards for domes- mentations such as the Single for market-led adoption by Q2 tic use. We’re also very plugged Euro Payments Area, through 2016. ISO 20022 will then be the into what’s happening in other Multiple markets tion, to include information shar- projects in development such standard adopted for Canada’s jurisdictions and we recognise ing (using SWIFT’s MyStandards as Australia’s New Payments next-generation clearing and set- the importance of leveraging the For the Fed too, interoperability as the central harmonisation Platform for fast, low-value pay- tlement project, which is current- richness – for example, extended will not be sacrificed lightly. The platform), establishing global ments (due 2017) to longer-term ly in the planning. remittance data – and flexibility US decision to consider adoption market practices and introducing legacy renewal strategies in In the UK, there is industry that ISO 20022 offers,” says Jeff of ISO 20022 was based in part stricter message version control Canada, the UK and the US, ISO agreement that ISO 20022 will Moran, VP, payments and indus- on the possible consequences of and release management. An 20022 has now passed the tip- be used for new infrastructure try relations, CPA. Although full being outside a development that implementation roadmap is the ping point for global acceptance. “We noticed the international dialogue on ISO 20022 shift from ‘why and if’ to ‘how and when’ between Sibos in Osaka in 2012 and the following year’s confer- ence in Dubai,” comments Rich- We recognise the importance ard Dzina, group head, wholesale product office at the Federal Re- of leveraging the richness and serve Bank of New York. flexibility that ISO 20022 In the US, a round of infrastruc- ture upgrades had then only re- offers. cently been completed (the Fed- Wire modernisation programme). Jeff Moran, VP, payments and industry relations, Despite that, the Fed actively Canadian Payments Association researched the business case for ISO 20022 adoption and consult- ed with stakeholders. In January has global momentum, according first planned deliverable and the this year, the Fed’s strategy paper, to Dzina. A business case evalu- group will meet again at Sibos in ‘Strategies for improving the US ation conducted independently October. payment system’, declared the in- for a stakeholder group con- tention to “develop an implemen- sisting of the Fed, the Clearing Real-time realities tation strategy for the application House Company, NACHA and the of the ISO 20022 standard to US Accredited Standards Commit- With several ISO 20022-based payment transactions”. developments and change pro- implementation is still some way tee X9, cited global momentum instant payments services ei- cesses. For example, it is the ba- down the line for Canada, the CPA and competition as well as cost ther operational (Denmark, Sin- Local flavours sis of a current account switching is active in a number of interna- savings, enriched data content gapore) in development (Austra- service, will be used for process- tional forums including: a group and interoperability as strategic lia) or planned (The Netherlands In Canada, a payments system es required for ongoing pension of market infrastructures working reasons for adoption. Says Dzina: and the Euro Banking Associ- task force recommended ISO reform, and for transfers of cash on an ISO 20022 harmonisation “We contemplated the negative ation plan to offer services by 20022 as the future direction for ISAs (a UK retail savings product). framework with SWIFT; the Com- business case as seriously as the 2019; the US is also considering payments infrastructure in 2011, So far, so good – and so domes- mon Global Implementation (CGI) positive one. What would it mean a service), the recent decision to a recommendation subsequently tic. But, as ISO 20022 projects group, a global body concerned for the competitiveness of our create a sub-group for real-time adopted by the Canadian Pay- proliferate in multiple jurisdic- with developing global market financial institutions, and how payments as a neutral industry ments Association (CPA). Three tions, are some of the key bene- practice for ISO 20022 standards would it affect our end users, and activity under ISO governance is key payment messages – auto- fits of ISO 20022 – the potential in the corporate-to-bank space; even the status of the dollar as a both positive and timely. An ini- mated funds transfer (AFT), wires for interoperability and the ex- and the Payments Standards global settlement currency, if the tial meeting was hosted by the and electronic data interchange change of more and richer data Evaluation Group, which reports US were not to adopt ISO 20022 UK Payments Council and at- – in danger of being lost? With a to the Registration Manage- for payments?” tended by more than 30 global wide variety of local market prac- ment Group (RMG) for payments Cost savings are a potent payment infrastructures, finan- tices and national stakeholders under the Technical Committee reason for not re-inventing the cial institutions and vendors. to satisfy, a drift towards distinct 68 of the International Organi- wheel with each implementation Says Whittle: “There is a va- local flavours of ISO 20022 looks sation for Standardisation (ISO), project. James Whittle, director riety of market practices out likely. And we have been there and is in the process of joining of industry dynamics at the UK’s there, and this isn’t about every- before, on many occasions. the RMG itself. Payments Council, points out one having to do the same thing. that financial institutions have But where there is a common to support developments across approach, let’s use it; where multiple market places. And there are accidental differences, because there are limited tech- let’s try to harmonise them, and nological and human resources where there are genuine differ- both internally and externally, it ences, let’s document them, so Where there are accidental makes sense to harmonise what everyone’s aware.” can sensibly be harmonised at The group has set a deadline differences, let’s try to an international level. of end-July to document cur- harmonise them, and where In April, SWIFT hosted a meet- rent settlement practices for ing for representatives of 20 instant/real-time payments. It there are genuine differences, market infrastructures for pay- will then go on to consider re- ments and securities to discuss mittance/merchant data and let’s document them. these issues. The group agreed system messages covering, for to establish a common frame- example, irrevocability and oth- James Whittle, director of industry dynamics, UK Payments Council work for ISO 20022 harmonisa- er requirements. n

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2015_05_07_FL_AZ_272x390_SIBOS-Singa_CommitmentPark.indd 1 07.05.15 16:34 TECHNOLOGY

