Sibos Issues I Sibos 2019 London I 23-26 September

PREVIEW EDITION

Evolution or Eyes on the Faster, Adapting to The new A to Z revolution? prize but safer? a new age of of banking uncertainty page 6 page 12 page 17 page 22 page 28 PAYMENTS SECURITIES FX DAY Delivering a Investor needs Two drivers for digital future driving post-trade change in the world revolution of FX

Welcome to Sibos 2019 in London page 32 page 38 page 43 With Sibos 2019 just around the corner, we hope this preview edition of Sibos Issues whets your appetite for a week of debate, discussion and networking. All based COMPLIANCE TECHNOLOGY INNOTRIBE around the Sibos 2019 theme of ‘thriving in a hyper- connected world’, these preview articles reflect the fast- changing nature of our industry and the topics highlighted Inflection Enabling a Understanding in conference sessions throughout the week. point collaborative model trust Chantal van Es Head of Sibos of finance

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OPENING PLENARY FUTURE OF BANKING LEVERAGING DATA SWIFT INSTITUTE STANDARDS FORUM WOMEN OF THE WORLD Global citizen, Evolution or Eyes on the prize The present and The great Put gender public servant, revolution? future shape of payments on your Sibos Londoner banking evolution agenda

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CYBERSECURITY GEOPOLITICS & REGULATION NEXT GENERATION SPOTLIGHT STAGE SWIFT at Sibos Faster, Adapting to The new Lights, Around the world but safer? a new age of A to Z camera, in real time uncertainty of banking action

2 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 3 OPENING PLENARY Table of Contents

Future of banking: Evolution or revolution? Global citizen, public servant, Londoner

Held in London for the Born in Alexandria, Egypt, Shafik studied Fund (IMF) in 2011 as deputy managing for an MSc in economics at LSE, having director with responsibility for many of first time, this year’s graduated in economics and politics at the the crisis-hit countries in the euro-zone University of Massachusetts in Amherst, and the Arab countries in transition. She Sibos will be opened before completing a DPhil in economics at also oversaw the IMF’s university, which St Antony’s College, University of Oxford. trains thousands of government officials by an economist who each year, and was responsible for human She then left the UK to teach at both resources and an administrative budget of understands both the Georgetown University and the Wharton US$1 billion. School of the University of Pennsylvania. city and its place in a In a 15-year career at the World Bank, From 2014-2017, Shafik served as deputy Shafik worked on the organisation’s first governor of the Bank of England, fast-changing world. ever World Development Report on the responsible for a balance sheet of almost environment, designed reform programmes £475 billion, and sat on all its major policy for transition countries in Eastern Europe, committees, including the Monetary Policy Dame Minouche Shafik, director of the and developed proposals for economic Committee, Financial Policy Committee, London School of Economics and Political integration in support of the Oslo peace and Prudential Policy Committee. She also Science (LSE), one of the world’s leading process in the Middle East. led the Fair and Effective Markets Review, social science universities, is ideally which put in place a set of reforms to tackle positioned to deliver the welcome address Having become the youngest vice-president misconduct in financial markets. at a conference focused on ‘Thriving in a in the history of the World Bank at the age hyper-connected world’. Her research has of 36, Shafik returned to London in 2004 Shafik currently serves as a trustee of the frequently revolved around the dynamic to continue her career in public policy. She British Museum, the Council of the Institute forces that support sustainable economic rose to become permanent secretary of the for Fiscal Studies, governor of the National growth in a complex global environment. Department for International Development Institute for Economic and Social Research, where she was responsible for the UK’s and is honorary Fellow of St. Antony’s Independent of the LSE leadership role she development assistance efforts around the College Oxford. As well as holding three has held since 2017, Shafik has experienced world. honorary doctorates from UK universities, London from a number of perspectives she was made a Dame Commander of the – student, central banker, civil servant, Shafik joined the Washington- British Empire in the Queen’s New Year’s trustee – across a varied career. headquartered International Monetary Honours list in 2015. n Dame Minouche Shafik

4 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 5 FUTURE OF BANKING Global citizen, public servant, Londoner

Leveraging data: Eyes on the prize

Evolution or revolution?

Over the centuries, banking has been Banking services no stranger to disruptive forces. Most historians identify the emergence of the are becoming more banking system that we know today in the Italian merchant cities of Florence, Venice integrated, but will and Genoa during the 14th century. The oldest bank still in existence is Banca Monte bigtechs be partners, dei Paschi di Siena, which has operated continuously since 1472; this longevity rivals or both? should speak volumes about the resilience and adaptability of the banking industry.

Financial crises, booms and busts have come and gone, banks have fallen by the wayside and new technologies and competitors have emerged. Throughout, the business of banking has continued.

“There always will be regulated entities that will serve the needs of customers who want a safe entity to borrow money from or to place their money in,” says Mark Evans, managing director, transaction banking at ANZ Bank. “Call them banks or anything else, they will be the lynchpin in providing financial stability to support governments and promote social and economic stability.”

6 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 7 As banks, we don’t The role of banks as focus enough on trusted counterparties how our customers maintaining a stable behave. system is not changing.

