Sibos Issues I Sibos 2018 I 22-25 October Enabling the digital economy Welcome to Sibos SECURITIES TECHNOLOGY INNOTRIBE 2018 Sydney Delving into Proof of concept Securing

With Sibos 2018 barely a month away, the data the future we hope you enjoy this preview of some of the themes and topics that will be discussed and debated in Sydney. We hope your preparations go smoothly and look forward to welcoming you to what promises to be an informative and inspiring week.

Chantal van Es Head of Sibos

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OPENING PLENARY DOMESTIC PAYMENTS CROSS-BORDER PAYMENTS STANDARDS SWIFT at Sibos SWIFT at Sibos Learning from The opportunities Learning from the A clear case REGIONAL CEO WELCOME gpi Innovate and Corporates use each other of disruption past, facing up to for change differentiate gpi to end the future cross-border payment pain

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INNOVATION IN CYBERSECURITY COMPLIANCE SWIFT at Sibos SWIFT at Sibos Asia leads Hope for the best, Time for tech COMPLIANCE CSP Sharing best Tackling cyber the way prepare for the practice and threats on three worst common resources fronts

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2 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 3 OPENING PLENARY Table of Contents

Domestic payments: We want to build a bank that is The opportunities of disruption responsive, adaptable.

Shayne Elliott, ANZ Bank

ANZ Bank’s CEO Learning from addresses Sibos Sibos Issues: ‘Enabling the digital change is now so fast we have to become economy’ is the central theme for Sibos better at learning from each other. 2018 in Sydney. What role should banks 2018’s key theme and play in supporting clients as they adjust Being digital is essential if we are to to new realities? keep pace and that applies to the world shares his perspective Shayne Elliott: We have to start with we operate in and the world where our ourselves. Before we can properly help our clients are. As the realities of the digital each other on what it means to economy unfold, it’s clear that banks can’t customers we have to be a digital bank – and I’m pleased to say we’re well down do everything themselves – we need to be a digital bank. that path. But that’s not an internal project collaborate and partner with others in a – it’s about learning from our partners, our way that makes sense for our customers, customers, and them from us. The pace of bringing in skills, technology, innovation. SIBOS • 1/2 Page Largeur FU • 180 x 118 mm • SGSS GTB • Parution 17/sept./2018 • Remise 31/août/2018 LUC - BAT

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4 Sibos Issues 2018 Preview edition SGEN_1807124_SGSS_GTB_180x118_SIBOS.indd 1 31/08/2018 11:12 The biggest challenge is We are developing simply the pace of change. people who Shayne Elliott, ANZ Bank have a growth mindset.

Shayne Elliott, ANZ Bank

Sibos Issues: ANZ established a digital For me that shows the crucial importance Sibos Issues: The New Payments Technically, another important feature Again, these changes are coming about Sibos Issues: What are the biggest banking division in 2016. How has of mindset, of people (and an organisation) Platform (NPP) has put at of NPP is it uses ISO 20022, so it is because customer expectations are challenges to banks’ ability to deliver this helped to deliver a superior user who encourage different ways of thinking, the forefront of payments innovation. compatible with international messaging changing and technology can provide value-added, differentiated services to experience to customers? and can see a way to better processes or How should banks and other service standards. greater opportunities. Our customers customers – geo-political, competitive, Shayne Elliott: The key element here was organisational structures. We need to be an providers leverage NPP and what lessons don’t compare banking experiences, they technological, cultural – and what can shifting the mindset of all our people. While organisation that can work in new ways. should other jurisdictions take from the We have also had the benefit of learning compare what they get from Amazon or they do to tackle these? establishing a digital division has definitely Australian experience? from other real-time systems – like Faster Alibaba or Apple. Shayne Elliott: Fundamentally, the biggest been a catalyst, it hasn’t just been left to I wanted us to be different and that takes Shayne Elliott: We’re pleased we can offer Payments in the UK – before this next- challenge is simply the pace of change. We one division to drive our transformation. some boldness. Interestingly, it also means our customers in Australia access to near generation platform was built. And I’m At ANZ, we want to be the best partner for need to move much, much faster to adapt. This is not about getting a group of people doing less – simplification, concentration on real-time payments through the NPP. We pretty sure other jurisdictions will have these dynamic start-ups, helping them – “over there in the digital division” to solve doing fewer things better is essential. That’s know that’s what they want. That’s also the benefit of seeing what we’ve done in which in turn helps us to evolve the bank to That’s a cultural challenge, a mindset the problem, rather it is a challenge and a also why we have focused on becoming an why we moved early to offer Apple Pay: our Australia. be better for customers. We’re focused on change. That has its own risks and as part priority for all our divisions. agile organisation. And that too has been a customers wanted it. selecting the best ideas and technologies of our cultural transformation we have major cultural transformation. Sibos Issues: How do you see banks’ and then partnering with the relevant firms placed a lot of emphasis on our values Being digital is not just about technology But we’re really at the beginning. I would relationships with the fintech sector to apply those ideas and technologies in and purpose. In the face of so much rapid and tools and process efficiency, it’s about Put simply, digital banking relies on liken it to the internet: the first era was evolving over the next 5-10 years? a banking context – and some of those change, I believe the most successful thinking differently about what customers people and technology. We are developing putting the protocols in place, then the Will they be characterised by more partners may be fintech, some may be from organisations will have a strong sense of want. Part of that of course is improving people who have a growth mindset, who innovation erupted in ways we could never collaboration than competition? quite a different realm. purpose, which will be a critical compass the user experience but we also want to understand how the world is changing have predicted. With NPP, we now have Shayne Elliott: This is a radical new world. to help guide them in addressing the build a bank that is responsive, adaptable. around them, that we need to be open to the protocols in place. The rails are there Fintechs are disruptive – it’s not a question The other fascinating dimension to this challenges of the future. n different ways of doing things and what our for innovation which I’m sure will surprise of ‘if’, it’s a question of ‘now’. We’re ready, is how does our traditional role as a bank All large organisations, banks included, can customers will need in the future. us all. we’re engaged, but without a doubt there work in this new world? These startups be like oil tankers – they take a long time are threats to us in this world; yet it is also don’t have fixed assets, property, or the to change direction. When I became CEO I That also means building the technology NPP has been a challenge; I think that’s inspiring and challenging in a positive way. other usual collateral for lending. We really realised ANZ needed to be more responsive platform that will enable us to move at one key lesson. Programmes of this scale have to think differently about how we and adaptable. Everything is changing at pace well into the future. and complexity inevitably are. It involved The interesting development we’ve seen bank them because we do want to bank such a great pace – we don’t know what the industry-wide collaboration and is now over the last 18 months or so is a shift to them. future will hold – so we need to ensure we being rolled out by more than 60 banks, the view banks will work with fintechs – can anticipate and react quickly. building societies and credit unions rather than fintechs replacing banks. We across Australia. From our perspective, don’t see an Uber or an Airbnb of banking, NPP gives us the flexibility to tailor the rather innovative fintechs working in experience to best meet the needs of our partnership with innovative banks. It’s good #Plenary customers. for them as we bring scale and trust and #Payments it’s good for us because they bring radical #Fintech thinking and different mindsets. #Digitisation

6 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 7 DOMESTIC PAYMENTS Opening plenary: Learning from each other

Cross-border The payment needs payments: Learning from the past, facing up to the future to become an embedded function.

Thomas Egner, EBA

Domestic payments markets around the “The rise of e-commerce, mobile New technologies, world are undergoing a fundamental payments and the gig economy means transformation, driven by a combination that consumers are increasing their regulations and of: new regulations aimed at enhancing digital footprint and consequently The transparency, access, competition, providing tech companies with access customer expectations innovation and the customer experience; to enormous amounts of data,” says heightened consumer expectations and David Watson, global head of digital cash are propelling mould- demographic changes; new platforms, products and head of cash management networks and entrants; and technologies for the Americas at Deutsche Bank. “This breaking initiatives that can simplify and streamline the end- access to data is further leading to new opportunities to-end payment process. innovative value-added digital services such as instant being offered.” The exploration and adoption within the payments. How are payments arena of open APIs, distributed Catching up to commerce ledger technology (DLT), cloud platforms, Mobile technology and digital commerce banks and service artificial intelligence (AI) and advanced are driving the need for safer and faster of disruption data modelling and analytics sees the payments systems. Within the past year, providers looking to industry repositioning around the core new platforms for payments innovation digital imperatives of personalization, have been launched in the US, in the handle disruption? enhanced speed of response, shape of The Clearing House’s Real-Time transparency, and frictionless delivery of Payments system, and Australia, which saw services. its New Payments Platform (NPP) go live in February. Central to this shift are client expectations, which have been irrevocably “In the retail world, real-time is all about changed by day-to-day exposure to facilitating more efficient, effective real-time, client-centric business person-to-person and mobile payments models predicated on highly tailored, – a real-time account-to-account transfer responsive user experiences (the ‘Amazon mechanism will speed adoption of mobile effect’). This dynamic is also driven by wallets and touchless payment mechanisms demographic change – new needs from across the board,” says Vinay Prabhakar, millennials and the Asian middle class, head of market strategy for payments at #BigIssueDebate for example – which is transforming how financial technology provider Finastra. #Payments millions, if not billions, want to manage “In the commercial world, it is all about #MarketInfrastructures their finances, again with the onus on domestic payments catching up to the 24/7 #Cryptocurrencies speed, certainty and transparency. speed of commerce, and eliminating the

8 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 9 You will see increasing use of APIs, in tandem with the rise of real-time payments.

Umar Farooq, JP Morgan error and onerous effort associated with on implementation and interoperability to optimise flows across networks and receivables tracking and reconciliation.” to optimise the potential of APIs. “The improve process efficiencies. key questions are: do the banks follow Manish Kohli, global head of payments and the standardisation initiatives to reduce Incumbent players view new entrants – be receivables at Citi’s treasury and trade the workload for third-party providers they fintechs or large retail platforms like solutions unit, notes that the creation of regarding access to account? How many Amazon – as an opportunity as much as a new bank-led payment schemes designed different APIs can third-party payment threat. “I see them as clients, competitors to deliver a ‘digital-age experience’ has providers handle? And how much and collaborators – and competition in coincided with the emergence of alternate harmonisation are we going to see?” and of itself is always healthy; it drives us payment networks built around points forward to improve, whether as individual of consumer loyalty – including retail Egner maintains that developments in firms or as an industry,” says Deutsche platforms, e-commerce giants, mobile areas such as AI, e-identity, cyber-security Bank’s Watson. operators, etc – which offer enhanced, and fraud prevention must be assessed in a consumer-centric payment experiences. holistic fashion, not each in isolation. “How What kind of threat do newcomers really Australia’s New Payments Platform (NPP) or an Australian Business Number. The “These networks are increasingly becoming does the payments piece fit into this overall pose? After all, trying to replicate the lowers barriers to entry and opens the first such offering to go live is OSKO from open loop, with strong interoperability perspective? Ultimately, the payment entire front-to-back transaction banking Greater way for greater diversity of products and electronic bill payments provider BPAY, between various bank and non-bank needs to become an embedded function in environment would be extremely complex, enriched functionality. one of Australia’s four existing payments payment networks,” he says. an overall designed process flow and not with perhaps the main barrier to entry for systems. remain a separate function to be triggered new players being the range of products diversity, With NPP’s launch in February, Australia From batch to API outside an end-to-end value chain.” already on offer. “However they don’t became the latest market to embrace NPP’s fast interbank payments are The emergence of open APIs heralds a need to look at it this way,” says Watson. instant payments. Set in motion by a 2012 facilitated by the RBA’s new RITS Fast fundamental transformation of payment When it comes to the application of DLT in “Rather, they are looking to identify areas richer strategic review by the Payments Systems Settlement Service, enabling any payment processes and data flows, not least for the domestic payments space, the consensus where they can solve existing problems or Board, and the fruit of collaboration made on the platform, regardless of size, to banks. “In the future, where we will have is that its potential lies in addressing gaps. Those new entrants can focus in and involving 12 deposit-taking institutions be settled in central bank funds in under a a lot more e-commerce businesses and new areas of opportunity rather than cherry-pick areas in spaces where they functionality (including Australia’s ‘big four’ banks: second, 24/7. n new emerging business models in the reinventing the wheel. “For the foreseeable can improve upon existing products and Commonwealth Bank, NAB, ANZ and shape of shared economies, there will be future, existing infrastructure will be the services.” Westpac) and the Reserve Bank of Australia a very high volume of micropayments most efficient and scalable way to make (RBA), the NPP introduces real-time which will need to get from A to B almost payments,” says JP Morgan’s Farooq. “That There is “massive” opportunity for clearing and settlement for simple or instantly,” says Umar Farooq, head of said, we see the value in using blockchain collaboration, he adds: “The top 10 complex payments using a distributed channels, analytics and innovation for as a technology that can supplement core correspondent banks all compete with architecture and ISO 20022 data standards. treasury services at JP Morgan. “Many of money movement and actually facilitate and one another, but they are also one SWIFT helped to design, build, test and the payments that now take place in batch speed up money movement, rather than another’s clients, and they also collaborate deliver the NPP and will play a key role in formats will move over to APIs. Clients will move the money itself.” on different products and in different operating the infrastructure. want the ability to do all types of money segments. There is that similar mindset movement transactions within their own Healthy competition? when it comes to large fintech movements Critically, the NPP has been built from the workflows, and so you will see increasing Similarly, the near-term use of AI and into this space.” n ground up as a platform for innovation. use of APIs, in tandem with the rise of machine learning is likely to focus on Third-parties can develop and offer ‘overlay real-time payments.” ensuring the security and integrity of services’ to realise the benefits of faster, domestic payments – i.e. using pattern The NPP has been built data-rich payments and the platform’s Thomas Egner, secretary general at the recognition to identify and flag unusual PayID simple addressing service, which Euro Banking Association, which launched transactions – rather than fundamentally from the ground up as a enables transaction accounts to be its RT1 instant payments system last reshaping the core money movement identified by a simpler payment address November, says the industry must focus process. That said, AI has strong potential platform for innovation. such as an email address, phone number