While it is only the most high-profile attacks that are re- ported in the press, experts be- lieve the vast majority of compa- Staying nies are likely to have suffered some kind of attack by now. A lack of adequate governance or staff training can often be responsible for even the most minor data breach; the PwC sur- alert vey found that 50% of the worst breaches over the past year had been caused by inadvertent hu- Cyber-threats require a strategic, man error. “With the threat environment enterprise-wide response, but we face today, it is so important that the workforce of any com- technology remains at the heart pany understands the nature of the cyber-threat and is proper- of the matter. ly trained to avoid putting the infrastructure at risk,” says Dr Starnes Walker, founding direc- tor of the University of Delaware When UK mortgage lender curity, a new UK qualification de- Cyber Security Initiative. Northern Rock sought emer- signed to help business leaders Education of staff is widely gency support from the Bank deal with the cyber-threat. seen to be a priority in dealing Technology and education can of England in September 2007, with cyber-threats, because if it sparked widespread panic, Employee education employees can be trained to certainly help, but we have to with savers queuing up outside detect and eliminate possible branches all over the country The term cyber-crime can cover threats, they can avoid significant do a better job at collaborating. to withdraw their cash. Queues a wide range of attacks, from a harm being caused. But for banks outside banks became an endur- minor internal security lapse that run multiple businesses with Troy Pugh, leader, counter-fraud intelligence unit, IBM ing image of the ensuing finan- to a massive organised theft of thousands of employees across cial crisis, repeated across the data. In the UK alone, 90% of the globe, pitching the message globe as institution after institu- large organisations reported appropriately can be a challenge. tion followed Northern Rock into regarded as a pure IT issue. “Fi- able them to continue to oper- near bankruptcy and in search nance is increasingly becoming ate under attack. “Banks have of a bail-out. a digital industry so banks have to be able to develop and im- Since the crisis, policy-makers to protect their biggest assets, plement capabilities to enhance and regulators have focused on which are their data and their rep- the resilience of business net- ensuring banks have sufficient utation. That is too significant to work operations and ensure a capital and liquid assets to avoid Banks have to be branded as an IT issue – board continuity of operation plan is in collapse or bail-out in the future. protect their members and middle managers place as a measure of a layered But a growing school of thought have to take it seriously,” he says. cyber-defence strategy to mini- suggests they may have become data and their Technology is part of the mise shareholder losses from a too single-minded: could the problem and the solution. When cyber-attack,” he says. next bank failure be caused, not reputation. it comes to protecting IT archi- As the cyber-threat contin- by a credit bubble, but by cy- tecture from external pene- ues to grow and evolve, banks ber-attack? Richard Benham, tration, the biggest challenge collectively and individually will “The emerging threat for professor in residence, may lie in the sheer number have to evaluate strategies to banks is that cyber-crime is be- UK National Cyber Skills Centre of systems that banks tend to protect themselves, their cus- coming ever more sophisticat- rely on to conduct their opera- tomers and their shareholders. ed in taking money away from The priority, says Chris Hur- tions across businesses and as- Tackling internal deficiencies banks and customers. I can’t ran, senior associate fellow at set classes. Walker stresses the in governance and staff aware- help thinking that the attacks the Institute for Security and need to rigorously test each and ness is likely to be the first step will become so frequent over Resilience Studies at University every system before putting it in raising defences, but Troy the next five years that they will this year that they had suffered College London, is to put secu- into action, using both internal Pugh, leader of the IBM Counter cause at least one major bank a security breach, up from 81% rity at the heart of the business and external experts. Fraud Intelligence Unit, believes to go under – not just because a year ago. The average cost process rather than as a retro- Benham says: “It is critical to greater government support of sustained attack but the loss of the worst security breach spective add-on. Having a clear ensure that systems are proper- and cross-border cooperation of reputation that goes with it, now ranges from £1.46 million strategy and governance struc- ly vetted before being placed on is needed if the threat is to be accelerated by social media,” to £3.14 million, according to ture in place to deal with breach- a network so that any potential properly eliminated. says Richard Benham, professor an annual survey conducted by es is also critical, he adds. vulnerabilities are well under- “Cyber-crime is a chaotic en- in residence at the UK National PwC, a step change from the “Technology is absolutely at stood and dealt with in advance. vironment in which a wide vari- Cyber Skills Centre and founder £600,000-£1.15 million reported the heart of the solution to this Using a ‘red team’ allows exter- ety of actors are trying to gain of the national MBA in cyber-se- 12 months previously. and the chief information secu- nal experts to find weaknesses access to systems and informa- rity officer will play a key role, that may not have been detect- tion for a wide variety of purpos- but it’s ultimately the respon- ed during an internal IT build.” es. Even though we face a very sibility of the business to make real threat, the challenge is that sure that security protocols are Ensuring business the government has left the pri- taken seriously and properly continuity vate sector on its own and there communicated to all employ- is no consolidated effort to share ees,” Hurran explains. Such is the probability of banks intelligence. Technology and ed- Benham also stresses the im- coming under of regular cy- ucation can certainly help, but portance of a company-wide re- ber-attack that Walker advo- this is a war and we have to do sponse, asserting that cyber-se- cates having effective business a better job at collaborating to curity risks being marginalised if continuity plans in place to en- tackle it,” he says. n

The workforce must understand the nature of the cyber-threat and be trained to avoid putting the infrastructure at risk.