Paula da Silva, Mark Evans, SEB ANZ Bank

Even so, we appear to be living in an era of Understanding behaviour is increasingly To date, financial services comprise only a know their customers’ banking behaviour. profound change in the nature of banking. about big data – turning the information a small part of the big techs’ global businesses. That is a perfect combination; no one entity David Bannister, senior analyst in research financial institution holds into actionable But given their size and customer reach, said can develop everything on its own.” The biggest disruptor company Aite Group’s wholesale banking business insights. The organisations that are Shin, they have the potential “to spark rapid and payments team, says some digital most adept at leveraging data have been change in the industry”. Aite Group’s Bannister agrees. Digital technologies – such as artificial intelligence, the bigtech firms such as Ant Financial, technologies will allow banks to do things of them all? machine learning and distributed ledger – Google, Apple, Facebook and Amazon. These The BIS report was compiled before “faster and cheaper”, but they will also are leading to questions about how banking companies have vast stores of data, powerful Facebook announced plans to launch its make it faster and cheaper for everyone is done. “People are saying ‘we don’t have analytics capabilities and are relatively own cryptocurrency, Libra. Facebook says else, too. “Banks and non-banks are The four years between 2014-2018 were the At ANZ, Evans believes climate to do things this way’ because some of the lightly regulated compared to banks. the currency will be backed on a one-to- defining the roles they will have in the hottest on record. Climate change could change will have an impact on how existing processes are getting in the way,” one basis through cash bank deposits, emerging ecosystem. Transaction banks be the biggest disruptor that not only the banks operate. “The focus for large he says. In its Annual Economic Report for 2019, short-term government securities and are in a better position because their banking industry, but the world, will face. multinational companies is to make the Bank for International Settlements’ hard currencies, including the US dollar, customers are multi-banked and they have sure their supply chains are green and Paula da Silva, head of transaction services, economic adviser and head of research, sterling, euro and Japanese yen. A number a collaborative mindset.” SEB’s Da Silva says banks will have to sustainable. Banks can play a role by SEB, says: “Most changes that the banking Hyun Song Shin, outlined the pros and cons of companies have already backed Libra, adapt to the changing world, reconsidering issuing green bonds, for example, and industry has undergone historically have of bigtech involvement in financial services. including Mastercard, Uber, PayPal and Collaboration between banks has how to determine value and who to encouraging clients to identify their been about automation, about making eBay. At present, no banks are part of the accelerated in response to technology- lend to. This may involve funding the climate change risks and support the things more visible for customers and “The predictive power of the bigtechs’ group. driven change. Emma Loftus, head of global transition efforts of firms in carbon- creation of transition plans – along with ultimately to enable them to carry out scoring systems arises in large part from payments at JP Morgan, points to SWIFT intensive industries as well as identifying adjusting their own processes.” some services themselves. In the future exploiting the network structure. For Defending the company’s plans at a US gpi, an initiative driven by SWIFT and its green technology pioneers that might banks may become ‘invisible’, but they will instance, MYbank (Ant Financial group) House Committee on Financial Services member banks. SWIFT gpi’s initial focus soon become world leaders. “We need to But Evans warns that such change be embedded in the value chain in a totally uses network analysis of transactions hearing in July, David Marcus, co-creator was on improving speed and transparency understand what climate change means will involve tough decisions: “All coal different way.” to evaluate whether an entrepreneur of Libra and head of Calibra, the subsidiary in the cross-border payments ecosystem, and collaborate with the rest of the mines cannot be shut down tomorrow separates personal funds from business formed to operate the currency, said: “If but its application is now being investigated industry. This may mean dramatic change, as there are communities that depend Predictive power funds, one of the basic principles of good America doesn’t lead innovation in the digital into other areas including low-value ACH funding green initiatives and implementing on them.” However, through collaboration The biggest disruption, says da Silva, will business conduct,” he said. currency and payments area, others will.” and real-time payments. “Global banks eco-friendly ways of working. There is a and a “balanced approach,” banks can be in how customers buy banking services, have worked together to provide the demand on us as companies – and also as help to formulate the best outcome rather than in response to a particular These data analytics are fundamental to Combining competences same client experience as the non-bank humans – to examine our behaviour.” possible. regulation or technology. “How banks work bigtechs’ finance sector ambitions. The Da Silva believes banks should be working and fintech players, who previously had with their brand and what they identify as combination of granular data and machine with the bigtechs and fintechs to connect predicted the death of the bank payments value-added will be very different from the learning has the potential to improve and combine competencies. This is a “big model,” she says. past. As banks, we don’t focus enough on the accuracy of repayment predictions, leadership challenge” for banks, she says. how our customers behave, how they buy especially for small merchants that are “The bigtechs and fintechs know their The longevity of banks and the banking banking services.” typically not well served by incumbent banks. customers’ social behaviour and banks model comes down to trust, Loftus adds.