10 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 11 Download the Sibos app to see the full conference

The rise of cryptocurrencies has prompted of Australia’s payments policy department programme and governments and central banks in many said in June the RBA saw no strong case The ABC of countries, including the US (Fedcoin), for issuing a new form of central bank Sweden (E-Krona) and Singapore (Project money but observed, “We have an open plan your agenda UBIN), to start exploring central bank mind.” CBDCs digital currencies (CBDCs). for the week at The BIS sees pros and cons. Its March The debate around CBDCs is driven by a paper argued that wholesale CBDCs, number of factors: the declining use of combined with the use of DLT, may Sibos! cash; the focus on technological innovation enhance settlement efficiency for within the financial sector; the emergence securities and derivatives transactions, of new entrants into payments and and the provision of CBDCs could bring intermediation services; and the growing substantial benefits where cash is interest in private digital tokens. disappearing. But caveats included the need for fulfilment of financial crime Advocates of CBDCs highlight potential requirements, and the legal authority of

benefits, which include: broadening the certain central banks to issue a CBDC. n range of available monetary policy tools; reducing liquidity risk and credit risk in payment systems via settlement in central bank money; encouraging innovation and competition in the payments space; and supporting ongoing money creation in the face of increased peer-to-peer lending.

In a paper published in March, the Bank for International Settlements (BIS) explored the potential implications of wholesale (limited participant) and general purpose (widely accessible) CBDCs on payment systems, monetary policy and the structure and stability of the financial system. In particular, it considered questions raised around the future role of central bank money, the scope of direct access to central bank liabilities and the structure of financial intermediation. Central banks are Central banks are taking different views. taking different views. Tony Richards, head of the Reserve Bank

12 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 13 CROSS-BORDER PAYMENTS Domestic payments: The opportunities of disruption

Innovation in Asia: Asia leads the way New areas of demand are Learning from springing from economic, the past, technological and demographic change. facing up to Anurag Bajaj, Standard Chartered the future

Not only SWIFT but also Sibos is “In the past, many correspondent banking synonymous with correspondent banking. relationships and networks were a mile Correspondent Launched in 1978 in , the SWIFT wide but only an inch deep,” says Anurag International Banking Operations Seminar Bajaj, global head of correspondent banking is undergoing quickly became the ‘must-attend’ event for banking at Standard Chartered. “That’s correspondent banks. Sibos provided the changed and many correspondents are now transformation to perfect opportunity for bankers to meet looking to concentrate their efforts and over a drink for an annual reappraisal of resources in markets and on relationships keep pace with new the reciprocal links on which they relied to that play to their core strengths. As the effect client payments beyond their branch average number of correspondent banking customer demands. networks. relationships is declining, the value-add of service providers must increase: banks Forty years ago, correspondent banking must disseminate knowledge and advice was a practical example of collaboration to their partner banks, helping them to between competitors, but the international address the fast-evolving challenges facing payments paradigm failed to evolve with their customers in this era of global digital events. For more than a decade, it has been transformation.” weighed down by spiralling costs and has struggled to live up to expectations raised Friend or foe? by the digital consumer experience. Banks Many consumer-to-consumer flows have long since realised that correspondent have migrated to fintechs and business- banking relationships and services need to-business flows are not immune to more responsiveness and transparency than disruption, with under-served SMEs is possible via a 12-monthly catch-up. But are susceptible in an era of easy credit. But #BigIssueDebate they doing enough to defend their corporate in a complex international payments #Payments and institutional payment franchises from landscape, competitors can also be #CorporateTreasuryAndTrade competitors? collaborators. #GPI

14 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 15 INTL FCStone developed its expertise in local currency payments servicing international development agencies which operated in dollars, but needed to make payments in local currency to support those in need. Agencies needed to make local payments cheaply, efficiently and reliably, The solutions i.e. similar criteria to banks’ corporate and institutional customers. Since 2006, the firm has been making cross-border local we build for currency payments for banks that want a more cost-effective way of servicing B2B the future clients than opening a nostro account with a local counterparty. The diminishing risk/reward ratio of maintaining an must be extensive network of correspondent banking relationships is a key factor, but standardised not the only one. Certain jurisdictions are increasingly keen to facilitate wider use of Paula their own currencies, while the growth of and universal. da Silva ecommerce has super-charged demand for SEB small, frequent payments to geographically remote counterparties. with banks’ client propositions. As data plays Seamless infrastructure “The ability of consumers worldwide to an ever bigger role in value creation, HSBC The pace of change may frustrate some, buy from a Kenyan basket weaver via is “actively exploring” new ways to use and but investments are bearing fruit, often Amazon, for example, puts pressure on provide payment information, for example calibrated to deliver short- and long- Pascal Augé costs, efficiency and service quality of looking at the implications of transaction term benefits. Lisa Lansdowne-Higgins, Societe Generale payment service providers,” says global flow dynamics for liquidity management vice-president for business deposits head of payments Carsten Hils. “Corporate purposes. “Increasingly, the ability to share and treasury solutions at Royal Bank Client needs are front and centre making capabilities of customers,” she clients are realistic about the speed of payment information with counterparty of Canada, asserts we are “closer than throughout Sibos 2018, with corporate says. “Initiatives such as gpi help overcome payments to developing markets, but they banks and underlying customers is a crucial ever” to a seamless global payments Data is the trade and treasury to the fore in the legacy issues to provide differentiated want transparency and certainty, knowing consideration,” he says. “But there are infrastructure, thanks to a generational Corporate Forum. Many corporates are services which can, for example, improve the payment will arrive in full and fixing all many other factors, including currency renewal of market infrastructures, looking to leverage banks’ emerging the quality of cash flow forecasts.” related fees in advance.” volumes, customer experience, risk models, including all-but-universal adoption of ISO key to new payment data analytics capabilities to cyber-security policies and ability to adapt 20022, as well as other innovations which improve flexibility and transparency of While Augé sees scope for SWIFT gpi to Hils believes the future of international to demand. Correspondent banks can and also increase the end-to-end exchange cash flows and working capital. The more add further insight into payment flows for payments is likely to be characterised must play an advisory role to each other to of transactions and data. “Connecting efficiencies actionable information they can get from corporate customers in the near future, by specialisation, with niche participants support client needs.” these domestic investments will result in banks, the more efficient they can be from he also points to opportunities to leverage playing a key role in non-core services. a seamless global payment infrastructure. a funding perspective. Better information data and technology in trade and supplier He acknowledges the role of SWIFT gpi in Banks must overhaul their internal processes But we cannot expect customers to wait flows can also help build stronger supply finance. Societe Generale has witnessed helping banks and corporates to increase and external partnerships, says Paula da while we build. As an industry, we must chain partnerships. a notable increase in demand for reverse international payment transparency, but Silva, head of transaction banking at SEB. have the purpose and vision to deliver factoring, with large corporates looking to says many banks still struggle with the cost But she believes industry-level infrastructure value incrementally to meet evolving According to Pascal Augé, head of global offer financing options to suppliers across of cross-border local currency payments initiatives are also necessary, arguing the customer need as we construct this new transaction and payment services at time zones, on an increasingly seamless across multiple correspondents. “Rather than case for greater onboarding efficiency framework,” she says. Societe Generale, growing demand for basis. “This trend started in retail, but carrying increasing infrastructure costs, more and advocating adoption of market-wide payment factories among large corporates now a wide range of firms are looking to banks are looking to outsource non-core digital identity solutions, rather than banks This agile approach to developing new is being accompanied by increased interest develop closer relationships with suppliers, payment capabilities to firms such as us, and individually conducting KYC and AML checks capabilities and services might be in transaction flow analytics. “This trend including through reverse factoring. This winding down their number of correspondent on a per client or per transaction basis. A unfamiliar to the correspondent bankers of is still in its infancy, but we’re being relies on close relationships between banks, banking relationships,” he says. number of Northern European markets Brussels in 1978. But it is necessary if banks approached more frequently by firms that specifically industrialised processes and

already have digital corporate identity are to look forward to Sibos 2019 in London wish to leverage our insights on aggregated automated information flows,” he says.n A shared vision solutions in place that could be adopted for with confidence. “Existing revenue streams patterns of payment flows to improve Correspondent banks might be reappraising payment user authentication purposes, and and margins are being reduced, but there operational efficiency and reduce costs,” how they facilitate international payments, which could interoperate with other markets are also new niche areas of demand he says. but they are not on the defensive. Changing across and beyond. “The solutions springing from economic, technological Firms wish to leverage regulatory frameworks, technologies and we build for the future must be standardised and demographic change,” notes Standard Noting the importance of accurate, timely business models give rise to opportunity too. and universal, which also means embracing Chartered’s Bajaj. “As well as the evolving insights on aggregated payment data to firms receiving payments collaboration with fintechs to build a need to make small cross-border payments in terms of managing working capital In a fluid environment, HSBC global strong collaborative ecosystem,” she says. in real-time for platform-based businesses, patterns of payment efficiently, RBC’s Lansdowne-Higgins head of payments, global liquidity and “Reciprocity between correspondent banks middle-class Asian parents increasingly sees SWIFT gpi as an agent of customer cash management Tom Halpin says has not always promoted the most innovative need cross-border payment solutions to flows to improve value. “The transparency provided to the correspondent banking relationships must solutions for customers and will eventually be pay university fees for their children in the customer by payment status updates will be reviewed regularly to ensure alignment replaced by an all-to-all environment.” US and elsewhere.” n operational efficiency. accelerate and enhance the decision-

16 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 17 Enabling the digital economy

Anne Boden Starling Bank #Sibos

How different will the bank of the future to instructing payments, even creating an be? Sibos Issues asked Anne Boden, CEO account. In our developer portal, potential A platform and founder of Starling Bank, the UK-based, partners can find our API documentation mobile-only challenger bank. and test their applications in our sandbox before requesting access to the public Doremus Deutsche Bank 601DOR0140 Sibos Issues Ad 2018 Before 118x180mm Proof 01 26-07-2018 for success Sibos Issues: What core characteristics API. We select our development partners will be fundamental to the bank of the carefully to ensure any company that future? has public API access has successfully Anne Boden: Success will come to those completed a due diligence process. The Visit us at stand F02 that deliver excellent customer experience incumbents may try to replicate this model, and can operate efficiently at scale. but it’s not in their usual toolkit. We’re not just providing Anything that puts customer interests transaction services. second to the banks’ interests will become SI: What more can regulators do to redundant. Banks were first created to act support growth of new banks and service as a facilitator between people who had providers? We’re helping create a new money and wanted to deposit it and people AB: Many of the banks authorised since the who didn’t and wanted to borrow it. They UK established a new bank authorisation were not created to offer expensive and framework in 2013 are not truly new but banking ecosystem through inefficient products that customers don’t derived from other types of institution. need. A genuinely new entrepreneur-led bank, cross-industry collaboration. offering true innovative competition, is a SI: What are the key challenges for rarity. Supporting the growth of such banks #PositiveImpact incumbents? must be a priority and this can more easily AB: Absolutely everything the incumbents be accomplished by competitive authorities

have always done is being reinvented by than regulators. n fintech companies, including products and services, but also internal processes and infrastructure. The banking old guard understands this and are trying to remain relevant, but they are weighed down by banking practices that don’t allow for this and are underpinned by cumbersome Find out more: cib.db.com legacy systems and bureaucracy. Follow us on @TalkGTB A genuinely new SI: Is the platform business model the best way ahead for banks of the future? This advertisement is for information purposes only and is designed to serve as a general overview regarding the services of Deutsche Bank AG and any of its branches and affiliates. The general description in this entrepreneur-led bank, advertisement relates to services offered by Deutsche Bank AG Global Transaction Banking and any of its branches and affiliates to customers as of August 2018, which may be subject to change in the future. AB: We like to describe Starling as an This advertisement and the general description of the services are in their nature only illustrative, do neither explicitly nor implicitly make an offer and therefore do not contain or cannot result in any contractual or non-contractual obligation or liability of Deutsche Bank AG or any of its branches or affiliates. Deutsche Bank AG is authorised under German Banking Law (competent authority: German Banking Supervision engineering-led technology and financial Authority (BaFin)) and, in the United Kingdom, by the Prudential Regulation Authority. It is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal Financial Supervisory Authority, offering true innovative and is subject to limited regulation in the United Kingdom by the Prudential Regulation Authority and Financial Conduct Authority. Details about the extent of our authorisation and regulation by the Prudential services platform. We believe in banking as Regulation Authority and regulation by the Financial Conduct Authority are available on request. Copyright © August 2018 Deutsche Bank AG. All rights reserved. a platform service. We have a set of public competition, is a rarity. APIs ranging from read-only information

18 Sibos Issues 2018 Preview edition INNOVATION IN ASIA Cross-border payments: Learning from the past, facing up to the future

Cybersecurity: Hope for the best, prepare for the worst Payments users across the region are extremely Asia tech-savvy.