Dr Starnes Walker, founding director, Cyber Security Initiative, University of Delaware

Sibos, powered by SWIFT. Sibos Issues 8 www.sibos.com www.swift.com TECHNOLOGY Photo: Courtesy of University of Delaware

BUILD BETTER NETWORKS THAN THE HACKERS, RECOMMENDS EX-FBI EXPERT

As a part of its ongoing intelligence at the US Federal programme to bridge the Bureau of Intelligence (FBI), gap between academics and highlighted the fact that financial industry practioners, cyber-threats to the finance the SWIFT Institute recently sector would continue to partnered with the University change shape. “The industry of Delaware to bring together has evolved from a model of a cross-section of experts to hacking for fun to hacking discuss the evolving cyber- for profit to now hacking for threat to financial services. With destruction,” she said. Today, a mix of academics, technology loosely-knit groups of hackers and security experts, plus have become better organised former and current US federal and sophisticated in their law enforcement officers, the communications and approach. event provided a sometimes Hackers actively communicate disconcerting view of the and collaborate to identify growing trends in cyber- the targets that will yield the security, highlighting new highest returns at the lowest “Actors are becoming better networked, vulnerabilities and threats. risk. “Actors are becoming Dr Starnes Walker, founding better networked, enabling enabling better communications with one director of the university’s better communications with Cyber Security Initiative, one another,” said Petrie. “We, another.” reminded nearly 150 attendees the defenders, have to abide of the constantly advancing by country laws, policies and Elizabeth Petrie, director of strategic analysis, Citigroup nature of cyber-security regulations, which can slow threats. “Technology moves down the dissemination of but it also provided incentives of access to data that make anatomy of an attack, there are exponentially as a function of threat information requiring and opportunities for hackers financial institutions a lucrative programmes we can implement time”, he said, noting that the us to shift and adjust our and criminals. In this context, target,” Petrie said. The to shut down that adversary,” capabilities of both attackers posture on defence to keep the the response of financial complexity of the threat facing said Petrie, asserting that and defenders would inevitably attackers out,” she added. institutions to cyber-security financial institutions arises in communication could help to continue to improve. The growing interconnectivity threats is critical. “It is not part from efforts by external combat cyber-threats. “We need In her keynote address, of electronic devices and the just the money that financial bad actors to compromise to build as strong a network Elizabeth Petrie, director of rapid digitisation of commerce institutions hold, but it’s the insiders, who may or not be as the adversaries: leverage strategic analysis at Citigroup might be essential and desirable ability to transfer money aware of their complicity. “The forums, talk across countries, and former head of cyber- for businesses and consumers, combined with the vast amounts good news is that, knowing the and share information.” n

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Sibos, powered by SWIFT. Sibos Issues 9 www.sibos.com www.swift.com CHINA A market transformed The Shanghai-Hong Kong Stock Connect is both a work-in-progress and a game-changer for RMB investment.

A new access point to China converted into Hong Kong dollars agency. As their names appear has been created during the to buy Hong Kong-listed stocks.” in the shareholders’ register, last year with the introduction Stock Connect allows inter- they are entitled to take legal of the Shanghai-Hong Kong national investors to trade up to action. Although Stock Connect Stock Connect. 13 billion yuan a day (US$48 bil- enables Northbound investment Planning and preparation of lion), or a cumulative total of 300 without time-consuming ac- the project’s infrastructure took billion yuan, in Shanghai-listed A count opening with ChinaClear, six months to establish after an shares. Mainland investors can the legal uncertainty is a poten- official public announcement trade up to 10.5 billion yuan a tial disincentive. in April 2014. Taxation waivers day, or 250 billion yuan in total Nevertheless, important hur- were approved for investors, in Hong Kong-listed shares. dles have been cleared on secu- necessary operational challeng- The pace of ‘Southbound’ rities borrowing and lending for es resolved and the Stock Con- investment – buying shares in covered short