8 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 9 ADVERTORIAL Resilience first: Alipay Be prepared for looked at old ‘when’, not ‘whether’ technology Dan Thieke, managing director, Business Risk in a new way & Resilience Management at DTCC, emphasizes the role of resilience in financial stability. to address When it comes to making today’s In light of this challenging environment, Dan Thieke, DTCC interconnected financial ecosystem more DTCC executives attending Sibos will resilient, everyone agrees on one thing: It’s discuss principles and guidelines for not a matter of ‘whether’ critical business promoting financial stability by planning payments services will be disrupted, it’s just a matter for disruptions. They will describe our of ‘when.’ It is more important than ever to vision for enhancing resilience as a way to be prepared for cyber-attacks, technology- safeguard critical business services. They We are committed friction. related incidents and other types of shocks also will highlight some of the salient that could have systemic ramifications. paradigm shifts faced by the industry Zenon Kapron, and describe how this topic has morphed to leveraging our Kapronasia As concerns over physical events are from an IT-centric concern to a first- starting to be eclipsed by the threat of order business imperative and a strategic experience to lead wide-scale technology disruptions, the enabler. Any company where the collection of or including wealth management, credit scenarios. For their part, the bigtechs can scope of resilience programs has expanded the evolution of disbursement of funds is central to the scoring and lending. provide credit ratings of individuals and significantly. The ability of these programs DTCC’s team also will describe how the operating model will also require an end- SMEs, based on their behaviour,” says to adequately absorb shocks and allow firm is leveraging leading-edge design industry-wide to-end experience that delivers security, The ‘secret’ of Alipay’s success has been in Kapron. firms to quickly recover from disruptions principles as it embarks on a multi-year finality and local regulatory compliance. addressing friction across the value chain, has become a central point of focus for strategic initiative to build a future-state resilience. The greater the number of countries says Kapron. To do this, the firm has not It’s 25 years since Bill Gates observed that regulators and practitioners alike. In view of IT architecture that is resilient by design. such companies do business in, the more always looked to the latest technology. One banking was necessary, but not necessarily how significantly the market environment The principles and guidelines that support on strengthening our processes to address important these elements will be. “Banks of the biggest Alipay success stories has banks. ANZ’s Evans says the role banks has changed over the last few years, DTCC’s approach to enhancing resilience ever-changing threats, we look forward do all of this for a living, all day long,” she been the facilitation of payments based play will always be in response to how the maintaining appropriate levels of resilience are being shared with the industry as an to collaborating with our partners in the notes. on QR codes, a technology that emerged wider community operates. “The players is a complicated balancing act that needs invitation to foster an active and robust industry on a new vision for enhanced well before blockchain, for example. “Alipay in banking may differ, but I cannot see to incorporate a wide array of trade-offs dialogue on this critical topic that includes global resilience. n “Huge change” looked at old technology in a new way any fundamental change to the role of and competing objectives. all stakeholders. While the impact of fintechs and other to address payments friction,” explains banking in my lifetime. The way the service disruptors has not yet been as dramatic in Kapron. “A merchant can set up the ability is delivered may be different, but the Developing the vision, however, is only the Europe and the US as forecast a few years to accept QR code payments very quickly role of banks as trusted counterparties first step toward enhancing resilience. To ago, there has been a “huge change” in the and such transactions take only around five maintaining a stable system is not perational successfully implement these concepts, is way individuals and SMEs in Asia conduct seconds.” changing.” n organisations must set up an effective their banking, says Zenon Kapron, director governance structure and an operational usiness of consultancy Kapronasia. Kapron believes one picture of the future of Financial model that best suits their needs. DTCC ontinuity is banking may be emerging from China. For anagement is creating a Business Resilience Center Alipay, a subsidiary of Ant Financial, the past few years, the central government of Excellence to this end. This approach Business Resilience has achieved deep market penetration, has been pushing the bigtechs to become will help facilitate rapid deployment that Centre of Excellence with millennials in China investing their tech providers, rather than financial leverages existing resilience-related money with Alipay (and WeChat Pay) services providers. This will mean that Product echnology activities, while centralizing talent and anagement is rather than with a traditional investment when a loan application comes to Ant expertise within the company. If you’d like more information about DTCC, firm. Alipay was originally created to Financial, it will be syndicated through stop by our stand onsite at Sibos London, provide the technology infrastructure the banks and sit on their balance sheets, Safeguarding the stability of financial at W104. endor is to support e-commerce, providing trust rather than on Ant’s. “In this model, banks nrastructure markets during times of uncertainty has For more insights on critical industry anagement for merchants and their customers. It will bring trust and balance sheet liquidity been a key part of DTCC’s mission for more issues and cutting-edge innovations, visit has since expanded into other services that can be applied to different customer than 45 years. Today, as we double-down Perspectives.dtcc.com

10 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 11 LEVERAGING DATA Future of banking: Evolution or revolution?

Cybersecurity: Faster, but safer?

Regulators are rightly concerned about the explicability and auditability of AI.

Stuart Breslow, Google

Regulatory fragmentation over data use – Politically, the access and control of Banks looking to and political concerns about its capture and data has become a key concern for exploitation – create challenges around a governments, primarily impacting leverage data to key resource for global financial services technology firms. The current US Eyes on administration has frequently alleged players. Seeing data as the fuel for the deliver superior engine in many of their businesses, banks intellectual property theft by Chinese are keen to navigate any obstacles to its state-owned enterprises and restricted services must effective use. the domestic use of technology supplied overcome technical by firms such as Chinese telecoms the prize Neil Francis Ryan, head of investment provider Huawei. analytics and data services at BNP Paribas and regulatory Securities Services, says, “We are very Cloud services provision is dominated conscious of understanding our data by US firms including Amazon, Google challenges. internally, and what the conditions and and Microsoft, but in China foreign constraints are on that data going on the operators can only function if they cloud, even if it is a private cloud.” partner with a local firm. The two markets appear to be developing on separate Constraints come in the form of both paths, with Amazon selling the hardware technical and regulatory barriers. of its Chinese cloud business to its According to experts, challenges to local partner, Beijing Sinnet Technology, leveraging data are threefold: developing in 2017. technology that can offer the required analytics; optimising cloud technology in Yet China has announced two plans order to store and deploy data efficiently; for becoming the global superpower and providing transparency to regulators in artificial intelligence (AI) by 2030, and clients. which could be an invaluable resource

12 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 13 All firms are aware of pressure We are very conscious of to improve data governance and understanding the conditions and control. constraints on data going on the

Charles Teschner, BNY Mellon cloud.