Oliver Kirby-Johnson, leads partner, KPMG

the “That gives a really good indication of how Innovation in Asia takes many forms and Banks are taking may be found in many places. “There are we can all work together,” says Robins. the core hubs – China, India, Singapore, multiple roles as Hong Kong – and we also see a tremendous Rise of the super-app amount of innovation happening, perhaps Innovation in Asia is also underpinned by flexible infrastructures a little more quietly but nonetheless Asian consumers’ ease with technology and way readiness to accept innovative solutions. effectively, in some of the smaller countries support demand for by GDP,” says Lisa Robins, global head, “Asia was once regarded as a cash and transaction banking, Standard Chartered. trading economy; in reality, payments users new solutions. How do we explain – as well as support and across the region are extremely tech- participate in – the rise of Asia? And what savvy,” says Oliver Kirby-Johnson, partner, are the implications of innovations such as KPMG. The region does not have a common the super-app? banking system or currency – as is the case in the US and the European Union – but its First, the region’s diversity is an advantage, populations are highly mobile. as is the relative lack of legacy systems in a number of fast-growing economies. So-called super-apps, combining integrated, Robins continues: “What could have been contextual transaction and investment a weakness is in fact a great strength. services within a broader range of mobile For an established bank, that gives us consumer functionality, have become an opportunity to work very closely with pervasive; functionality continues to be some of the big companies that are trying developed at dizzying speed – the issue of out new technologies. We are in a great financial inclusion has thus been addressed position to work with very innovative via digital inclusion. China’s WeChat, for companies.” example, developed by Tencent, enables utility payments, social-media interaction, Even more so than elsewhere in the world, entertainment bookings, fast-food ordering there is a ready supply of such companies and remittances among other services. in Asia. Robins cites Standard Chartered’s recent initiative with Alibaba, Ant Financial Cross-border activity within Asia is also a and GCash to facilitate safe and rapid factor driving innovation. “Asian countries #BigIssueDebate remittances between Hong Kong and the are naturally trading a lot more now with #Banking Philippines – banking expertise combining each other. The number of innovative #Payments with corporate reach and technology solutions seems to have exploded across #SWIFTInstitute innovation to solve a real-world problem. Asia,” says Kirby-Johnson. This “explosion”

20 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 21 Management practice is still stuck in models Banks that were developed in the fifties. can be Rajeev Peshawaria, Iclif Leadership and Governance Centre innovators. Banks can be partners. Who will follow

Lisa Robins, Standard Chartered the naked leader? is detonating on at least two levels: banks and other service providers will have multi-player financial-services evolution. individuals and corporates now have the to amend their own systems and channels Kirby-Johnson says: “When you combine “Everybody agrees that technology has “Ordinary people are more empowered ability to make payments – “using just to support new products, but the NPP will inherently flexible infrastructures with changed our lives dramatically in just the today than ever in human history, thanks about any mechanism you can think of” enable a range of new payments solutions the advent of open-banking APIs, you’re last five to seven years. But when I ask – do to connectivity. On the other hand, leaders – as Kirby-Johnson puts it, while central that are more flexible, more sophisticated allowing fintechs and others to provide the you agree that large organisations around are completely naked. Every mis-spoken banks are working together to develop and richer in data than current products. innovation in the customer channel, and to the world are keeping pace with that word and deed is out there. How can you more coherent, faster methods of sending “Creating new products for the NPP do it much faster than the banks could.” change, when it comes to evolving their be autocratic even if you want to be?” money across national boundaries. is at the level of soft configuration leadership and management practices? This is the twenty-first century leadership rather than hard build, which is not the That’s not to say, though, that the Nobody agrees.” Rajeev Peshawaria, CEO dilemma, and Peshawaria will discuss the “They are innovating nationally, in terms of case on conventional single-purpose banks won’t be playing a full part in the of the Iclif Leadership and Governance ‘five keys’ to a practical solution. “Then I the central banks, and they are innovating infrastructures,” says Kirby-Johnson. continuing rise of Asia. Finally, Robins says: Centre and author of books including will talk about innovation, focusing on how in the private sector. In terms of core “Banks can be innovators. Banks can be ‘Open-Source Leadership’, continues: to speed up innovation in an organisation, infrastructures, a number of countries Freedom to innovate partners. Banks can act in many different “Management practice is still stuck in because today, you can’t be slow. I’ll now have real-time domestic payment The region perhaps benefits from greater ways in the new world to help lead the models that were developed in the fifties. also talk about talent development and networks,” says Kirby-Johnson. KPMG is freedom to innovate than elsewhere charge and make everything easier, faster We now live in the open-source era, which succession planning. How can you be sure currently engaged in guiding the ongoing – freedom from legacy; freedom from and safer for our clients. We are innovating offers amazing opportunities to a lot of that you’re investing in people who will stay development of Australia’s New Payments dependence on both the preconceptions – a lot.” n people. But the flip-side is: this also creates with you?” Platform (NPP), which is at once an and the hard builds of the past. new challenges.” innovation in itself, and a driver of further Significantly, there is also opportunity for And in the era of increased process innovation. collaboration and partnership. Robins says: How do we, and our organisations, automation and robotics, Peshawaria “When I think of how banks can respond navigate the open-source era? In the will consider effective techniques for The NPP is a collaboration between 13 to support innovation, I think of these SWIFT Institute session ‘Open-Source managing and motivating people. “There Australian financial institutions, aimed at questions: Where can we partner, and who Leadership: Leading in a Tech and is a clear trend away from employment “changing the way Australian businesses can we partner with? What aspects of this Millennial Age’, Peshawaria will discuss, towards free agency. I will show through and consumers handle transactions”. do we need to build? What aspects do we first, leadership and the concept of ‘inner data how to increase your organisation’s

Integral to its design is the capacity to outsource? All of these are possibilities in engineering’, and secondly, ideas of productivity.” n support “overlaid” value-add services this new world.” leadership style. “What kind of leadership offered by NPP-user institutions. Kirby- do we need? Pick up any of the literature, Johnson says: “The NPP will support Across Asia today, innovation is triggering and you read that the democratic, a massive amount of innovation in further innovation. What does this bode all-inclusive style is best. But I can cite the consumer- and business-banking for the future? What will be the role of autocrats who have rocked the business marketplace.” the banks, going forward? At a time of world. Which style is correct for today?” few certainties, it seems likely they must Peshawaria will present research, and also These are early days, not least because become participants and partners in a discuss the impact of technology.

22 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 23 Learning Join the from the conversation outperforming unicorns @Sibos #Sibos

“China’s fintech unicorns tend to focus in a credit-scoring model. “The big three on customer-oriented business models. fintech parent companies in China – Baidu, In the West, the focus is on business-to- Alibaba and Tencent – are generating business models,” says Bonnie Buchanan, their own credit-scoring models based on Howard Bosanko professor of international every data point they can gather about a economics and finance, Seattle University, customer.” discussing her SWIFT Institute session, @Sibos #Sibos LinkedIn.com/company/Sibos ‘Quo vadis? Fintech in China versus the Buchanan will also discuss barriers to West’. The presentation will be based on entry to the Chinese fintech market and a paper co-written for the SWIFT Institute how these have reduced over time. “In by Buchanan and Xuying Cathy Cao, an China, fintech is addressing a completely associate professor at Seattle University. under-served market. If you’re the owner “I will also look at the rise of the Chinese of a Chinese SME, historically, you couldn’t fintech market and how it has been get a business loan; the same is true for different. I teach a number of students individuals. By contrast, there is a lot of from China, and many of them have grown disenchantment with the banks in the West, up never knowing a credit card. They’ve after the crisis of ten years ago.” If fintech gone straight into mobile and cashless is helping the Chinese to love finance, could

payments,” she observes. it rekindle trust in banks elsewhere? n

China’s fintech market has grown more rapidly than fintech markets in the West, partly because it has not been hampered by legacy hardware and software. “China also has a very much larger pool of big Bonnie Buchanan, data to access. If you look at the number of Seattle University AI patents submitted, this is the first year in which China has surpassed the US. AI, cloud computing and big data have worked SibosTV Sibospics really well for China in generating that In China, fintech is meteoric rise in fintech.” addressing a completely There’s no history of formal credit scoring in China, for example, but every interaction under-served market. with WeChat creates a data point for use

24 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 25 CYBERSECURITY Innovation in Asia: Asia leads the way

Compliance: Time for tech Hope for the best, prepare for the worst

“Cyber is the thing that keeps me up at not just the financial services industry, but night,” said Euroclear CEO Lieve Mostrey at the world, coming in just behind extreme Rising concerns last year’s Sibos in Toronto. At the time, the weather events and natural disasters. chief of the Brussels-based international “Cybersecurity risks are also growing, both about a ‘cyber 9/11’ central securities depository was referring in their prevalence and in their disruptive to the growing threat of cyberattacks – potential,” said the WEF’s 2018 Global Risks event are spurring attempts by individuals or organisations to Report. “Attacks against businesses have breach the security of a computer network almost doubled in five years, and incidents collaboration across or system – on the world’s increasingly that would once have been considered interconnected financial ecosystem. extraordinary are becoming more and more banks, regulators commonplace.” The WEF – which launched a A year on, the stream of attacks is Global Centre for Cybersecurity in January and market constant. In the run-up to Sibos 2018 with the aim of providing a platform in Sydney, is cyber still giving financial for collaboration among governments, infrastructure services executives sleepless nights? companies and organisations to prevent “Yes, it is,” says Yves Dupuy, the recently- and lessen the impact of attacks – estimates operators. appointed chief information officer for that cybercrime’s cost to the global Euroclear. “The challenge remains, and economy could rise to US$500 billion. cyber threats are becoming increasingly complex, sophisticated and targeted on the “I completely agree with WEF’s assessment financial sector.” that cybersecurity poses a significant threat to the global financial sector,” A global risk says Mark Morrison, chief information #BigIssueDebate The World Economic Forum (WEF) concurs. security officer (CISO) at the US Options #Cyber Earlier this year, it named cybersecurity as Clearing Corporation, ex-CISO of global #MarketInfrastructures one of the biggest risks currently facing custodian State Street and former deputy #Culture

26 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 27 We must assume that one of the major market infrastructures will be targeted.