sales. Introduced We are experiencing significant nect went live on 17 November mainland companies with Hong earlier this year, the new stock daily flows of RMB onshore and 2014. There have been no fails, Kong listings – was initially slug- borrowing/lending provision buy-ins or delays and the sys- gish, but has been boosted by will only apply for Northbound offshore for stock transactional tems have worked as planned. the upswing in traded volumes Stock Connect users and will be Northbound investors, mean- in China this year. unavailable to QFII and RQFII purposes. ing those investing in Shanghai holders. There are likely to be A shares, require no quotas or li- Facing obstacles additional restrictions and lim- Cindy Chen, head of securities and fund services, Hong Kong, Citi cences to participate, as had for- itations, such as only being merly been the case under other Whilst Stock Connect has func- able to short up to a maximum mainland investment schemes, tioned well, resolution of ongoing of 1% of the total amount out- 2017 is the next likely window. their own versions. Pointing namely the Qualified Foreign In- issues could make the programme standing of A shares in North- It will be a major market an- this out, HKEx’s Li observed stitutional Investor (QFII) or Ren- more attractive to a wider spec- bound trading. nouncement when it ultimate- earlier this summer, “I am not minbi Qualified Foreign Institu- trum of investors. Foremost ly takes place as it would likely worried by this happening, as tional Investor (RQFII) schemes. among these issues is that of ben- On the horizon result in significant additional by the time it does, Hong Kong According to Hong Kong Ex- eficial ownership, and specifically flows and necessitate a rebal- will be much further down changes and Clearing (HKEx), the the ability to litigate. At present, The success so far of Stock Con- ancing of investor portfolios. the road with its own Stock Stock Connect platform is scal- Chinese law does not provide the nect poses a number of intrigu- ■■ Shenzhen-Hong Kong Stock Connect”. Whilst logical rivals able, and its modus operandi can certainty that a Northbound inves- ing possibilities about the future Connect – HKEx chief execu- would be Taiwan and Singa- be applied to multiple markets tor can take legal action against path for integration of the Chi- tive Charles Li said in May that pore, market observers have and assets. It may have a wider an issuer in the mainland courts. nese securities market with in- the exchange operators in both conjectured that it would be impact on initial public offerings, Northbound investment hold- ternational investment flows: cities are ready to launch their inconceivable that bigger ex- exchange-traded funds and ren- ings purchased via the Stock Con- ■■ Inclusion of Shanghai A shares version of the link. Approval changes such as those in New minbi internationalisation. nect are held in a nominee name into MSCI indexes – It is diffi- from Beijing is all that now re- York and London are also in- “The Stock Connect is having a within HKEx’s clearing house. cult to estimate exactly when mains to be secured. The Shen- vestigating similar schemes. major effect on renminbi interna- Whilst nominee arrangements Shanghai A shares will be in- zhen bourse carries younger The future also holds the pros- tionalisation because for the first have been tested in Chinese law, cluded within MSCI indexes, and higher growth stocks than pect of inclusion of new asset time we are experiencing signifi- the identity of the beneficial own- although it appears to be a Shanghai, which is character- classes into the Shanghai-Hong cant daily flows of RMB onshore er is not clear due to this co-min- question of ‘when’ rather than ised by large state-owned en- Kong Stock Connect, initially, and offshore for stock trans- gling. As a result, investors can- ‘if’. There had been some signs terprises and bigger firms in index futures, equity deriva- actional purposes,” said Cindy not file a legal action in China. that it would happen during the ‘old economy’ sectors. tives, and exchange-traded Chen, Hong Kong country head of In contrast, QFII and RQFII the summer of 2015, but in ■■ Rival Stock Connects – Other funds. At a later date that may securities services for Citi. “Off- investors have a segregated ac- early June, MSCI said it would international exchanges are at widen to include single stock shore RMB is being used to buy A count in ChinaClear, China’s se- not take place this year. Views liberty to use the blueprint for options and futures, bond fu- shares and onshore RMB can be curities depository and clearing from the market now suggest the Stock Connect to construct tures and commodities. n