Neil Francis Ryan, BNP Paribas

for the finance industry in the future. Firms increasingly recognise data’s of the house, in the execution of repetitive Floating costs cleansing of data masses across disparate in the Americas and Asia-Pacific, so we Meanwhile, Europe has led the world in potential, he says, but are also aware of tasks. AI/ML can potentially impact Cloud computing is crucial to bank efforts sources, delivering the foundational also take those jurisdictions into account setting high standards for the protection “pressure from all users to improve data compliance activities, making them more to leverage large data sets. By tapping benefit of strong data hygiene.” in terms of our data governance,” notes of data, obliging global players and governance and control, partly as a result effective by identifying bad behaviour data stores that can be accessed at will Ryan. “There are often country-specific infrastructure providers to raise their of regulation, but also an institutional which has otherwise been undetected, but can be paid for as needed, rather than Breslow says the prescription for success privacy concerns, with certain countries game. Understandably, there is both ‘Facebook-effect’.” and by materially reducing false positive as a fixed cost, financial services players in adopting AI is the engagement with having additional requirements for how caution and optimism among banks looking investigations.” can grow their use of AI and ML while ‘hyperscale’ cloud service provider data is managed and limits on data to leverage data more effectively to better Technical ability firmly controlling cost. offerings, in other words industrial- leaving their borders. We have taken these serve clients across jurisdictions. Some of the most advanced technologies AI/ML-based tools can tackle labour- strength tools. “These providers can be regulatory requirements into account from being used across the industry to intensive processes, even those that Chris Jones, global head of strategy, used to create robust data environments an operations, technology and people “In securities services, businesses are leverage data are based upon AI and require cross-checking between systems, innovation and architecture for IT and [and] scale compute on which to run perspective.” becoming more adept at using data ML. By allowing a flexible approach to as long as the data is available to change at HSBC Securities Services, complex analytics against massive data effectively,” says Paul Clark, global head of finding patterns – based on tracking and train them on. “Reconciliation is a big notes the inherent peaks and troughs in sets,” he says. Authorities are also keen to know that digital and data, for HSBC Securities learning their characteristics, rather operational pain point for any firm,” says processing power needed to support AI data processing is being undertaken Services. “It will become an enabling factor than using inflexible rules – these models Allen Cohen, digital officer at BNY Mellon’s and data processing. “Through the cloud, Playing by the rules with due care and consideration. For for us to do fast processing, driving can quickly assess much larger data asset servicing business. “Advanced AI/ML we are able to get that processing power Legal and ethical considerations can also AI, that can include ensuring it is not insight, powering AI and machine learning sets than can be appraised by a human, algos are being used in the reconciliation as and when we need. It’s allowing us impact the effective deployment of data discriminating between clients unfairly (ML). All this helps us aid better decision finding correlations and linkages that process to eliminate false breaks and to focus on the functionality the client to support banks and their clients. BNY or making decisions that cannot be making. Also, as the industry becomes might otherwise go unnoticed, as well problems due to timing issues, thus wants, rather than worrying about how Mellon’s Cohen says cloud providers have explained. more comfortable with the concept as subsequently spotting them in new allowing firms to focus on the exception much capacity we have in a data centre,” adjusted in recent years to data privacy of central digital ledgers, we will start to data. This can be invaluable in areas processing, instead of having to figure out he explains. rules that require client data to be held in “Regulation does pose challenges to see the benefits of single versions of as disparate as voice recognition and what the exceptions are.” country, typically by expanding data centre AI adoption,” says Breslow. “There’s truth, which reduce that need for anti-money laundering, where a bad Google’s Breslow argues that many networks. “They have matured enough the risk management requirement that reconciliation, speeding up straight- actor may adapt an existing approach to For AI/ML-based tools to add sustainable financial services firms are “encumbered” to put data where they want it, but can the financial services providers must through processing.” avoid detection, but unwittingly continue value to clients, service providers need by data systems which are fragmented accommodate the privacy requirements,” demonstrate transparency as to how the certain behaviours. to focus on the quality, reliability, and and inconsistent, often as a result of he explains. AI itself works and how the output can be Being at an early stage in the use of these accessibility, according to Stephen M&A activity and silo-led technology explained. Regulators are rightly concerned technologies, banks must navigate barriers Financial service providers keep a close Bayly, chief information officer at HSBC purchases. He also notes limited levels of In Europe, the General Data Protection about the explicability/auditability of AI; carefully, to ensure they take the best steps eye on the lead provided by bigtech Securities Services. “If you give AI bad comfort and understanding of AI at staff Regulation (GDPR) has set very beyond fundamental risk management, forward. pioneers. But even Stuart Breslow, data, it’s going to make bad decisions. and leadership level. stringent guidance for the use, storage they have to be comfortable that decisions managing director for technology and It’s not just how we train our robots, if and protection of data, but the overall and output are wholly objective—that the AI “When I look at the ability of technology policy at Google, admits there is a long the end-client is receiving bad data on “The good news? The cloud can provide regulatory landscape remains diverse. works as intended.” and analytics to transform the industry, I way to go. “AI/ML is already in use both on the front end, then the reputation of a singular environment for consolidating feel like it is only at 5% of its potential,” the business growth side of the house, for both our clients and ourselves is hugely data across these federated systems, “GDPR is a regulation in EU law, and These challenges are not deal-breakers; says Charles Teschner, global head of data example supporting informed sales lead damaged. Better quality data is absolutely which can then be tapped by AI,” he says. non-European firms trading in Europe finance sector firms are working hard and and analytics solutions at BNY Mellon. generation, and on the cost savings side paramount.” “There are now tools to automate the are governed by it. We have operations working together to ensure that regulatory