Yves Dupuy, Euroclear

chief information officer for the US targeted. Of course, we hope for the best, In addition to peer-to-peer relationships, Morrison says a key component to network, the financial industry is only Department of Defense. “We have seen but we must prepare for the worst.” information is shared and analysed reducing cyber risks is improving an as strong as its weakest link. “Cyber significant increases in the frequency and through organisations and utilities such organisation’s information system security adversaries are quite adept at identifying sophistication of cyberattacks being aimed The worst, according to cybersecurity as the Financial Services Information hygiene. “Currently, the vast majority of and targeting the weakest link in the directly at various financial sector firms.” experts, would be a large-scale, crippling Sharing and Analysis Center, which security incidents are occurring through financial environment,” says Morrison. attack on a critical infrastructure – the established the Financial Systemic the exploitation of known and existing “Given the high interdependence of In addition to what Morrison calls “generic US has designated 16 of these, including Analysis & Resilience Center in 2016. “The security vulnerabilities or poorly configured the financial ecosystem, any security The complexity cybercriminal activity”, there is an uptick financial services – often referred to over US Treasury Department and Department information systems using known and vulnerability introduced into the sector in attacks by nation state actors against the years as a ‘cyber 9/11’ or ‘digital Pearl of Homeland Security have sponsored well-documented cyberattack tactics, impacts everyone. As the classic adage financial firms for reasons as myriad as Harbor.’ The WEF report noted this rising several sector-wide exercises that techniques and procedures,” he says. says, a risk accepted by one is imposed on of our ecosystem financial gain, market disruption or a concern. “Another growing trend is the use of explored the regulatory, legal, technical, “Implementing appropriate processes and all.” secondary attack linked to a ‘real world’ cyberattacks to target critical infrastructure and procedural aspects of dealing with controls will go a long way to reduce a further manoeuvre. “Since the worldwide financial and strategic industrial sectors, raising fears a large-scale cyberattack targeting firm’s cyber risk even in today’s high-threat Euroclear’s Dupuy says the shortage cuts system is now inextricably reliant on that, in a worst-case scenario, attackers could the financial sector,” says Morrison. environment.” (See ‘Human Firewall’.) across the industry. “Attracting top notch cyberspace, a cyberattack that adversely trigger a breakdown in the systems that keep “These have been extremely useful cybersecurity experts is a challenge for all accentuates the impacts system availability or introduces societies functioning,” it said. and have provided all the participating War for talent financial institutions, and there is really a degraded confidence in the financial data firms, including OCC, and government Complicating matters is the well- war for talent in that space,” he says. need to ensure will significantly undermine the financial In this new world of anticipating worst- organisations with relevant and practical acknowledged talent gap in the markets,” he adds. case scenarios amid a near-permanent information, to respond to a security cybersecurity workforce that, Despite the risk of sleepless nights, stream of attacks, how should the financial incident or breach.” according to a recent white paper by however, Dupuy says the finance sector’s collaboration. Marc Bayle de Jessé, director general, services industry best prevent and respond PricewaterhouseCoopers (PwC), will widen cybersecurity experts are highly committed Marc Bayle de Jessé, market infrastructure and payments at to breaches, especially to major centralised Fostering more collaboration and from 1 to 1.5 million open positions by 2019 and motivated by a sense of being a part European Central Bank the European Central Bank (ECB) believes infrastructures? information sharing is a key component in the US alone. The global need could of something bigger than their individual the stakes for are very high. “The financial of the Eurosystem’s cyber resilience surge to 6 million by next year. organisations. “That’s what gets me up ecosystem has become increasingly Collective action strategy for MIs, according to Bayle, in the morning, and I’m sure it’s inspiring interconnected. Cyberattacks on market As security hacks became more prevalent noting that the ECB is responsible “The ability to recruit and retain technically to many of my colleagues as well,” he infrastructures (MIs) have the potential to in recent years, finance sector firms have for a number of critical financial skilled and motivated individuals with says. “Working to keep Euroclear cyber- impact it as a whole,” he says. “Therefore, been investing in improvements to their infrastructures and oversees systemically- relevant cybersecurity experience is secure and future-proof, means working to the safe and efficient operation of MIs is specific information security controls to important payments systems in the a persistent challenge in today’s very keep the wheels of the financial industry essential to maintaining and promoting better identify, detect, protect, respond and euro area. “The complexity of our competitive market,” says Morrison. turning.” n financial stability and economic growth. If recover from these pervasive attacks, says ecosystem further accentuates the Despite robust career channels for not properly managed, MIs can be sources OCC’s Morrison. need to ensure collaboration among all cybersecurity professionals via academia, of financial shocks, such as liquidity relevant stakeholders, including major government and the armed services, dislocations and credit losses, or a major “The financial sector is being extremely centralised infrastructures, MIs, banks “the demand for these skills is clearly channel that transmits these shocks proactive in identifying and implementing and regulators,” he says. “They should outweighing the supply,” he warns. across domestic and international financial collective policies and procedures to thwart all make sure to embed strong protective markets.” individual or sector-level cyberattacks measures within their respective This shortage can create systemic risk through the real-time sharing of actionable institutions; enhance their detection if organisations, especially mid-tier and Euroclear’s Dupuy adds, “We must assume cyber threat intelligence information and capabilities; and work collectively to smaller ones, are unable to hire or retain that one day one of the major MIs will be indicators of compromise,” he says. respond to cyber incidents and breaches.” enough qualified professionals. Like any

28 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 29 Explore the new Discover zone and stage at Sibos in While there are many different types of Cyber resilience is about more than cyberattacks, 85-90% involve a human technology, tools, and applications, he Human firewall element, according to industry estimates. adds. “It’s about having a natural instinct “Cyber adversaries have learned that it to secure the environment in which is easier to defeat a human than exploit a you work. First and foremost, it’s about Sydney! system technical vulnerability,” says OCC people, awareness and behaviours.” New CISO Mark Morrison. technologies such as big data and machine learning are beginning to be utilised as Through comprehensive training, well, Duvuy says. employees at all levels must be aware that their actions – for example, falling The Eurosystem has developed a for malicious email phishing or clicking range of tools that can be used by on a compromised web site that steals banks and other financial entities to legitimate credentials or deploys malware enhance cyber resilience, according to – can cause irreparable harm to the Marc Bayle de Jessé, director general, enterprise information systems and data, market infrastructure and payments at he adds. the European Central Bank, including the European framework for Threat What does training look like at OCC? Intelligence-based Ethical Red Teaming “OCC security attempts to influence user (TIBER-EU). Red teaming – or ‘ethical behaviour by conducting phishing email hacking’ – is a way to test the security and campaigns, and through an aggressive vulnerabilities of a network by mimicking security awareness program, clean the tactics and techniques of real desk audits, cybersecurity exercises, cybercriminals. and comprehensive event and activity It is easier to defeat monitoring.” “The TIBER-EU Framework aims to embed a new mindset within the industry,” says a human than exploit At Euroclear, practice makes perfect, Bayle. “By conducting a more sophisticated according to CIO Yves Dupuy. “Training is form of red-team testing, we believe that a system technical extremely important to turn knowledge financial entities will learn more about into automatic reflexes. Security is the the types of threat actors that may vulnerability. basis of Euroclear’s licence to operate, target them, the tactics, techniques and and our people have a vital role in keeping procedures that may be used against them, Mark Morrison, Euroclear safe: They are our human and the steps that need to be taken to

Options Clearing Corporation firewall.” counter such cyberattacks.” n

30 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 31 COMPLIANCE Cybersecurity: Hope for the best, prepare for the worst

Securities: If you don’t get your data Delving into the data into a good format, you Time for tech probably won’t get the results you want.

David Howes, Standard Chartered

Financial crime compliance could benefit kept pace with evolving criminal activity Technology innovation from enhanced use of technology to and law enforcement tactics, dimming improve outcomes, drive effectiveness their effectiveness. and information- and increase efficiency in the battle to thwart criminal activity. But even the “There is a lot of effort going into filing sharing move to the most advanced banks are still in testing all sorts of reports and intelligence to mode. government agencies, but it is not often fore as banks pursue apparent whether or not it generates Filtering relevant intelligence from millions the required outcomes in terms of law greater efficiency and of transactions and multiple data sources enforcement, asset confiscations and the in a timely manner is a challenge across disruption of criminal activity. There is an effectiveness. many aspects of banking operations. opportunity to automate manual processes In financial crime compliance, there is and bring greater efficiencies,” says Guy widespread recognition that inefficiencies Boyd, group general manager, financial have spiralled out of control. In short, the crime portfolio, ANZ Bank. nettle must be grasped. Regulators recognise the need for new Advanced technologies such as approaches, particularly as new threats artificial intelligence (AI) and robotics emerge. The rising sophistication of show significant potential to improve cyber attackers, fraudsters and terrorist compliance effectiveness. To ensure financing operations demands continuous superior outcomes and lasting impact, investment in defences and reappraisal of rigorous but time-consuming testing, tactics. implementation and transition processes are essential. Some banks are already advanced in testing the application of AI and robotics, New threats, new tactics recognising that technology can be used to Banks have invested tens of billions of reduce false positive alerts, cut resources dollars in their compliance efforts and spent on manual operations and free up the number of suspicious activity reports analysts to focus their efforts on rigorous (SARs) submitted to financial intelligence analysis and risk mitigation. units has skyrocketed in recent years. #Compliance But a large proportion of SARs generate “We have tested machine learning #Technology little immediate value for law enforcement technologies in anti-money laundering #Data agencies or actionable feedback to banks. (AML) and other functions and the results #Cryptocurrencies SAR reporting practices have not always have been very promising in reducing

32 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 33 Regulators need to see strong evidence that any automated model will work as required.

Jan-Gerrit Iken, Commerzbank

James Freis, Deutsche Börse Group

the number of false positives and manual absolutely confident that new risks “The buzz around AI is similar to the buzz Few would argue that collaboration helping the private sector to identify and effort, empowering our analysts to will not be created by handing over that existed around transaction monitoring between the public and private sectors is report suspicious transactions, helping law focus on the relevant transactions that responsibility for key compliance systems 10 years ago. It does have the Building anything but positive in the fight against enforcement agents more quickly arrest require investigations. Our regulators are functions to machines. potential to add value, but if you don’t financial crime, and so the development and prosecute criminals, and working with supportive but they need to see strong get your data into a good format to feed of public-private partnerships (PPPs) in academia to build knowledge and gather evidence that any automated model will “If you automate badly and risks are not into the systems, you probably won’t get bridges, multiple jurisdictions in recent years should insight. work as required,” says Jan-Gerrit Iken, detected or managed and something goes the results you want,” says David Howes, be welcomed. divisional head of global financial crime, wrong with automation, it can go wrong deputy head of financial crime compliance Simon Norton, analyst at the Australian AML/sanctions at Commerzbank. very fast, leading to major issues which can at Standard Chartered. tackling crime From the Joint Money Laundering Strategic Policy Institute, believes be costly to fix. It can also lead to a risk Intelligence Taskforce (JMLIT) in the UK to the Fintel Alliance is one of the more Better outcomes averse approach to trying new and better Targeting resources Australia’s Fintel Alliance, these initiatives ambitious of the PPPs because it involves The possibility of using human resources ways in the future,” says Boyd. Attitudes towards the use of technology in typically have similar intentions to bring private sector analysts being seconded to more efficiently is a leading incentive for financial crime compliance will inevitably industry participants together with law government to work proactively with law implementing new technologies, given the “Technology solutions such as AI often vary depending on an individual firm’s enforcement agencies and regulators to enforcement officials. The project also time currently spent sifting through alerts over promise and under deliver,” he adds. priorities and its appetite for innovation. But more effectively combat money laundering, comprises an innovation hub through which to weed out false positives. Iken is clear, “We have explored basic-level AI where compliance requirements are now clearer fraud, terrorist financing and other forms participants can look collaboratively at new however, that the ultimate goal is using a machine is trained to make fact-based and better understood than in the past. This of financial crime. technologies. technology to achieve better outcomes in decisions and there is clear potential, but presents the industry with an inflection point terms of identifying risk and preventing the consequences of getting it wrong are at which technology-enabled opportunities “One of the biggest myths is that “Legal frameworks are critical in the crime. so severe that it would be brave to let an are grasped or further time, effort and governments know who the bad actors are context of public-private partnerships unsupervised model loose in this space.” money are wasted through inefficiency. and they just need to find them. In reality, because they govern what can be shared “The real promise of machine learning there are names under investigation but between agencies and organisations. and other advanced technology is not to Testing advanced technologies is far from “The recurring challenge is in determining law enforcement needs to work with the However great the potential of technology replace headcount but rather to allocate simple, not least because it needs to be where to concentrate limited resources, Public-private industry to make a difference. Public- and data, its use will be limited if there is the resources we have to the really trialled in parallel with existing processes, because testing of new technologies private partnerships offer real value in no framework and arrangements in place relevant cases that pose the most risk. leading to duplication of effort in the short requires targeted investment and shifting partnerships offer bringing together multiple perspectives for dialogue and information sharing From what we have seen so far in testing, term. Using AI and robotics effectively of talent, which has to be supported by and institutions to tackle criminal between the public and private sectors,” it really does seem that machine learning not only depends on the quality of the management and regulators. Machine- real value in bringing behaviour in the sector,” says James Freis, says Norton. n and robotics could be the best way to technology, but also on a bank’s internal made decisions also have to be very chief compliance officer at Deutsche Börse achieve this,” he says. processes and its ability to get to grips transparent and well understood if they are together multiple Group. with large volumes of data. While effective to be widely approved and adopted,” says Getting it wrong can have serious use of these technologies might enable James Freis, chief compliance officer at perspectives. The Fintel Alliance was launched by consequences, of course, and while resources to be redeployed, it relies Deutsche Börse Group. n AUSTRAC, the Australian government’s the promise of AI might be enticing, on reliable, clean data as the basis of James Freis, financial intelligence agency, in March both regulators and banks need to be automated decision making. Deutsche Börse Group 2017. Its operational objectives focus on

34 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 35 Sibos Big Issue Debates 2018

MONDAY 22 TUESDAY 23 OCTOBER OCTOBER 14:00 11:00

Re-engineering Is a Cyber 9/11 event Cryptocurrencies: international inevitable? payments for a fast the next frontier? digital age