STOCK CONNECT’S IMPACT ON RENMINBI INTERNATIONALISATION

In the past, renminbi flows were Hong Kong Monetary Authority the result of trade activity, (HKMA) has introduced a CNH the financial proceeds of 10 billion repo facility to provide exports and imports. As cross- intra-day liquidity for the Stock border trade has grown, the Connect. renminbi has now become The HKMA has additionally the fifth biggest currency of appointed seven primary international settlement. liquidity providers. Each Today, using the Stock provider dedicates a CNH Connect, offshore renminbi 2 billion line to provide yet (CNH) has become available another layer of liquidity. In for the purchase of Shanghai- total therefore, CNH 24 billion of listed A shares. Furthermore, additional liquidity is currently onshore renminbi can be used available to the offshore on the Stock Connect to make market for the Stock Connect investments in Hong Kong. product, and those funding In support of this process arrangements could also help in and the underlying currency the emergence and creation of requirements of settlement, the future CNH products.

Sibos, powered by SWIFT. Sibos Issues 10 www.sibos.com www.swift.com IT’S TIME FOR MONEY TO CHANGE

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Accelerating payment equates Looking to the to a lot of money in the bank. next horizon Vivek Gupta, global head of trade & supply chain product, ANZ Bank Treasury management in Asia has CargoDocs solution was used for digitis- matured in recent decades, but there is ing bills of lading and electronic invoicing between global resources giant BHP Billi- no scope for banks or corporates to rest ton and a buyer, agricultural commodities conglomerate Cargill, in conjunction with on their laurels. Westpac as the recipient bank and ANZ as the obligor bank, for iron ore shipments from Australia to China. As Gupta ex- When Damian Glendinning first arrived service the increasingly complex needs agement,” says Glendinning, “you can plains, automating trade documentation in Singapore in the late 1990s to work as of regional treasurers. “When you asked either sign onto every banking platform with suppliers can help speed up payment. IBM’s Asia Pacific treasurer, the treasury local banks if they could provide daily bal- and have 300 different banking IDs in lots “For large resources companies, each ma- management profession was relatively ance reporting over SWIFT, they would of different languages, or buy a treasury jor shipment of iron ore to China could underdeveloped largely due to the preva- look at you and say, ‘We don’t do that’. workstation that comes with SWIFT con- cost US$20 million. Accelerating payment lence of family or state-owned enterprises But now local financial institutions under- nectivity and negotiate with your bank to equates to a lot of money in the bank.” in many economies in the region. “Many stand that if they want to work with local provide you with the data that you need.” Bevan Davies, vice president, Asia Pacif- Asian companies did not use treasury man- multinational corporations they need to To reduce complexity and risk in its ic & head of metals at essDOCS, says the agement systems or have a full time trea- connect into their global network.” global cash management business, Le- combination of its e-docs platform with surer, and dealings with local banks were novo has prioritised simplicity. Instead SWIFT’s BPO has enabled corporates in often based on preferential relationships,” Managing complexity of working with multiple banks in ev- the mining, agricultural and oil industries recalls Glendinning, now group treasurer ery country, the firm has a single global and their partner banks to adopt the trade at Chinese computer technology company Bank of America Merrill Lynch’s second banking relationship, which gives it visi- finance instrument with the minimum Lenovo (which acquired IBM’s PC business Asia Pacific Treasury Barometer Survey, bility over cash positions globally. “We amount of effort. Davies says essDOCS in 2005) and president of the Singapore based on the views of approximately 1,350 simply go to [our bank’s] internet bank- now has 22 banks using its electronic bill Association of Corporate Treasurers. global treasury professionals, highlights ing system and download the statements of lading platform. “We did not work with But a lot has changed since then. Many the complexities for treasurers operating in a spreadsheet,” says Glendinning. “As banks two years ago, so to get to where we of those family-owned companies became in a region as diverse as Asia. Challenges we use one banking system, we only have are today has been quite rapid progress.” major multinational corporations in their identified included managing a range of one set of passwords to remember.” own right, which meant they could no lon- banking relationships, operating with a Are multinational corporates well served Disruptive forces ger be managed in a less than profession- large number of accounts, which makes by banks? “The industry as a whole is fail- al way. “We are reaching a point where more efficient liquidity management dif- ing companies because of all the hoops While there may be working capital and pro- Asian corporates are becoming sophisti- ficult, and disparate means of accessing we have to jump through to get the infor- cessing efficiencies for corporates in digi- cated enough to bring pressure to bear on account information. “If you are a multi- mation that we need,” says Glendinning, tising trade documents, Glendinning points the banks,” says Glendinning. Local banks banked corporate and you want to have adding that corporate banking could learn out that the technology being used to au- have also had to grow in sophistication to anything approaching modern cash man- from its retail peers in terms of customer tomate trade documentation is not new. service. However, he acknowledges that Moreover, he apportions some blame for corporates are part of the problem. “Banks lack of progress to treasurers, who he says will do things if customers insist, but we are largely conservative by nature and may have not been very good at telling them be less inclined to adopt newer third-party what we want as a community,” he says. solutions. But he says the banks should be concerned about disruptive forces like Pay- Working capital efficiencies Pal and Google Wallet. “There’s nothing to say we [corporates] couldn’t go to PayPal With multinational companies focused on and say: ‘I’m shipping some goods. When I leveraging growth in their emerging mar- give you the documents, I want you to re- kets subsidiaries, the expectation is that lease some money for me’. Are corporate treasury management best practices, as treasurers going to hesitate to adopt these represented by shared service centres, alternative solutions? I wouldn’t be 100% in-house banks and centralisation, will be- certain that it’s not going to happen. They come the norm in Asia. However, given that may be forced to use them,” he warns. regulations in some Asian markets prevent With increased competition in the inter-company lending, companies will need trade and supply chain space, Gupta says to free up working capital via other means banks need to move beyond trying to in order to grow. Here, attention is expect- protect traditional revenue streams and ed to shift towards trade and supply chain embrace working with third-party pro- finance. “The growth cycle in China is slow- viders who are intermediating between ing, and corporates realise they are not go- the physical and financial supply chains. ing to grow as fast on their top line so they “There is now an inertia that stems from are focused on making working capital ac- the fact we’ve invested so much into celerations,” notes Vivek Gupta, global head our proprietary technology platforms. of trade & supply chain product, ANZ Bank. But this short-term mindset is not for- In April, ANZ Bank led an industry first ward-looking and will hold us back.” n with a “truly four-corner” Bank Payment Obligation (BPO) involving an electronic bill of lading,” says Gupta. The essDOCS’s

Asian corporates are becoming sophisticated enough to bring pressure to bear on the banks.