14 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 15 CYBERSECURITY Leveraging data: Eyes on the prize Better quality data is absolutely Geopolitics & regulation: paramount. Adapting to a new age of uncertainty Stephen Bayly, HSBC Faster, guidelines are adhered to and technological and financial service providers to address challenges can be overcome. regulators’ concerns are starting to bear fruit. “We continue to have discussions with regulators regarding data protection,” “With the advancements in explicability says Jones at HSBC. “If one player was tools and methodologies, as well as but to have an issue in this space, we would articulation by cloud providers of AI all be tarred with the same brush, so a principles founded on fairness and collaborative effort is needed.” transparency, we also see increasing interest among financial regulators to explore the Google’s Breslow suggests efforts by cloud use of AI in financial services.”n safer? How will banks protect Deutsche Bank their clients’ assets Corporate Bank in the era of open banking and real-time Everything payments? is in flow

Connecting you to the world of corporate banking

#PositiveImpact

16 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 17 You may be able to create more We have reached resilience in the system because it a point of is more distributed. interdependence

Tim Maurer, Carnegie Endowment for International Peace in the digital ecosystem.

Sir Rob Wainwright, Deloitte

Cyber-criminals are intelligent, creative themselves,” says Wainwright. Perfect or must all recognise that there is a new at a faster rate than any other industry,” almost instantaneously, are we – and and increasingly resourceful. The good not, this storm is severe. dimension to bank-to-bank, and market says Wainwright. our defences – likely to be left behind news is: so are we. “We’re seeing larger infrastructure-to-market infrastructure, as we battle all this adverse weather? investments of brainpower, larger budgets Business risk relationships.” At one level, this is a KYC Adverse weather Maurer says: “I don’t think we can make and increased IT capabilities focused on Beyond this, it’s a storm no banker – nor issue, and that’s potentially expensive in For all of our institutions, what matters a definite statement as to whether new cybersecurity, while at the same time, the regulator, nor fintech, nor other participant itself, but at another level, it’s a “don’t is to keep up or even ahead. Sibos 2019’s developments in technology will improve threats have gone up a gear as well,” says in global finance, large or small – can be shut out of business” issue – we’re cybersecurity strand runs through the or hamper cyberdefences. At the same Sir Rob Wainwright, senior cyber partner afford to ignore. The Big Issue Debate talking about survival. Gem continues: week, of course, and the SWIFT Institute time as we’ve seen changes to payments at Deloitte North and South Europe, on cybersecurity will be addressing a “Every organisation has a duty to has published ‘Cyber Resilience and systems, we’ve seen changes to defence who will contribute to Wednesday’s Big challenge that we must all face – and assess the operational risks of being so Financial Organizations: A Capacity- technologies, particularly with respect to Issue Debate around the question: Have it’s not just a threat that comes from interconnected.” building Tool Box’ in partnership with the machine learning.” new business models created a perfect outside. Effective cybersecurity measures Carnegie Endowment for International cybersecurity storm? have become a requirement for any Cybersecurity is the biggest of big issues, Peace (CEIP) and others. This set of six There’s a belief that “offence always bank connecting to global networks, for and Wednesday’s speakers will identify guides and checklists, available in seven trumps defence” in cybercrime versus On the face of it, they have. The downside the simple reason that a bank unable to best practice and discuss present-day languages, delivers actionable guidance cybersecurity, Maurer observes, in that of high-speed processing and API-enabled demonstrate its own cybersecurity – a bank and evolving counter-measures and on cybersecurity frameworks, policies and systems are vulnerable and criminals hyper-connectivity on a global scale is not up to speed on the latest cybersecurity solutions, in the context of ever-faster standards around the world. Tim Maurer, have the advantage of surprise. Criminals that criminals can transact more quickly measures being deployed across the transaction speeds processing speeds co-director of the CEIP’s Cyber Policy only have to be lucky once, as the saying than we can detect them. But that’s only industry – risks being treated (or rather, that leave less time for security checks. Initiative, says: “When used properly, these goes, while we have to be vigilant all the part of the challenge we face today. avoided) as a potential weak link. We’ll hear about initiatives to contain and tools will prevent dangerous hacks to time. But this may be changing. Maurer Cybercrime itself is evolving, constantly. even defeat cybercrime, and to track its financial institutions across the world.” says: “Some experts expect that machine Once, state-of-the-art cybersecurity If you’re not secure, you’re at risk of perpetrators, and there will be discussion learning will tilt the balance in favour of meant reminding customers to protect losing business. Mark Gem, member of of cybercrime as a tool of statecraft Does Maurer believe that new business defence.” Over time, rapid processing their passwords; now, we’re putting up the executive board and head of the risk – there are ramifications here that go models – with their emphasis on speed, might work to our advantage rather than barriers against a systemic threat. “There committee at Clearstream, says: “Your beyond banking. And yet the tone of the openness and cloud-based collaboration our disadvantage. Steve Silberstein, CEO, is a growing involvement of malicious own organisation might have taken the debate will be positive: we’re focused, and – have created a perfect storm? Now Financial Services Information Sharing state actors, while the most capable necessary steps to be secure, but if the we’re getting to grips with cybercrime. that real-time payment initiatives have and Analysis Center (FS-ISAC), makes cybercriminals are moving towards defences of a counterparty or client have “The financial services industry is cut processing times to sub-second a similar point. “Real-time payments direct attacks on the banking networks been penetrated, you too are at risk. We accelerating its cybersecurity capability levels, so that settlement is irrevocable have different risk characteristics than