Until fairly recently, it was common for gangs, but this is a growing vulnerability cryptocurrencies to be dismissed as a that needs to be closely watched. An passing fad. As a new and unregulated open ledger is actually very traceable so market, cryptocurrencies attracted criminal transaction monitoring shouldn’t be too elements, but the impact on the stability of complicated, but education is critical as the financial markets was seen as limited, we need to make sure we understand this as investment was confined to niche, fringe developing asset class,” says Guy Boyd, groups. group general manager, financial crime portfolio, ANZ Bank. These assumptions ended definitively with the great price move of late 2017, The industry’s existing detection and WENDESDAY THURSDAY with Bitcoin surging from $7,000 to nearly monitoring systems have been naturally $20,000 in just a few months. While the tailored towards conventional assets and 24 OCTOBER 25 OCTOBER price of Bitcoin has since retraced back to will need to be adjusted or even overhauled less than $6,000, the move made it look if there is a substantive threat of fraudulent 11:00 11:00 more like a fiat currency, with conventional activity on the distributed ledgers on which market participants taking greater interest cryptocurrency transactions are recorded. in trading digitised assets. This may be the next frontier to which financial crime defences will need to be Disruption in the The rise of Asia as a It is too early to say exactly what role tailored. cryptocurrencies might play in future payments landscape source of Innovation financial markets, but financial crime “Crypto assets are still relatively small practitioners recognise the need to in the broader context of financial keep track of this evolving asset class. markets, but we need to address them Cryptocurrencies could well be a target for with appropriate risk mitigation tools. fraudsters, especially as their user/investor Given the ease with which retail investors This is a growing base broadens, so stronger defences are can buy cryptocurrencies in comparison therefore needed to make sure robust to fiat currencies, proper AML and vulnerability that needs transaction monitoring extends to this fast- robust identification requirements must evolving space. be deployed,” says James Freis, chief to be closely watched. compliance officer at Deutsche Börse

“There is little evidence at this point of Group. n Guy Boyd, ANZ Bank crypto assets being misused by criminal

36 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 37 SECURITIES Compliance: Time for tech

Technology: Banks cannot get to grips Proof of concept with the aggregation and analytics required to create actionable information. Delving Tim Lind, DTCC into the

Data is the lifeblood of financial markets Opportunity from insight data Despite technology The intrinsic value of data lies in its and efficient access to reliable data sets is critical to ensure streamlined, automated potential to reveal valuable insights and challenges, processes throughout the trade lifecycle. opportunities. The recurring challenge is In front-office trading functions, new data to convert raw data into a format that can security fears and analytics can enhance decision-making, be used as the basis for enhanced insight while back-office operations and processing and action. Clearly it is the responsibility the constraints benefit from greater efficiency, reduced of individual institutions to manage their risk and more cost-effective compliance. own data, but market infrastructures of regulation, Nevertheless, collecting and making (MIs) are also well placed to extract and sense of large volumes of data has long aggregate data for the benefit of the practitioners are been a challenge for securities market whole industry. practitioners. leveraging data In January 2018, the Depository Trust & With the evolution of industry practices, Clearing Corporation (DTCC) appointed to reduce risk and new regulations and advanced technology, industry veteran Tim Lind as managing there has been an explosion of data director of data services with a mandate to inefficiencies, while over the past decade, with ever greater leverage the vast amounts of data derived volumes of granular information from the company’s processing platforms enhancing decision- generated, collected and reported. and advance its data strategy. Lind believes But data in isolation adds little value MIs have a critical role to play in capturing, making. without enrichment, aggregation and aggregating and exploiting the unique analysis tools, and proliferating data sets value of data. represent a growing challenge for market participants “Bankers often say they are flooded with data but starved of insight. Masses of “Across all major parts of the securities data flow through banks’ infrastructures value chain, everyone is looking to develop and they recognise it has value, but they new techniques to mine and interpret cannot get to grips with the aggregation data to realise its full potential both for and analytics required to create actionable institutions and their clients. We’re seeing information and enhance decision-making,” increasing levels of confidence to tackle Lind explains. #Securities this and more new products and solutions #Data are becoming evident,” says Margaret Some service providers are more advanced #MarketInfrastructures Harwood-Jones, global head of securities than others and are already leveraging #Regulation services at Standard Chartered. data to identify how and when assets

38 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 39 Firms will have to think about data Everyone is looking to develop new and analytics at an techniques to mine and interpret enterprise level. Sumitra Karthikeyan, data. Boston Consulting Group

Margaret Harwood-Jones, Standard Chartered

Historically, asset management firms “Given the huge share of growth of haven’t often stood at the bleeding edge emerging markets such as China, asset The case of technological change. Overall, they’ve managers have to follow the money. The preferred to focus on managing money and US is still growing but the next generation have historically been invested, offering recognises its potential role in enabling Given the potential to drive enhanced delivering returns for investors, leaving of investors is much more focused on new that insight for the purposes of enhanced data-driven insights. Among the many performance and remove duplicative sub- for buy-side technology providers to blaze the trail with markets, so firms are having to rethink packaging and distribution of funds. functions that stand to benefit, Lind cites optimal processes, practitioners believe new systems and processes, with banks their distribution strategies and make sure Meanwhile, in the front office, forward- liquidity management, market risk, trade now is the time to embrace innovation taking the role of early adopters or fast- they are fully attuned to the regulatory and looking asset managers are using a wider decision support, capital adequacy and and challenge the status quo. Tackling reinvention followers. structural demands of key markets,” says range of data to make more informed regulatory compliance. questions around data ownership and Karthikeyan. investment and trading decisions. privacy will naturally be part of this That might be about to change. Fuelled by “This shouldn’t be about creating new process. record growth in assets under management “Digitisation and tech-driven innovation “With access to data from hundreds of lines of business for MIs but supporting and seeking greater efficiencies from service is shaping the Chinese market in an information providers, asset managers are core services with additional data,” Lind “There is an opportunity here to radically providers, many asset managers are taking unprecedented way, such that it creates able to canvas and track market sentiment explains. “Aggregated historical data is rewrite the way we operate in the securities bolder steps to reduce or replace manually both higher barriers to entry and also around a particular stock and decide the baseline for quantitative analytical market,” says Harwood-Jones of Standard intensive operations and embrace machine opportunity for digitally savvy asset whether or not to execute a trade. Data models looking for patterns in trading Chartered. “As new operating models learning, robotics and advanced analytics. managers,” she adds. can also be used to gain a clearer oversight activity and liquidity, which should emerge and we find enhanced ways to of trading counterparties and markets for ultimately benefit front office, research meet client needs, the pace and scope “The increased use of artificial intelligence While many asset management firms optimal execution,” says Paul Stillabower, and risk functions.” of change will be far superior if there and analytics is driving change in the way already have a digital agenda that global head of product management at RBC is proper collaboration between banks, asset management firms are organised, might involve hiring technologists or Investor & Treasury Services. In parallel, financial institutions are also custodians, clients and regulators, bringing because few have the scale to deploy experimenting with analytics and data, dealing with the growing threat of financial different perspectives together to evaluate technology on a desk-by-desk basis. BCG suggests the industry as a whole must

The potential benefits flow throughout crime, fraud and terrorist financing – areas opportunities and solutions.” n Firms will have to think about data and capitalise on its recent growth and invest the trading and investment process. “An in which better management of data analytics at an enterprise level so that all further in digital and analytics. In five investment manager may need to access and use of advanced technologies (e.g. desks can leverage it – this is where the years’ time, asset managers should look, data to determine how often their trades AI-based systems to recognise unusual most disruption will occur,” says Sumitra think and behave very differently from the fail with a particular broker and under data flows) stands to drive considerable Karthikeyan, head of the securities way they do today, the group predicts. which circumstances, in addition to how new process efficiencies in identifying servicing practice at the Boston Consulting much a failed trade may have cost,” adds and deterring multiple forms of malicious Group (BCG). “The most innovative firms are those that Stillabower. “This information can then be behaviour. are very demanding about the flexibility used to decide which counterparty they Global assets under management grew and malleability of the data underlying should trade with under certain market Extracting, aggregating and making by 12% in 2017 to US$79.2 trillion, the their operations and are investing in this conditions and on which market to achieve more effective use of large volumes of strongest uptick since 2009, according to area. There is an opportunity to do this the best price.” data comes with its share of challenges, BCG’s 16th annual report on the industry, strategically and in a scaled way at an including privacy, integrity and security. published in July. Reflecting the changing enterprise level. At the moment, we see Supporting core services Financial institutions tend to be naturally contours of the global economy, this greater investment on an ad hoc basis in

In the middle and back office, MIs are protective of their proprietary data, expansion was led by China and North experimental siloes,” says Karthikeyan. n continuing to explore opportunities to use which can raise barriers to market-wide America, with China registering 22% data to improve critical processes. With exploitation, as can legacy differences in growth last year, becoming the fourth its central position in trade processing, market practices, rules and infrastructure largest asset management market after the clearing and settlement, the DTCC across geographies. US, UK and Japan.

40 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 41 Networking events at Sibos - open to all

MONDAY 17:00 22 OCTOBER New Payments Platform (NPP) cocktail SWIFT stand

18:00 Ten years on from the collapse of Lehman issued an update, evaluating the main Discover zone launch event Brothers, the processes of the global changes impacting the securities services Discover zone ICC Level 4 A time to securities markets have been completely industry and stakeholder responses. reshaped by the swathe of new regulations implemented to shore up the industry The report concludes broadly that WEDNESDAY 06:00 reflect, but not and protect it (and its customers) from while end-investors benefit from better further shocks. From heightened capital protection of their assets and greater 24 OCTOBER Sibos 5K Fun run and walk and collateral requirements to reform financial system resilience, reform relax of execution, clearing, settlement implementation has been expensive for and reporting, barely any part of the market participants. Moreover, the new 17:00 transaction lifecycle has been spared. framework has not yet been tested by WOW (Women of the World) events. Driven by global standards set by the networking drink Financial Stability Board, the Basel Already, some regulators have started to ICC Level 5 Committee on Banking Supervision and make modifications to rulebooks to ensure other international bodies, most G-20 greater consistency and effectiveness – jurisdictions have implemented major notably the European Commission’s Capital 19:00 capital, liquidity and market reforms since Markets Union initiative – and further the crisis. Taken together, these changes changes may be necessary as market Innotribe party represent the biggest industry overhaul in practices evolve. While the past decade Wild Life Sydney Zoo history. was one of breathless rule writing and implementation, the next is likely to be one With so many regulations drafted and of consolidation and review. n THURSDAY 17:00 implemented in a relatively short period of time, both regulators and industry 25 OCTOBER ‘Celebrating Sydney’ – Sibos closing participants have acknowledged the need event Regulators and industry to pause and take stock of what has been achieved, what works, and what needs a ICC Level 5 participants have rethink. acknowledged the need Following its progress report on regulatory initiatives last November, the International to take stock. Securities Services Association recently

42 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 43 TECHNOLOGY Securities: Delving into the data

Innotribe: Securing the future Proof of concept

In 1984, the first film in the ‘Terminator’ rather than creating a fixed cost with Banks are increasingly franchise imagined the height of future dedicated servers which would then have technology as an autonomous, lumbering to be repurposed afterwards. HSBC has realising the potential hunk of robot. By 1991, the franchise had recently reached an agreement with imagined the future to be menaced by a regulators that allows it to use customer of digital technologies. more streamlined shape-shifter. If only data on the cloud, enabling it to train AI for replacing legacy technology was that simple. tasks such as reading cheques.

Banks, market infrastructures and It has already scored success in developing other financial service providers have AI systems in areas that focus on analysis been ramping up investment in digital of transactions not personal data, where technologies for the past decade, starting patterns of behaviour can be tracked such with cloud, but rapidly expanding to as spotting activity that might lead to non- artificial intelligence (AI), distributed compliance. ledger technology (DLT) and beyond. But for firms with complex existing processes, “We have a system in payments screening a wide range of services and customers, that takes into account elements like and tough, evolving regulatory obligations, sanctions on a third party that might affect the effort required to move the needle is whether we want to transact with them,” considerable. says Roth. “We are looking at patterns between the clients, any third parties, Moving the needle the jurisdiction and the location they are Kirsty Roth, global head of operations at currently in. When we do a screening, the HSBC, says that for an AI system to be able payment has to pass both the level one to spot patterns in a field such as fraud and level two checks to be validated to detection, it has to be trained on enormous ensure we haven’t released a payment that data sets, which must be aggregated and supports something like money laundering.” normalised. “We’re talking a couple of hundred thousand datapoints before you False positives can be a major issue, can do anything,” she says. particularly in countries where many names are common, and therefore innocent citizens Typically, when using datasets of the share names with sanctioned persons. For #Technology necessary size to develop and test a example, where 250,000 payments were #DLT/Blockchain new system, firms are finding that cloud being processed a month in the Middle East, #Data technology is a pre-requisite in order to one in five were being held up, prior to using #Regulation provide computing capacity as needed, the new payments screening tool.

44 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 45 You need a couple of hundred thousand datapoints before you can do anything.