Damian Glendinning, group treasurer, Lenovo

Sibos, powered by SWIFT. Sibos Issues 12 www.sibos.com www.swift.com DIVERSITY

It’s about making Strength sure that everyone has the chance to through develop their skills diversity and pursue their chosen career US Navy Admiral path. Michelle J Howard explains This sounds easier said than done across an organisation consisting of why equality of 326,000 personnel on active duty, more than 100,000 ready reserves and al- opportunity is key most 200,000 civilian employees, spread across the globe. Howard demurs, how- to sustaining a ever, saying that the critical measure- ment of success in sustaining a diverse diverse talent pool. talent pool is a matter of ensuring that equality of opportunity is being offered, both in terms of attaining skills and being Over 200 years ago, British politicians Long-term approach first woman to achieve her current rank as given the responsibility to deploy them. put aside their differences to form a ‘min- four-star admiral and vice chief of naval “It should be easy to track whether, for istry of all the talents’ with the aim of Finding and attracting talent from across operations, she accepts the public profile example, every lieutenant has been given promoting national unity and defeating different backgrounds is no easy matter, that her position carries. Drawing parallels the opportunity to become a department a common enemy, Napoleon Bonarparte. but consistent success only comes to or- with the attention accorded Indra Nooyi head,” she explains. “This isn’t about Of course, in 1806 British politicians were ganisations that can develop and retain when she became CEO of Pepsico in 2006, guaranteeing that there will be a certain hardly the image of diversity – all white, all that talent on an ongoing and long-term Howard observes, “If you reach a certain proportion of staff at any particular level men, all elected by their upper class peers basis. Like many large employers, the US level and you are the first one, you become from a specific ethnic or gender group. – but an important and long-lived principle Navy has had to move with the times. a de-facto role model.” It’s about making sure that everyone has was recognised: far more binds us together (Indeed, when Howard was growing up in the chance to develop their skills and than separates us. Nevertheless, 200 years Colorado, the US Naval Academy wasn’t Chance to flourish pursue their chosen career path.” later, organisations across the finance sec- even taking on female recruits.) Today, In both the public and private sec- tor and beyond are not yet giving full rein fewer people are attracted to the idea of More important to Howard, perhaps, is the tors, much progress has been made to all the talents harboured by their staff. a ‘job for life’, many more are interested part she plays alongside other senior offi- on diversity since 1806. But as far as Admiral Michelle J Howard views the in the idea of re-booting their career af- cers in ensuring that talent is recognised, blueprints for recognising ‘all the tal- importance of diversity to the US Navy ter taking time out to start a family. supported and given the chance to flourish ents’ are concerned, Admiral Howard’s both in terms of access to talent and rep- According to Admiral Howard, the US at every step in the career lifecycle. “We has considerably more to recommend resentation of the underlying population. Navy is authorised to offer financial bo- have to make sure that opportunities are it than the expedient arrangements of The diversity of thought and perspective nuses to incentivise staff with particularly presented across the cohort,” she says. 19th century politicians. n required to achieve mission or organisa- prized skillsets to remain in the service, tional goals is much harder to achieve in not dissimilar to established practice in the an homogenous group, she points out. private sector. It also offers sabbaticals of Quoting renowned US scientist Dr Linus between one and three years, which can be Pauling – the only person to win unshared used for a variety of purposes, for example Nobel prizes in two different fields – How- to take a degree course or to become a ard adds, “If you want to have good ideas, ‘stay-at-home’ parent for a period. Return- you must have many ideas”. ing staff then compete for promotion with Moreover, Howard asserts the need for colleagues that have gained a similar level a strong bond between a country’s armed of experience, as opposed to length of ser- services and the civilian population. “The vice. “In terms of career progression, we’re strength of the US lies in its diversity. The looking to move from being a time-focused military will not succeed in its objectives to a milestone-focused organisation. The if it is isolated from and does not reflect programme has been successful so far, the people it serves,” she says. and other US armed services are looking How does the US Navy attract, nurture into it as well,” says Howard. and maintain a diverse talent pool? Step Senior personnel in any organisation one, says Howard, is to ensure that the must bear responsibility for bringing widest possible share of the population is through new talent, and the US Navy is lit- aware of the various opportunities for ca- tle different from any bank in that respect. reer fulfilment that the US Navy offers. “We With leadership responsibilities has come must ensure they understand the life op- regular involvement for Howard with the portunities, encourage them to apply, walk US Navy’s mentorship programmes. More- through the door and have a conversation.” over, as the first African-American and the

NURTURING A DIVERSE TALENT POOL

At Sibos 2014 in Boston, Admiral Howard September 2014, a Credit Suisse Research gave the opening keynote address of Institute report on the impact of gender ‘Change Day’ and participated in a panel diversity on stakeholders included a discussion on diversity. In October, number of positive metrics. For example, Sibos 2015 in Singapore will follow up firms where >15% of senior management the themes explored 12 months ago in a were women were shown to outperform series of sessions centred on ensuring (as measured by ROE) firms with a female a diverse representation at all levels of representation of 5% or below. Similarly, organisations operating in the finance a study released last year by the US- sector, with an emphasis on ensuring based Centre for Talent Innovation that the brightest talents can attain 2014 study found that publicly traded the highest positions regardless of firms with ‘two-dimensional diversity’ (i.e. background. both inherent diversity – gender and race, While some, like Admiral Howard, believe for example – and acquired diversity – the benefits of diversity are already well meaning range of experience and founded, for others the case for change skills) were 45% more likely to expand still has to be built on statistics. As such, a market share and 70% more likely to number of recent studies have attempted have captured a new market in the past to define the ‘diversity dividend’. In 12 months.