18 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 19 Rapid processing might work to our Every advantage. organisation has

Steve Silberstein, FS-ISAC a duty to assess the operational risks of being so interconnected.

Mark Gem, Clearstream

traditional timelines. One of the risk- about innovation? Cybersecurity is a new technologies.” An example might be Wainwright says: “We have reached a threat of cybercrime. It’s here to stay. It’s and above all, mindset. “In the end, we’re benefit ratios is that there is almost co-operative not competitive space, but if the use of a tokenized account number point of interdependence in the digital part of the landscape.” Strategic resilience talking about the integrity of the financial instant feedback on the transaction, we’re openly and necessarily co-operating, instead of the actual account number. ecosystem. We cannot now remove the requires quick detection, layered defence, system as a whole.” n which allows the bank originating doesn’t that have at least some impact on Silberstein adds: “Open banking can offer the payment to deal with any issues our ability to compete? avenues such as payee confirmation to immediately,” he explains. prevent a consumer from sending money to So far, we know that faster processing the wrong account.” Layered defence speeds can work for us as well as How good is your AI? This is an against us, if our machines are up to the Fresh perspectives increasingly important question for banks’ challenge, and that a primary defence Coming at this from another angle, Maurer information security professionals. If your against cybercrime is to get together and says: “If you have an open system, you may machines learn faster than their machines, share. Our new business models might be able to create more resilience in the Thriving in a you’re safe until next time. And if you keep have created a storm, but we already system because it is more distributed and up with best practice, you’re safe next time have access to some pretty robust you have a greater diversity of actors. Also, as well. Silberstein continues: “Financial insulation. Cybersecurity is a space in some of the innovation we may expect in hyper-connected institutions must employ a layered and which we’re doing pretty well already, and the coming years may be more resilient adaptable defence model to adequately the message on Wednesday won’t be that than systems currently in use.” The picture world detect and prevent fraud, including strong we need to wake up, so to speak, but that is mixed, he concludes. Cybersecurity is authentication measures and threat we need to stay sharp. Feel confident, but mission-critical for enterprises seeking to intelligence.” On top of that, Silberstein don’t feel complacent. connect to banks as well. We’re opening suggests, banks should engage in the ourselves up to new risks, but also to fresh sharing of threat intelligence to facilitate But if that’s the present message – what perspectives on how to defeat cybercrime – a greater industry-wide understanding of about tomorrow? New business gives and distributed networks may be a complex evolving criminal methodologies and tools. way to newer business, after all. As we challenge to cybercriminals as well as open up our systems to third parties – to the rest of us. Maurer does, however, #Sibos There is almost an analogy with principles deliberately – aren’t we further increasing point to implementation as an area of of survival in the natural world – stay our vulnerabilities? vulnerability: be vigilant as you move to the close to your peer group because the cloud, or implement a new connection. predators will be more likely to pick off Again, this is a question where the answer the outliers – but there is a powerful isn’t quite as obvious as might be expected. New technologies may also be more secure business case for keeping informed and Silberstein says: “Financial institutions than we have now, and new approaches are keeping your defences up to date. If you’re must constantly adapt their cybersecurity evolving – there’s an emphasis, for example, not networked into the state-of-the-art to address evolving risks. While the on constantly seeking “better practice” solution, you risk being seen as potentially increase in the amount of connections to a rather than settling on best practice. part of the threat. That’s bad for business, customer’s financial information can lead But the final argument for a rigorous as above – but it also prompts a further to new cybersecurity risks, there can be policy of keeping your cyberdefences up question: what about new business; what opportunities to mitigate fraud with these to date is simply: there’s no alternative.

20 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 21 GEOPOLITICS & REGULATION Cybersecurity: Faster, but safer? The geopolitics of trade Next generation: The new A to Z of banking are beginning to impact overall trade values and volumes.

Dr Rebecca Harding, Coriolis Technologies

Following 18 months of tariff hikes and Banks are turning threats by US and China, there is no resolution in sight. Nevertheless, signs of to technology to geopolitical tension are unlikely to subside Adapting to mitigate the risks in the medium term, as more countries temper their support for globalisation and the multilateral organisations that of an increasingly govern it, their policies and outlooks tinged unpredictable increasingly by economic nationalism. a new age of business environment. Rising tariffs are only one symptom of heightened geopolitical discord, alongside more frequent use of sanctions, compliance fines and regulatory fragmentation. In a number of countries, domestic political agendas are increasingly winning out over economic reasoning, as policy-makers uncertainty appear to prioritise national interests over consensus-seeking and co-operation with allies and neighbours.