Kirsty Roth, HSBC

“We put in a machine learning solution The use of private cloud is much higher. assets or payments between parties, in a ING has extended use far beyond trade which has been applied to level one testing, Nearly 70% of North American tier-one validated and secure manner. finance to balance sheet and collateral and it has eliminated 70% of those hold bank applications, internal compute farms management. In January 2018 the bank ran ups, while also the quality of its work and mainframes, sit on the private cloud, Mariana Gomez de la Villa, DLT programme a pilot in which it swapped US$25 million measured by error rate is at 99%, where a falling to just over 30% for tier 2 US firms. director at ING, says the bank ran its first of high-quality liquid assets for non-high human checking was at 92%,” notes Roth. By contrast the banks across the rest of the successful proof of concept (PoC) using quality liquid assets. Taking a lesson from world see between 20-25% of applications DLT in 2017, when it worked with Societe Easy Trading Connect, a custodian was But HSBC’s use of AI reaches across its on the private cloud. Generale and Mercuria, a Swiss commodity included in the process which ensured the Creating minimum viable operations. For example, the bank has also trading group, to make three transfers of transaction was legally enforceable. used AI to develop chatbot technology, with “The regulatory environment plays a ownership for a cargo of oil, travelling from natural language processing to understand part in that [geographical difference],” Africa to China. “That is a huge leap,” de la Villa says. “With requests more easily. That has allowed it says Andrew Rossiter, head of technology our exchange of high-quality liquid assets, systems gives you leverage to automate responses to 20% of internal engineering services at banking Called ‘Easy Trading Connect’, the project we facilitate ‘atomic’ delivery by digitising operational enquiries, with an accuracy consultancy GFT, who also cites the required the participants to build a baskets of assets as collateral receipts rate of 70%. location of major cloud providers in the private network based on the Ethereum using DLT; this makes it faster for securities in discussions with US and a stronger technology culture DLT, using smart contracts to trigger an to be liquid and tradable. Previously, one Cloud cover in US banks. But announcements from exchange of ownership, as the maturity of could redistribute and manage collateral Cloud technology has the capacity to major UK and European banks suggest the enterprise-grade DLT was still relatively liquidity within the day; now, you can do it improve service levels by allowing the sizeable US lead in cloud may not last. “Big low at that point. Using DLT across multiple more efficiently and even within hours.” regulators. use of large data sets not only for AI, but European banks are looking to leapfrog jurisdictions can be challenging, according Atomic delivery denotes simultaneous Mariana Gomez de la Villa, ING also in testing and development of new ahead,” says Rossiter. to de la Villa. transaction and settlement. technologies, back-testing risk models and creating flexibility in compute-heavy Making new connections “The smart contracts are not legally Not only is the bank realising operational tasks. Increasingly, vendors offer purely European firms are also pressing ahead enforceable everywhere, so we had to advantages, but in pushing forward cloud-based back-office services, such as with digital technology innovation in mirror the process in paper, to compensate these developments, it is helping to drive CloudMargin, which allows firms to manage other areas of the corporate banking any potential problem with the trial and to forward regulatory change. Each PoC collateral. market, for example in the growing use keep the contract legally enforceable,” she allows the bank to demonstrate that of DLT, a shared, encrypted database of says. technology has moved further into the According to ‘Cloud Adoption’, a white transactions that can only be changed realm of transforming financial services. paper published by HTF Research in when a genuine transaction is validated on Under ING’s in-house innovation “Creating minimum viable systems is June 2018, globally just 5% of banking the ledger. The most well-known example methodology called ‘Pace’, which is used to so important because then you have applications are currently sitting in the of DLT is the blockchain, a publicly set performance parameters around new leverage and influence in discussions with public cloud, but that is expected to accessible ledger that allows the bitcoin projects, Easy Trading Connect has been regulators, for example, as to whether a increase significantly. The proposed use of cryptocurrency to be transacted securely assessed against the manual processing of digital bill of lading should be an official public cloud by banks globally is predicted in an anonymous, trustless environment. documentation. In its pilot it was found to recognised document,” says de la Villa. to climb from just over 10% within one year But its value in the trade finance space is be three times faster, rising to four times in “We now have weight to put behind that to over 40% in five years’ time. as a framework for passing documents, later tests for commodity finance. discussion.” n

46 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 47 Innovation under a cloud?

NEW! Sibos breakfast keynotes

Global banks seeking to use artificial to move to the places where high data and TUESDAY - THURSDAY intelligence, distributed ledger technology computing capacity is more immediately and cloud-based systems or services available”. 09:00 across borders will need to negotiate a range of regulatory approaches, in the New ideas and concepts can also be absence of global standard approaches. interpreted differently by authorities. For example, sharing data across borders is Defining the tokens issued on distributed Join us at 09:00 from Tuesday often challenging due to the nature of data ledgers as ‘securities’ or ‘utility tokens’ to Thursday at the plenary room protection rules, which protect citizens will determine how they must be treated by ensuring that their information is kept by regulators and professionals. Clear for a light breakfast and inspiring within their own jurisdiction. guidance began to be issued in late keynote speeches from three well 2017 and early 2018 across all major As the major cloud providers are US- jurisdictions, ranging from outright bans known experts. Parag Khanna headquartered firms, non-US firms may on initial coin offerings in China, to clear will take a look at mega-trends find it harder to use cloud services even categorisation in Switzerland, to rules if they are operated as private networks. being applied by swathes of regulators and shaping the macro environment, AI Techniques such as collating and masking state authorities in the US. expert Ayesha Khanna will cover data before it goes on the cloud, running processes over that masked data, then Understanding the way that a technology- technology shifts and Olympic extracting the results and mapping them led service or security might be Gold medal winner Cathy Freeman back to the original clients, can be used to interpreted within jurisdictions now and in overcome some regulatory concerns. the future is key to supporting sustainable will speak about how human innovation. n determination is key in obtaining As local capacity increases across jurisdictions, the ability to engage will results. improve. For example, the European Commission is developing a long-term strategy to build a European Cloud, starting New ideas and with the ‘European Open Science Cloud’ More information on www.sibos.com a pilot for which is due to complete on 31 concepts can also be December 2018. This is ultimately intended to support the Digital Single Market, as interpreted differently “the data produced by EU research and industry is often processed elsewhere and by authorities. European researchers and innovators tend

48 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 49 INNOTRIBE Technology: Proof of concept

Standards: We need a A clear case for change conversation around sovereign portable Securing identity.

the future Ghela Boskovich, Rainmaking Innovation

This year, Innotribe takes us further into Innovation, and day anchor for Monday. Questions of trust, the future than ever before. What changes Delegates enjoying their first coffee – or will technology innovation have wrought by tea; there’s tea this year – may expect to identity and privacy 2030? Will there still be bankers? hear solutions to the current crisis around identity and personal data. This is partly a must be tackled if the Yes, and we may even recognise them as regulatory-driven issue, based on the EU such, but they’ll be working in a transformed General Data Protection Regulation and digital technology industry, serving transformed markets. The the second Payment Services Directive. coming decade promises more challenge, Boskovich adds: “Identity is a fluid concept, revolution is to have more opportunity, more technology – and and in the larger scheme of things, we much closer engagement in our customers’ need a conversation around sovereign positive outcomes. lives and work. What can we do now to secure portable identity.” the future for the benefit of our customers, and for the benefit of society as a whole? That very conversation will take place at Innotribe as part of Monday’s overall Embracing change theme of the decentralisation of trust. We could start by embracing the idea By the end of the day, we’ll have at least and the reality of change. We will only be some potential answers to a wide array of able to move forward with our customers, questions around identity, trust and doing working and sharing with them, building business together. If distributed ledger their future and ours, if we’re both open technology already offers us a vision of to change, and ready for it. After all, the a world in which trust is distributed, how future is with us already. will we form relationships with each other and with our customers without a form “This year, we’ll hear from speakers outside of centralisation? “We need also to worry our industry, who do this for a living, for about privacy constraints, and about access real, at scale, now,” says Leda Glyptis, chief to private information,” says Boskovich. innovation officer, Qatar National Bank, and day anchor for Tuesday’s sessions on Tuesday will then take us into the realm quantum computing. The future will neither of quantum computing. “The time to be wait for us, nor adapt to our established working on this is now. It’s moved past the practices. purely theoretical and into an experimental phase,” says Bob Stolte, head of post- It’s also clear that the present is not an trade technology at JP Morgan. Quantum #Innotribe easy starting point. “First, we have to computers exist (see ‘Quantum is coming’), #ArtificialIntelligence solve one of the bigger crises of banking,” and while they’re not operational at scale, #Data says Ghela Boskovich, head of fintech now’s the time to be discussing what they #Digitisation and regtech partnerships, Rainmaking can do for us, what they might disrupt, and

50 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 51 Social media companies have been able to do so much analysis because they normalise data.

Diana Paredes, Suade Labs the possible constraints we might impose our customers, understand each other? By at the point of sale. If you think about the on their use. our disclosures, do we obtain true consent? large technology companies, they are well- Paredes says: “You can have as much placed to sell you financial services at the Big data, bigger questions disclosure as you like, but if nobody’s going right contextual point.” If the future is a place where identity to read it, there’s no point to it. There’s a has quantifiable market value as responsibility to turn those disclosures into Self-evidently, the moment you decide Boskovich suggests, and privacy remains something that people can digest.” to buy the car is the moment you need a contentious issue, it follows that the the financial products to support the (computing) power to conduct minutely The customers of the future will be much purchase. Goyal says: “We’re heading Today’s computers use bits, which can be I very narrow use case. I don’t see quantum detailed analyses of every aspect of more aware of their privacy and the value towards a situation where the banks or O. Quantum computers use qubits, which computing invalidating classical computers. our customers’ behaviour may not be of their data than today so perhaps they’ll and insurance companies will hold the Quantum is can be in more than one of those states; It’s very much an augmentation, a new tool viewed as unambiguously positive. There also take a view on – so to speak – the capital, because anybody who touches the key term to describe this phenomenon but not one that would replace classical are moral considerations, as well as the size of the small print. Paredes says: “In money needs to be regulated, and once is superposition. Qubits can impact computers,” says Stolte. n straightforwardly pragmatic issue that if place of terms and conditions, maybe you the APIs become available, the holders of coming the behaviour of other qubits through we invade our customers’ privacy, however want something useful – a way to vote the customer touchpoint can repackage entanglement. Quantum computers are inadvertently, we may lose both customers on who you want to have your data.” Or financial products, keeping the money in effective when their qubits achieve a state and reputation whilst attracting a legal a way, perhaps, to drill down to narrow the regulated institution but controlling the of quantum coherence. “This delivers liability. To know all is not necessarily to permissions for specific usages. customer relationship.” exponential growth in the amount of gain a competitive advantage. compute that’s available to you,” says Bob Finance in context As Goyal says, technology is a “gigantic Stolte, head of post-trade technology, JP In terms of making ourselves future-ready, Throughout the sessions on Monday enabler to get access to customers”. As Morgan. moral and practical issues can overlap. and Tuesday, we will be building an we all check our mails, texts and other “Everybody talks about big data; what’s understanding of the relationship between communications throughout the day, we Quantum computers operate now, but not really relevant is the small data that comes future banks – quantum-enabled, data-rich, periodically spend time in, for example, “the at scale; quantum coherence is impacted out of it, that enables humans to make analysis-capable, regulated and responsive Apple environment”, albeit perhaps only by “noise” interference introduced by decisions and do better work,” says Diana – and future corporate and retail customers semi-consciously. Goyal continues: “The today’s materials, making operation at Paredes, CEO, Suade Labs, day anchor – the latter free agents, owners of their technology companies have share of mind; scale a challenge for materials science. for Wednesday’s sessions on artificial own identities and data, protective of their they’re converting this to share of wallet. The opportunity now is to experiment and intelligence and interconnectedness. “The privacy. Taking these underlying themes This is being enabled by regulators pushing test, allowing us to be better prepared for data in financial services is so messy forward, Wednesday starts with this year’s open access to banking.” Again, for the when today’s challenges are overcome. “A that privacy is a side issue. Social media ‘Future of Money’ session, which will discuss banks, this is not unambiguously positive. very large part of what we do – valuation, companies have been able to do so much the trend towards contextual finance. “This has very significant consequences for risk management, portfolio construction Bob Stolte, analysis because they normalise data; they the industry as a whole,” says Goyal. – all of these rely on probabilistic JP Morgan put it in one format.” Moderator Udayan Goyal, co-founder and algorithmic computing, which should lend managing partner, Apis Partners, says: On Thursday, we will pull all the threads itself nicely to quantum computing,” says Unlike almost all banks, this means they “We’ll be discussing open banking, and of thought together. As Glyptis says: “The Stolte. already know their customers sufficiently how it enables the provision of contextual question will be: what does this mean for I don’t see quantum intimately to identify likely purchases. But financial services. You don’t wake up in the world? This is not just about banks Quantum computing has the potential if we’re talking about preparing for the the morning and buy a loan; you buy a car experimenting with contained technologies. to reframe many of today’s challenges – computing invalidating future, should we not be reflecting on a and finance it. Increasingly, firms are going This is real, it’s happening; it’s going to encryption, for example – but computing much broader set of questions: do we, and to be embedding their financial products change your business.” n as we know it will not be disrupted. “It is a classical computers.