Sibos, powered by SWIFT. Sibos Issues 13 www.sibos.com www.swift.com INNOTRIBE

By not employing women, The right mix companies are Innotribe-sponsored research shows women missing out and Millennials will play a key role in building a on a different better finance industry. perspective on their products and services. The rapidly growing financial ing Group have written a white not only in gender, but also technology (FinTech) industry is paper, ‘Power Women in FinTech: of thoughts, perspectives and Christine Duhaime, barrister, attracting investment and talent Bridging the Gender Gap’, which knowledge which is influenced Duhaime Law, and founder, Digital globally. In March, consultancy was launched in June. by many factors including in- Finance Institute firm Accenture said global in- Duhaime says a growing body dustry experience, merit, eth- vestment in FinTech ventures of research suggests that or- nicity and cultural background. Millennials – typically defined of these critical functions are tripled from US$4.05 billion in ganisations founded by women “For sustainable change to as those born between 1982 completely overturned in light 2013 to US$12.2 billion in 2014. or that take leadership roles by happen, we need to change and 2004. According to an- of starkly different consumer The US captured the greatest empowering women in FinTech the culture and the tradition- other recent white paper, ‘The preferences among Millenni- share of this investment, but are more innovative and return al mindset,” she says. “That Millennial Generation and the als compared with previous Europe experienced the highest better financial results. There requires a concerted effort by Future of Finance: A Different generations. “Start-ups have growth rate, with an increase of is another perspective, too: “By all stakeholders. It starts with Kind of Trust’, written by Dan- recognised this chasm of trust 215% to US$1.48 billion in 2014. not employing women, compa- changes in the selection pro- iel McAuley and Steve Weiner and are attacking incumbent The UK and Ireland accounted nies are missing out on a differ- cess to cast a wider net at the of Wharton FinTech, Millennials financial institutions from all for 42% of the European total. ent perspective on their prod- entry level, building a leader- are “especially” distrustful of angles,” says the paper. De- London, San Francisco and ucts and services. By not being ship pipeline for senior wom- incumbent financial brands and ploying ‘mobile-first’ (whereby New York are established Fin- institutions. On the other hand, initial contact with a customer Tech hubs, with government as users of technology in every is via their mobile phone) and bodies and industry associations aspect of life, they are also “the building relationships through focused on attracting start-up single largest current market educational content are key companies to set up shop. New- er hubs such as Paris, Singapore, Nairobi and Sydney are also emerging. But in this frenzy of investment, the industry may be missing out on opportunities be- cause it lacks diversity; women For sustainable change to and Millennials are under-repre- happen, we need to change sented in FinTech firms. “Women are half of the equa- the culture and the traditional tion in the world,” says Christine Duhaime, barrister and solici- mindset. tor at Toronto-based Duhaime Law, and executive director and Anju Patwardhan, group chief innovation officer, Standard Chartered founder of the Digital Finance Institute. “Financial technology is important because it is chang- opportunity for start-ups and strategies for firms to market ing financial services, making innovative corporates looking to to Millennials and eventually them more democratic and build FinTech businesses”, says build trust. open. From the ground up, wom- the white paper. en should be there. We should New behaviour not let another change happen Feedback loop patterns without women being around the table.” Wharton FinTech is a student-led Millennials trust technology and The Digital Finance Institute initiative at the Wharton School are less likely to seek face-to-face is focused on FinTech, financial of the University of Pennsylva- meetings with bankers at bricks- innovation, regulation and inclu- more inclusive towards women, en, and more development nia that aims to provide thought and-mortar branches. This group sion. It aims to bring together organisations are missing out on opportunities either through leadership, education, career de- of consumers want entirely new representatives from the finan- business opportunities.” formal or on-the-job training.” velopment and idea generation digital products that are relevant cial services industry, non-gov- How far have we come al- by connecting innovative, estab- to their daily lives, says the white ernmental organisations, aca- Unlocking innovation ready? The numbers speak for lished, disruptive and proven Fin- paper. An example cited is that of demia, financial regulators and themselves: the global average Tech enterprises with students Wealthfront, an algorithmic per- policy makers to discuss issues Anju Patwardhan, group chief for women on listed compa- and industry professionals. Not sonal investment platform. Users and engage in research and edu- innovation officer at Standard ny boards – across industries only does it provide a pool of tal- do not talk to a human financial cation. Duhaime and Sam Maule Chartered in Singapore, agrees. – is only 11%. Patwardhan says ent for FinTech companies, but it advisor, which rather than being a of Carlisle & Gallagher Consult- “Like any other industry, Fin- there is, however, a more con- also acts as a consultancy, pro- drawback is in fact one of the prod- Tech can certainly benefit from scious effort by several multi- viding feedback to companies on uct features that most appeals to a more diverse group of senior national companies to appoint their products and services. Millennials. Weiner compares this professionals. I have spent the diverse boards including more When it comes to innovat- to Personal Capital, a competing majority of my working life in people of Asian background ing, traditional financial ser- financial advisory start-up, which risk management in financial and more women. vices organisations are held uses technology to acquire cus- services and that area has a sim- But as Patwardhan suggests, back by regulation, bureaucra- tomers and pair them with a hu- ilar challenge.” inclusion is about more than cy and also inertia, says McAu- man advisor employed directly by Unlocking an organisation’s gender or ethnicity; another ley: “There is a tendency to do the firm. The net result of these true potential to innovate, group that FinTech companies things in a particular way be- different approaches is that the she adds, requires diversity are in danger of overlooking are cause that is how things have average age of a Wealthfront cus- always been done.” Weiner says tomer is 32 years old while that of the students realised the uni- a Personal Capital customer is 45, versity could take a leading role which is consistent with the busi- in the FinTech industry as con- ness model of each firm. tinues to build momentum. “We In the US, Millennials recently represent the Millennial voice, became the largest percentage which will be part of the redefi- of the workforce. As McAuley The Millennial voice will be part nition of financial services.” points out, there is a signifi- Wharton FinTech’s white cant wealth transfer under way, of the redefinition of financial paper argues that the biggest which will require financial ser- challenge faced by incumbent vices firms and FinTech compa- services. financial services organisa- nies to pay heed to the gener- tions are customer acquisition ational shift and the millennial Daniel McAuley, Wharton FinTech and user experience, as both point of view. n