“The US-China trade war, and the geopolitical tensions that are building in the Middle East, are making trade’s compliance and cost environment more complex,” says Dr Rebecca Harding, CEO of Coriolis Technologies, and author of ‘The Weaponization of Trade: The Great

22 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 23 Innovations in e-commerce, We’re witnessing a digitisation and DLT are transition from an era making trade safer and of globalisation to the more efficient. opposite.

Natalie Blyth, HSBC Dr Angela Gallo, Cass Business School

Unbalancing of Policy and Economics’. “The levels of uncertainty,” said director-general ledger technology are also making trade make trade considerably faster – cutting entity. For non-EU globally systematically geopolitics of trade are beginning to impact Roberto Azevedo. With world trade and safer and more efficient.” transaction times from 5-10 days to 24 important banks (G-SIBs), the picture is overall trade values and volumes and this GDP having grown in tandem since 2008 hours – freeing up valuable working complicated by the EU’s Intermediate is a serious challenge for growth in the (26%), consensus estimates put world GDP From a tactical perspective, banks are capital,” says Blyth. Parent Undertaking (IPU) proposal, part coming year.” growth at 2.6% in 2019 and 2020. already working closely with importers and of plans for the fifth Capital Requirements exporters to ease their pain. As tensions At Coriolis, Harding is seeing some Directive. According to a report by London- Trade distortions Digital technology plays an important but rise, the cost of protecting import and diversion of trade and reclassification of based Cass Business School2, 19 G-SIBs The problem has been a long time coming, complex role in this uncertain geopolitical export flows is likely to increase, admits components of global supply chains, but could have to consolidate all existing EU but is increasing sharply. Discriminatory environment. On the one hand, it is the Daniel Schmand, head of trade finance notes that current conditions are not yet a entities under a single European subsidiary trade actions by G20 economies have risen cause of considerable anxiety, playing a at Deutsche Bank, both because of the “full-blown trade war”, despite the bellicose that would serve as an IPU, for resolution steadily since 2012, according to Global key role in the US’s complaints to China greater frequency with which firms use language. “While uncertainty persists, it purposes. The report says the necessity to Trade Alerts. Between December 2018 over intellectual property and national safer instruments such as letters of is hard for banks and businesses to make restructure and develop new organisational and April 2019, G20 countries imposed security, and Europe’s anti-trust measures credit (L/Cs), versus open account, and investment decisions. While businesses models would prove “costly” and “require a 288 trade distortions affecting more than against US internet giants, as well as the because the cost of each L/C transaction are trying to mitigate the challenges with long transition period”, noting also plans by US$1.15 trillion of trade1. Retaliatory US- data protection laws being introduced in will rise. Further, greater uncertainty specific measures in their sector and banks to establish post-Brexit ‘delegation China actions accounted for just one sixth. Europe and elsewhere. On the other, it places a premium on liquidity, which stronger attention to compliance detail, the management’ models that could allow has already reduced much of the friction increases firms’ need for working capital fact is that this pushes up costs. That will them to select an EU-based legal entity Even where multilateral deals can still inherent in cross-border trade flows and solutions. “Depending on the nature of be a longer-term difficulty to manage with for passporting and IPU purposes, then be struck, such as the European Union’s may help goods and services to continue a firm’s geographic exposures, a further substantial broader economic impact.” delegate certain tasks and functions back trade agreement with the four South to move around a more fragmented globe – consequence of rising geopolitical tensions to established UK-based entities. American countries of the Mercosur Group, assuming the economic nationalist agenda may be the need to expand into new Weighing their options contrasting positions on other policy issues does not fracture prevailing standards, markets or make adjustments to supply As Harding suggests, rising hostility and When weighing up their options, report (in this case, conservation of the Amazon protocols and frameworks. chains,” he says. uncertainty at the geopolitical level are co-author Dr Angela Gallo says banks need rainforest) can threaten to undo multi-year having diverse impacts on banks and to recognise an underlying shift in the negotiations. Long-term opportunities Schmand, chair of the International their corporate and institutional clients, political landscape, suggesting strategic Natalie Blyth, global head of trade and Chambers of Commerce Banking reshaping organisational structures, agility will become increasingly important. In April, the World Trade Organisation receivables management at HSBC, does not Commission, also points to the ICC’s coverage models, operating infrastructures “The traditional approach to increased (WTO) predicted merchandise trade volume discount the short-term risks, but takes a blockchain-based pilot schemes and value propositions. political risk by banks and other large growth would fall to 2.6% in 2019 from positive view on long-term opportunities. as demonstrating the potential for commercial entities has been to postpone 2018’s 3.0%. The WTO suggests a possible “We’re seeing a dematerialisation of technology to facilitate new business At present, Brexit is perhaps having the investment decisions until things become rebound to 3.0% in 2020 – if trade tensions trade with a rapid growth of trade in data models and improve access to finance to biggest influence on banks’ organisational more certain. But now they must adapt ease. “Trade cannot play its full role in and services, which we expect will make SMEs. Meanwhile, HSBC is implementing structures. Many UK and non-EU to a permanent state of uncertainty driving growth when we see such high up 25% of total trade by 2030. Take a full automation of money laundering institutions are weighing their options up and relinquish expectations of a return drone: the most valuable part is not the and sanction checks for trade finance if there is, post-Brexit, no agreement on 1 Jaw Jaw not War War – Prioritising WTO physical good, but the coding lines in the transactions and reducing processing times passporting rights that hitherto allowed 2 ‘Brexit and non-EU banks: Challenges and Reform Options. The 24th Global Trade Alert flight module,” she says. “Innovations in via blockchain. “Over the last 16 months, them to access the entire EU single market Opportunities’, Centre for Banking Research, Report (Global Trade Alert, 2019) e-commerce, digitisation and distributed we have proved that this technology can for financial services from a London-based Cass Business School (December 2018)