52 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 53 If you want innovation, go to Innotribe of Ethereum – will share his thoughts and look around you. This year’s Innotribe on the future influence of decentralised Discover space is located right at the heart of the structures, and many other topics, during fantastic creative cluster of fintechs, an in-conversation event with SWIFT CIO universities and bank innovation labs that Craig Young. Innotribe, populate the Discover Zone. Innotribe itself will serve as the free-spirited Central Park How can we secure the future? Find out at

within Discover Zone’s Manhattan – and Innotribe. n discover be the meeting point for their exchange of CLOSING PLENARY ideas. innovation There’ll be tea and coffee throughout the day, on-point speakers from IBM Research to liven up the lunchbreaks (with ‘Sensemaker’ sessions), and Professor Genevieve Bell, an curated networking sessions in the afternoons. Innotribe itself will be Australian cultural anthropologist, structured around three main sessions per day, with keynote speakers including technologist and futurist, will Brett King, futurist, CEO of Moven, and author of books including ‘Augmented’ deliver the closing plenary and ‘Breaking Banks’. This year’s ‘Future of Money’ session, on open banking address at Sibos 2018. and contextualised financial services, has itself been placed in context – back on the Innotribe stage, on Wednesday morning.

To close this year’s programme, Joseph Lubin – CEO of Consensys and co-founder

54 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 55 STANDARDS Innotribe: Securing the future

SWIFT at Sibos It’s not just moving to a new standard – it’s an opportunity A clear case to rethink business for change processes. Dominik Vogel, UBS

The next generation of payments The standard is also widely used for instant Migration of payments infrastructure is waiting in the wings. payment systems (for example, in Australia, By 2023, all major high-value payments US, Canada and for European instant messaging to ISO systems will be using ISO 20022 messaging payment services TIPS and RT1), and is and cross-border payments traffic will likely preferred by many large corporates for 20022 offers many follow suit. SWIFT has recently consulted communicating with their banks. This all users on a migration plan for MT messaging builds the case for replacing MT with ISO significant benefits – in recognition of the need to develop both 20022 for cross-border payments. But what an operational timeframe and a robust benefits can banks and their customers in the long run. business case. expect to reap from the considerable investment required? For many, there is no longer any debate; ISO 20022 is the de facto foundation for Compliance and transparency payment systems (progress is more uneven Major MIs and regulatory demands are in securities, but growing). The tipping driving this change and so, it might be point came when migration timetables said, the industry must follow. But MIs’ were announced for the Federal Reserve’s choices reflect market needs: the ability FedWire and the Clearing House Interbank to carry extended, structured data is Payments System (both US), TARGET2 in indeed very valuable for banks’ own the Euro-zone and RTGS renewal in the operations. Dominik Vogel, director of UK, joining market infrastructures (MIs) service management for payments at UBS, in China, Japan, Switzerland and others says: “ISO 20022 solves many problems already using the standard. If announced in the banking environment by providing deadlines are met, ISO 20022 will dominate transparency of data, no loss of data across high-value payments by 2023, supporting the payment chain, no truncation, and 79% of transactions worldwide by volume so on. Real savings will come from easier #StandardsForum and 87% by value.1 compliance with Financial Action Task Force #ISO20022 guidelines on anti-money laundering (AML) #Payments 1 SWIFT ISO 20022 Migration Consultation and with future regulatory requirements.” #Digitisation Study, April 2018. Paula Roels, head of market infrastructure

56 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 57 ISO 20022 will help to transform our industry.

By the end of 2021, banks will start to use infrastructure, but Ramsey believes ISO ISO 20022 messages to communicate with 20022 investments will not be wasted. major high-value payment systems. Instant Paula Roels, The mechanics payment systems in many jurisdictions also With ISO 20022-based instant payments Deutsche Bank use ISO 20022. So the time was considered solutions being rapidly adopted worldwide, of migration right to consult the industry on moving to the standard will be “the new normal” and industry initiatives, cash management, is pushing ahead with new efficiencies down the line,” says UBS’ Vogel, adding: the standard for cross-border traffic over within five years, with the potential to Global Transaction Banking, Deutsche that benefit end-users. Since then, a “But it’s not just moving to a new standard SWIFT. radically change the customer proposition. Bank, agrees: “Sanctions screening and phased programme coordinated by SIX – it’s an opportunity to rethink business “The standard doesn’t provide business AML due diligence are already quite Interbank Clearing (SIC) has achieved processes.” The consultation, which closed at the end opportunities in itself, but it makes it automated, yet the lack of structure and the harmonisation of disparate payment of June, was industry-wide, encompassing possible to deliver them,” suggests reach in information currently leads to processes, with domestic and cross- Deutsche Bank has begun a global SWIFT national member groups, banks, Ramsey. For example, the introduction of a significant false positives, needing manual border, customer-to-bank and inter-bank migration project with a clear governance central banks and vendors. According request-for-payment function could reduce intervention.” payments all moving to ISO 20022. structure and Roels urges others to start to Tanja Haase, ISO 20022 programme dependency on costly direct debits and also In July this year, a key milestone was putting the necessary resources and manager at SWIFT, 19 of the top 20 national change the online payment proposition And for banks’ corporate customers, ISO reached when SIC announced 80% of expertise in place now. “ISO 20022 will help member groups responded, with 95% from being card-based to bank-based. 20022 helps to provide the extended corporate customers in Switzerland to transform our industry, but migration of respondents wanting SWIFT to move Estimates suggest companies can save up remittance data they need for automated are now submitting payments in ISO will impact operating models and the forward with migration to ISO 20022 for to 8% of their reconciliation costs if good account reconciliation and fewer payment 20022 format. A next step is the planned legacy applications,” she says. n It doesn’t make sense payments messaging, including SWIFT gpi. quality invoice data is carried along with enquiries. Indeed, many banks have been introduction of a standardised paying-in the payment.1 providing ISO 20022 messaging to their slip, the QR-bill, for all payments whether to invest in legacy. The community‘s position was less corporate customers for some years manual, mobile or online. It will include clear-cut for securities messaging, with Will banks have to change their legacy (as well as for all SEPA payments). As a digitally-readable QR code carrying around 50% of the community favouring systems to get the benefits? Not Roy DeCicco, industry issues executive rich structured data (e.g. IBAN, payer migration, and others contending that necessarily. “Payment hub solutions will at JP Morgan’s treasury services and beneficiary data) which will ensure the ISO 15022 standard used for the enable some data to be sent to legacy division, points out: “this co-existence transparency and STP of payments, bulk of securities processes remains fit systems while other parts of the message is inherently inefficient”. As co-chair of replacing seven different paying in slips for purpose. Many acknowledged that are handled elsewhere,” says Ramsey. the Payments Market Practice Group, used across the Swiss market. regulation imposing ISO 20022 would DeCicco is aware of the requests from be the likeliest driver for migration. When it comes to MT migration plans, the payments community to enhance If the benefits of a harmonised ISO Respondents also agreed that there is little JP Morgan’s DeCicco thinks it will the legacy environment – for example, 20022 environment for payments are business case today to adopt ISO 20022 for be important for different market to accommodate additional information increasingly clear, it is nevertheless true trade finance or treasury/FX business. participants to stay in step and this in the originator and beneficiary party that the implementation costs will be will inevitably mean some compromise fields. “ISO 20022 can handle these sorts significant and banks must make multi- ISO 20022 – the new normal between the needs of smaller and larger of requirements – and others, like use of year budget commitments. A study by Small banks must recognise that ISO banks. But, he says, “It’s clear this is where legal entity identifiers, payment purpose Deloitte for the Swiss financial industry 20022 is “not a nice-to-have alternative the market is going and the entire industry codes and so on – so much better than suggested banks would collectively standard; it is the foundation for our can save costs with this. It doesn’t make

MT,” he says. contribute some CHF550 million of overall digital future”, says Craig Ramsey, head of sense to invest in legacy.” n investment costs, resulting in some real-time payments product management Streamlining market practice CHF65 million per year of savings. “There Roy DeCicco, at ACI Worldwide, a payments solutions Switzerland decided against costly really is no short-term business case for JP Morgan company. Individual institutions will have 1 Economics of Request for Payment, Accenture, co-existence of standards in 2016 and migration. The payback is several years to gauge where to invest in technology and 2017

58 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 59 APIs: From compliance to innovation

Download the Sibos app to see the full conference programme and Open application programming interfaces specification for a ‘transactional finance’ (APIs) are the building blocks of open API, based on ISO 20022 and JSON banking – the means by which banks and standards, that goes beyond compliance plan your agenda payment service providers can, with our to deliver real added value. The API permission and strict security, access would make it possible for any bank to for the week at our financial data to deliver a range of offer merchants a standardised Pay Later customised, digital services. “It’s the service which would be revenue-generating next wave of digital banking, yet banks for the bank and offer a frictionless Sibos! are currently focused on the compliance customer experience, resulting in fewer lost aspect, instead of seeing it as a strategic sales for online merchants. business opportunity,” says Tony McLaughlin, head, emerging payments and Developing API specifications is a business development at Citi’s treasury and new departure for SWIFT, but it uses trade solutions business. a standardisation approach similar to messaging standards, where SWIFT has To achieve interoperability, comparability so much expertise. “The intention is that or end-to-end processes, APIs require SWIFT would manage the specification and standardised data exchange, but the eventually this could become an industry current lack of defined standards is leading standard. Pay Later is just one of many banks to implement them in a somewhat potential use cases,” says Stephen Lindsay,

proprietary (and some would say defensive) SWIFT’s head of standards. n manner, resulting in the fragmentation of API development and inhibiting innovation. Recently, the Emerging Payments Association wrote to the UK’s Open Banking Implementation Entity sharing concerns that could inhibit fintechs from engaging with Open Banking – including Tony API and data standards. McLaughlin, Citi “Banks need to be able to offer lending through a standardised API; otherwise there’s a risk merchants will go to alternative providers instead,” says Banks need to be able McLaughlin, citing the success of online lenders. to offer lending through Citi is one of a group of banks working with a standardised API. merchants and SWIFT to develop a draft

60 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 61 SWIFT #SWIFT at Sibos

62 SWIFT at Sibos 2018 Preview edition SWIFT at Sibos 2018 Preview edition 63 The theme for Sibos 2018 – Enabling the services. This model – in which multiple Alain Raes, SWIFT’s digital economy – could not be better suited types of financial service provider (i.e. banks, to its host region. After all, Asia-Pacific fintechs and ‘big techs’) compete on a level Regional CEO welcome chief executive for offers more examples than any other region playing field using a combination of skills of financial service providers adapting and expertise – could well be a template in EMEA and Asia Pacific, their services to support the new needs of many other markets. consumers, businesses and institutions. Innovate and reflects on the dynamic Across the region, further examples of From Sydney to Shanghai to Singapore and innovation abound, from Singapore-based and creative forces that beyond, firms are collaborating to develop DBS Bank’s award-winning digital banking new solutions that leverage technology services1 to India’s Unified Payments will be showcased at innovation to meet needs inspired or Interface, which enables API-based differentiate – the key to reshaped by the digital transformation of interoperability across the country’s myriad Sibos 2018. the global economy. While much has rightly payment systems, offering users a more been made of the deepening partnerships flexible, function-rich, yet secure, customer between banks and fintechs, SWIFT is also experience. supporting customers in playing a key part in supporting innovation – in this region and globally. Sibos, of course, provides the ideal opportunity to keep up-to-date with how A key element of the new business models individual firms, markets and product brought to life by recent waves of technology lines are evolving in this era of disruption the digital economy innovation is the use of digital platforms and innovation. Delegates can also take that can be used by multiple constituents advantage of the many different options to serve a range of related needs; these for finding out how SWIFT can support bring suppliers and providers together in their evolving strategies. Having gone live new and often unpredictable ways. Similarly, last year, SWIFT gpi is evolving fast. Whilst financial service providers and market SWIFT will continue to respond to user need infrastructure operators are developing and by adding to functionality, much of gpi’s leveraging platforms for innovation as part future value lies in how banks themselves of the industry’s push to offer new service adapt and innovate using the service, propositions and customer experiences integrating into their business models and in response to emerging needs and strategies. Delegates can find out more on competitive forces. both fronts in Sydney, at the SWIFT stand and at the SWIFT Hub. To date, change is perhaps most evident in the retail space, but the corporate and But instant payments and SWIFT gpi Change is most institutional markets are also evolving are not the only ways in which SWIFT is fast. In China, technology giants such supporting banks’ ability to innovate and evident in the as Ant Financial (which owns Alipay) and differentiate. From the development of Tencent now dominate retail financial standards to support API-based services services, including credit, payments, to exploring the potential of data to improve retail space, but investments, virtual banking and wealth operational efficiencies, SWIFT is partnering management, aided by their ability to offer with the industry to deliver the services the corporate fast, personalised and highly integrated and capabilities that will enable the digital customer experiences via smartphones and economy. At the same time, we are always other digital devices. One of the responses vigilant to the risks to which banks and and institutional of Chinese banks has been an enthusiastic their customers are exposed in a digitised exploration of SWIFT gpi. Recognising operating environment. As such, Sibos will markets are its potential as a platform on which to also highlight our expanding financial crime innovate and differentiate their cross-border compliance suite and provide practical wholesale payment services, more than 60 guidance on the evolution of SWIFT’s evolving fast. Chinese banks have signed up to implement Customer Security Programme in the fight Alain Raes, SWIFT SWIFT gpi, many hoping to expand their against cyber-security threats. international footprint in support of China’s One Belt, One Road infrastructure policy. Whatever your priorities and however you plan to spend your week in Sydney, all of us In Australia, banks have responded to the at SWIFT look forward to welcoming you to

fintech challenge in the retail payments Sibos 2018! n space by building their own platform for innovation. Developed with design, testing and operational support from SWIFT, the New Payments Platform delivers instant payments, but also provides a foundation for 1. World’s Best Digital Bank - Euromoney Awards a wide spectrum of overlay payment-related for Excellence 2018