Sibos, powered by SWIFT. Sibos Issues 14 www.sibos.com www.swift.com SWIFT INSTITUTE There is always the risk of political Learning pullback, resulting in the lessons a half-baked banking union. of the past Erik Jones, professor of international political economy, Johns Hopkins University New ways to think about familiar problems will be huge bail-outs. Jones’ analysis and withstanding future crises. least expected sources. “Inno- proposed by the SWIFT proposes six institutional arrange- Laubsch, director of Financial vation and change does not take ments to mitigate the forces of fi- Network Analytics, will argue place at the centre, it happens Institute in Singapore. nancial market disintegration, but that prevailing approaches to risk at the periphery,” he asserts. As admits several – such as a central management are ill-equipped to such, large firms that relied on system of sovereign debt man- help us anticipate, quantify and command-and-control manage- agement – are “hotly contested”. handle the risk. As a co-founder ment structures should take a The SWIFT Institute will pres- Nuffield College, University of While some economists re- of the RiskMetrics group at JP ‘sense and respond’ approach, ent a series of lectures at Sibos Oxford, considers the euro-zone gard the euro-zone as funda- Morgan, Laubsch contributed to in order to be more nimble in a 2015 from leading academics crisis in terms of the pre-condi- mentally flawed, Jones suggests the development of value at risk period of constant change. and experts inspired by a Jap- tions for stable financial integra- that financial integration has al- (VaR), a technique that came to Risk management strate- anese proverb: ‘Better than a tion. Jones – who has co-written ways been a matter of trial and dominate bank risk management. gies therefore should be broad thousand days of diligent study a related SWIFT Institute working error, with political expediency But Laubsch claims over-reliance enough to alert us to the least, is one day with a great teacher’. paper – draws on previous expe- besting academic theory. More- on established methodologies as well as the most, likely threats. The lectures – typically lasting riences of financial integration in over, he believes that Europe draws our attention away from Stress-testing can falsely boost 30 minutes, including Q&A – cov- countries including the US, UK has belatedly put in place some the most potent threats in a confidence if scenarios focus too er topics ranging from clearing and Canada to argue that Euro- crucial underpinnings, for ex- highly-connected and highly-dis- much on known threats. In the and settlement in Asia to RMB pean policy makers have focused ample the dominant role of the ruptive post-crisis environment. shadow of the crisis just past, internationalisation to risk man- too much managing exchange European Central Bank in pru- “The basis of VaR was that there is an understandable search agement in a networked world. rates and macro-economic ad- dential oversight of euro-zone more volatility implied more for stability, but if – as Laubsch The thread running through justments, rather than creat- banks and standardised reso- value at risk, but subsequent suggests – stability is not possi- the series is that valuable in- ing the institutional framework lution mechanisms. “There is events suggest a trade-off be- ble, it’s pursuit by banks and reg- sights can be gained by examin- needed to support capital mobili- always the risk of political pull- tween apparent stability in the ulators could lead to new threats. ing practical economic or finan- ty and cross-border transactions. back, resulting in a half-baked short-term and structural risk “We need to remember to consid- cial issues through a rigorous In the euro-zone, this failure banking union,” warns Jones. in the longer term,” he says. “In er the hidden risks and the unin- theoretical framework. In his lec- of policy caused severe econom- the long run, the more stable tended consequences. Regulators ture ‘Safeguarding financial inte- ic difficulties in Greece, Ireland, New models needed you seem, the more vulnerable want banks to be less risky, but gration’, Erik Jones, professor of Spain and Portugal in the after- you are to disruption.” this could also make them less in- international political economy math of the global financial crisis, Like Jones, fellow SWIFT Institute Laubsch says the global econ- novative and therefore more vul- at the Johns Hopkins Universi- when foreign capital evaporated, lecturer Alan Laubsch believes omy faces unprecedented levels nerable to disruption from chal- ty and senior research fellow at leaving those countries needing we can get better at anticipating of disruption, often from the lengers,” he says. n

REFERENCE DATA

The more payments we can validate upfront, the lower our Accurate data overall payments costs will be. essential for corporate Scott Lambert, senior director, treasury, Cigna

Five years ago, Cigna estab- form, Cigna is permitting more treasury efficiency lished a payments hub with the end-users within the firm’s indi- support of a specialist technolo- vidual business lines to initiate gy solutions and service bureau payments, which are then chan- The search for payments efficiency can be provider, to help to further im- nelled to and checked by the prove payments efficiency. At payments hub. At the same time, a bigger driver of corporates’ demand for first the payments hub handled the payments hub is processing only a small portion of the firm’s large payment files from US busi- reference data than regulatory change. US payments flows, but gradually ness units. In both cases, the pay- took on more volume. Now Cig- ments hub acts as a quality con- na is trying to further enhance trol backstop, validating banking payments efficiency through data prior to the payment trans- Changes to the way banks op- like the Single Euro Payments of the United States and its inter- greater harmonisation across all mission. To do this, Cigna needs erate and deliver their services Area obliges them to source in- national businesses around the its treasury operations. As well access to reliable reference data: are often driven by regulation. ternational bank account num- world. In the highly regulated US as channelling more payments IBANs and BICs for international Never has this been more evi- bers (IBANs) and bank identifier health insurance system, the path through the payments hub, the payments and American Banking dent than in the post-crisis era, codes (BICs), of payments formats between firm is implementing a treasury Association routing information in which many of their clients But even in today’s reforma- the healthcare provider and the workstation globally and mov- for domestic wire transfers. have also had to adjust their fi- tion of the financial markets, insurer must be followed quickly ing from use of bank portals to “The payments hub already nancial management practices. regulation does not drive every and accurately to avoid late pay- initiate payments to a bank-ag- processes 1.5 million payments The European Market Infrastruc- change. Greater corporate use ment interest charges. And for nostic approach, based on ISO annually. As that increases, we ture Regulation, for example, re- of reference data is also the Cigna’s international supplemen- 20022-based payment messages. will need to continue to increase quires buy-side users to report result of initiatives to improve tal medical insurance business – “It was almost a full-time job just straight-through processing all derivatives transactions to efficiency, such as increased au- the firm has sales representation ensuring to manage our security rates. The more payments we trade repositories. This has re- tomation of payments or other in 30 countries and maintains access to all our banks’ payments can validate upfront, the lower quired European corporates to critical financial transactions. more than 88 million customer platforms,” recalls Scott Lambert, our overall payments costs will ensure they apply the right legal Timely payments are critical relationships globally – prompt senior director, treasury, at Cigna. be and the faster our customers entity identifiers (LEIs) for their to global health insurance group payment to the end-user is funda- As part of its move to a ful- will receive payment,” says Lam- derivatives counterparties, just Cigna, both in its home market mental to customer satisfaction. ly bank-neutral payments plat- bert. “It’s a win-win.” n

Sibos, powered by SWIFT. Sibos Issues 15 www.sibos.com www.swift.com smartstream-stp.com We deliver the solutions. You take care of business.

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