64 SWIFT at Sibos 2018 Preview edition SWIFT at Sibos 2018 Preview edition 65 SWIFT’s global payments innovation (gpi) instructions making all SWIFT payments As bank adoption has made huge advances in scope and trackable, even when there are non-gpi reach since last year’s launch, facilitating banks in the correspondent chain. SWIFT gpi of gpi accelerates, millions of same-day, fee transparent cross- border payments between correspondent “The traceability offered by the gpi Tracker corporates are finding banks. Now, one of the key areas of focus is a game changer on the corporate side,” is on further extending gpi’s benefits to says Rojas. “It is taking off very quickly. Corporates use gpi many ways to explore corporates. Fifteen leading banks are already integrating it into their portals – and in each case, as its benefits. More than 250 financial institutions, many as 30,000 corporates benefit from that including 49 of the top 50 banks on SWIFT, enhanced functionality. That is an incredible have signed up for gpi (30 have joined since level of penetration.” to end cross-border July). Many are already live, with the rest preparing for implementation. More than For multinational corporates that already 30% of all SWIFT customer payments are use highly automated systems to manage facilitated by gpi, with over USD100 billion multiple banking relationships globally, a payment pain in payments in 120 currencies delivered more sophisticated approach is required. daily around the world. One hundred new SWIFT has been piloting with banks and payment corridors went live during July corporates a multi-bank solution, fully alone, taking the total to over 600; gpi now integrating gpi into treasury applications, accounts for 54% of SWIFT payment traffic allowing corporates to use the same in major corridors such as US-China. workflows across all banks to retrieve consistent, standardised payment data. Through its integration with corporates’ cash management and treasury systems and the During 2018, 12 leading banks and 11 provision of ‘track and trace’ capabilities corporates – Microsoft, GE, Roche and via bank portals, gpi is now firmly on track LVMH Moët Hennessy Louis Vuitton to become the new normal for corporates’ among them – have worked to define new cross-border payments. standards for a multi-bank layer within gpi, allowing a corporate to directly initiate a gpi The traceability The potential benefits of gpi for corporates payment and generate a tracking number. are compelling, including reduced payment The receiving gpi bank then processes offered by the times for international goods and services, the payment, delivering real-time progress shortened supply chain cycles, minimised updates, confirming when it reaches the FX exposures, optimised liquidity and beneficiary and providing transparency- gpi Tracker is a improved cash forecasting. Further, related details on cost and routing. treasurers will be able to view the end- game changer to-end progress of their cross-border Following the successful pilot scheme, some payments in real time, receiving confirmation participants are already exchanging gpi on completion. payment instructions and tracking payment on the corporate status in production. Additional corporates “Cross-border B2B payments was a painful and banks are expected to join as early side. process, not only for the corporate but also adopters through to the end of 2018, at for the bank,” says Sebastian Rojas, senior which point the multi-bank functionality will Sebastian Rojas, SWIFT market manager and head of SWIFT’s be opened up to all qualifying gpi banks and ‘gpi for corporates’ programme. “Many corporates. “Corporates are very pleased to corporates are investing to make their be part of gpi,” says Rojas. “It was created treasury systems and workflows bulletproof, specifically to take into consideration the from a security and business processes end-user experience and ultimately it is perspective. However, even with the most the end-users who will reap the benefits. sophisticated treasury management system, Interested parties can find out more on the once you hit ‘send’ your payment goes into SWIFT stand, at participating banks’ stands a ‘black hole’, as any treasurer will tell you.” and during the dedicated sessions at the

SWIFT Hub.” n That was yesterday’s problem. Now, gpi’s tracking facility provides real-time progress updates from initiation to confirmation. The service is accessible to banks via APIs, enabling them to offer different integration capabilities in customer channels such as e-banking and host-to-host. Moreover, SWIFT’s November 2018 standards release introduces mandatory unique end-to-end transaction reference (UETR) for all payment

66 SWIFT at Sibos 2018 Preview edition SWIFT at Sibos 2018 Preview edition 67 All banks face different challenges when management, SWIFT is also exploring use New models and tackling financial crime and complying with of APIs to automatically update users when evolving regulatory and law enforcement information is updated in the Registry. “Our Compliance new ways of working requirements. Variations in footprint, product unique alignment with the updated Wolfsberg range, customer profile and counterparty Group correspondent banking due diligence are integral to banks’ relationships inevitably expose them to a questionnaire keeps our service in step with unique set of risks and rules. industry best practice and therefore further Sharing best practice financial crime reduces costs and simplifies onboarding for In Asia-Pacific 2018 has witnessed three correspondent banks. In the future we hope compliance strategies. convergent financial crime compliance (FCC) to bring similar benefits to other parts of the themes: regulator-driven sanctions controls community,” says Marie-Charlotte Henseval, assurance; the ongoing risk of payment SWIFT’s head of KYC compliance services. and common resources fraud; and the growing understanding that client behaviour, not static KYC profiles, The addition of Name Screening to denotes risk most accurately. The Hong Kong SWIFT’s sanctions services underlines Monetary Authority’s thematic review into the importance of minimising friction sanctions filter assurance has sent “ripples and maximising common experience. across the pond”, driving large banks to As payment times collapse, banks need accelerate sanctions testing programmes and fast, accurate screening of databases and prioritise investment, says Guy Sheppard, customer names across multiple lists. Both SWIFT’s head of APAC FCC intelligence and SWIFT’s name and transaction screening initiatives. “Understanding behaviour is key to solutions are fully hosted, enabling users to addressing FCC threats; whether analysing benefit from evolving common standards payment activity norms to highlight fraud and best practice. “The more transactions or end-to-end flows via correspondents to that pass through our filters, the more benchmark actual market practice versus effective we can be in fine-tuning the on-boarding assessments. Regtech is also service to improve accuracy,” says Nicolas helping banks define and model ‘profiles’ Stuckens, SWIFT’s head of sanctions across disparate and diverse data sets.” compliance services. “The end-goal is for Our unique transactions to be screened once, not at But a unique mix of threats doesn’t mean every step.” Around 1,000 institutions have banks need to fight criminals alone. FCC is already adopted SWIFT’s hosted model for alignment with increasingly seen as a collaborative effort, delivering sanctions screening and testing not least because threats quickly spread tools. Stuckens expects this to increase, the Wolfsberg across the transaction chain. New models both due to an expansion of message types, and new ways of working, such as sharing including support of securities messages, best practice and utilising common resources, and increased regulatory focus on filter Group due are growing elements of banks’ compliance testing and assurance. strategies. And utilities are now viewed as diligence well placed to create common standards, Whilst best practices are maturing in improve agility and reduce internal IT burdens. sanctions screening, this is not yet the case SWIFT’s expanding suite of FCC solutions is in preventing fraudulent wire payment flows. questionnaire focused on sharing the burden of compliance, The nature of fraud threats varies across using universally accessible platforms, geographies and sectors, but SWIFT is keeps our workflows and tools to tackle individual helping banks to meet this challenge by challenges. And because criminal threats and launching its new hosted Payment Controls regulatory requirements continue to evolve, service. Designed to help protect its entire service in step so does SWIFT’s product suite, extending its community and support compliance with reach, functionality and level of integration. SWIFT’s Customer Security Programme, with industry Payment Controls screens payment flows The capabilities of SWIFT’s KYC Registry for suspicious or out-of-policy transactions are growing rapidly, on advice from its in real time, based on subscriber-defined best practice. user group. Already used by more than parameters, as well as prior traffic patterns. Marie-Charlotte Henseval, SWIFT 5,000 banks, representing more than 80% “Whether used as an independent secondary of SWIFT traffic, The KYC Registry has control by major banks or the main line of significantly accelerated and simplified defence for smaller banks, Payment Controls the exchange of due diligence information will contribute significantly to payment risk between correspondent banks. Recent management processes across the SWIFT innovations include the option to make bulk network,” says Roy Belchamber, fraud requests to streamline information requests detection for Payment Controls product across multiple counterparties. As well as manager at SWIFT. At Sibos, interested plans to integrate the Registry with SWIFT delegates will find not only practical Name Screening to automatically check demonstrations, but a range of sessions on

the names of beneficial owners and senior cyber-security and fraud risks. n

68 SWIFT at Sibos 2018 Preview edition SWIFT at Sibos 2018 Preview edition 69 “With each passing year, not only has the CSP timeline: securing your sheer volume of threats increased, but the SWIFT environment Monitoring threat landscape has become more diverse.” CSP The 2018 Internet Security Threat Report ——March 2017 – Launch of Customer counterparties and from Symantec offers a sobering reminder Security Controls Framework (CSCF) of of the need for vigilance against evolving 16 mandatory and 11 advisory controls working with the wider cybersecurity threats. ——31 December 2017 – Initial deadline for self-attestation of compliance with CSP Tackling cyber threats community should It also underlines the requirement for banks mandatory controls to look beyond their own operations, as be critical elements recommended by the Customer Security ——H1 2018 – Start of reporting to supervisors of cybersecurity Programme (CSP) launched by SWIFT in of non-attestation by users, followed by on three fronts 2016 to reinforce users’ own controls. reporting to counterparties from June 2018 defences. “The CSP framework encourages users ——June 2018 – New controls change to focus on three realms: their internal process released, explaining how to operations, their counterparts and their update and adjust controls, based on community. To date, users have made 16-18 month implementation timeline a lot of progress on securing their own environments, but that is not enough to ——August 2018 – Release of v2019 CSCF, guarantee their security,” says Pat Antonacci, composed of 19 mandatory and 10 CSP global program director at SWIFT. advisory controls (three existing advisory controls are now mandatory) Alongside the measures contained in ——31 December 2018 – Deadline for the CSP controls framework, SWIFT has re-attestation and confirmation of developed tools to support prevention and compliance with mandatory security detection of security threats arising from controls V1 interaction with counterparties. ——January 2019 – Failure to self-attest At one level, they are increasingly focused compliance with CSP mandatory on understanding counterparty risks and security controls will be reported to Securing reappraising their relationships accordingly. counterparties and regulators This effort can be supported by information ——31 December 2019 – Deadline for self- sourced from SWIFT’s KYC Security attestation against v2019 mandatory your own Attestation application, which lists CSP controls controls compliance levels for SWIFT users, environment and can be easily incorporated into risk When a threat or a breach has been management policies. identified, the SWIFT CSI team works with the compromised institution, analysing is not a silver At another level, it is increasingly possible to relevant data and publishing information incorporate security controls into day-to- considered useful to other users in the bullet. day operations, allowing users to detect SWIFT ISAC. The ISAC also continually and prevent threats, without interference to adds further automated data feeds to its Pat Antonacci, SWIFT legitimate transaction flows. SWIFT’s new site and works with third-parties to provide Payment Controls service, for example, availability to a wider range of tools. provides users with a real-time view of potentially dangerous transactions. Attestation levels are close to 100%, but Antonacci cautions against complacency. “We’re leveraging a range of capabilities “Certain controls can be harder to to improve security, via coordination with implement in certain jurisdictions, and other product initiatives, such as SWIFT gpi can thus require a level of retesting and and our financial crime compliance suite. checking. Overall, we see a growing level of Users of gpi can stop and recall funds via engagement on a bilateral and community its tracker capability at the network level,” basis and continue to provide support in explains Antonacci. many different ways, for example listing a wide range of consultants that can assist Beyond counterparty risk, Antonacci also banks’ security programmes,” he says. underlines the importance of combatting cybersecurity risks at the community level, “The basics remain crucial: updating with information sharing on the emergence software; using attestation data; and of new threats regarded as paramount. deploying anti-fraud tools. But securing your The SWIFT ISAC (information sharing and own environment is not a silver bullet. Sibos analysis centre) is increasingly central to is the perfect opportunity to engage with industry efforts to maintain vigilance and others on how you might update and refine

develop best practice. your approach to the evolving threats.” n

70 SWIFT at Sibos 2018 Preview edition SWIFT at Sibos 2018 Preview edition 71 Visit us at the SWIFT #SWIFT stand. Join us in the SWIFT Hub.

72 SWIFT at Sibos 2018 Preview edition SWIFT at Sibos 2018 Preview edition 73 74 Sibos Issues 2018 Preview edition Sibos Issues 2018 Preview edition 75 Sibos Issues Sibos 2018 Sydney 22-25 October

Enabling the digital economy

PREVIEW EDITION

Publisher: Chantal van Es, SWIFT Managing editor: Alan Rowan, SWIFT

Sibos Issues is written and produced by Making Markets on behalf of SWIFT

Advertising contact: Stephanie Gerniers, SWIFT [email protected]; +32 2 655 4734

Legal notice: SWIFT © 2018 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.