24 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 25 Any reversal of globalisation will increase the amount of work done in pre-trade and operations. Download the

John O’Hara, Sibos app to see Taskize the full conference programme and plan your agenda to political stability. We’re witnessing a Adjust and thrive A recent European Central Bank analysis3 transition from an era of globalisation to Cloud computing has done much to argues that the current tariff situation for the week at the opposite, characterised by nationalism further the globalization of finance, but presents only “modest adverse risk” and populism,” asserts Gallo, who will the down side of cross-border data flows to economic growth, warning that the present ‘Living in an Era of Political (e.g. cybercrime, industrial espionage, “medium-term direct impact of an Sibos! Uncertainty: Implications for Banks’, part erosion of confidentiality, challenges escalation could be sizeable, compounded of the SWIFT Institute programme at Sibos to cultural norms) is leading not only by heightened financial stress and a drop in 2019. to regulatory fragmentation, but the confidence”. establishment of parallel, competing Banks, financial institutions and corporates infrastructure frameworks, especially in Although the report advises against a may all need to build greater flexibility non-western markets. O’Hara worries that retreat from openness, it also asserts into their business models and operating bifurcation of global commerce is a real the root causes of protectionism must structures, agrees John O’Hara, CEO of threat, but says financial service providers be acknowledged and addressed. “By Taskize, a London-based workflow solutions can adjust and thrive. encouraging regulatory convergence, specialist. multilateral cooperation helps to protect “Any reversal of globalisation will people from the unwelcome consequences “If we cannot assume in future the increase the amount of work done in pre- of openness, and therefore remains homogeneity that we previously took for trade and operations, but increasingly crucial as a response to concerns about granted, we may need to revert to more assisted by digital technology, this the fairness and equity of trade. The federated models. The regional offices of may become a source of revenue,” distributional and social effects of greater multinational firms which were unwound he suggests. “Processes to navigate economic integration should also be during the 1990s may take on a new legislation, to pre-check and pre-establish addressed by targeted policies that achieve lease of life,” he says, noting also the the parameters of deals before embarking fairer outcomes.” n technology infrastructure burdens imposed on them can be automated if the rules by diverse new data privacy and residency stabilise. While sanctions and tariffs laws across jurisdictions. “Federated remain fluid, manual interventions will systems are non-trivial, and firms should increasingly be required and technologies be looking to favour services which will be needed which provide venues are clearly designed to deal with such and channels for these matters to be 3 The economic implications of rising partitioning. This need is also supported by addressed between businesses, banks and protectionism: a euro area and global the regulators’ observation that global- their advisors.” perspective (ECB Economic Bulletin, Issue scale cloud providers represent a new kind 3/2019) of concentration risk, which needs to be mitigated.”

26 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 27 NEXT GENERATION Geopolitics & regulation: Adapting to a new age of uncertainty

Payments: Delivering a digital future The new A to Z of banking

Generation Z’s digital natives will have different priorities from their parents when buying financial services.

It is the prerogative of every new university face the prospect of £50,000 generation to think they are markedly in debt. This is having an impact on their different from their predecessors. In the financial spending.” case of Generation Z, they are unique in being the first to have come of age Deferring consumption in a truly digital world. This means they GlobalData’s 2019 Retail Banking and expect information, products and services Payments Survey echoes these sentiments. instantaneously and via a mobile phone, It shows that rapidly increasing educational although human interaction is preferred costs, greater job insecurity, a scarcity for advice. As a result, banks and other of well-paying jobs, and higher property incumbent financial service providers are prices are leading Generation Z to be more being forced to rethink their offering if they concerned with deferring consumption and want to capture this cohort’s collective taking care of financial wellbeing instead of imagination, loyalty and wallets. living in the moment. This suggests banks’ Gen Z customer acquisition strategies Gen Z – born between the mid-1990s and should initially focus more on promoting early 2000s – accounts for 32% of the savings tools, instead of enticing them with global population, making them the largest credit card offers. demographic in the world, according to Chloe Combi, consultant and author of The findings are borne out by research ‘Generation Z: Their Voices, Their Lives’. which shows that one-fifth of US Gen Zers “They have grown up in the world of have had a savings account since before the internet and social media as well the age of 10, while a third of their UK as in the shadow of the financial crisis counterparts had put away more than and uncertainty,” she adds. “There is no £1,000. Forty per cent of Gen Zers believe defined career path and those that go to saving is “fundamental” for their future

28 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 29 We are seeing Gen Z adopting a People are cherry-picking approach versus moving larger building a relationship with one sums of money bank. in transit than

Hiral Patel, Barclays ever before.

Diane Reyes, HSBC and, according to recent Financial Conduct Stealing a march cards and the option to use Apple Pay especially in the mobile app space, to Diane Reyes, global head of liquidity and Anytime anywhere Authority figures, they are the least likely Challenger banks are already stealing and Google Pay. Rather than handing over attract and retain not only Gen Z, but also cash management at HSBC, concurs. Reyes believes that in the future the omni- working-age group to have debt of any a march. Unencumbered by legacy pocket money, parents will transfer it into their predecessors, who are increasingly “Mobile is the device of choice for Gen Z. channel approach that is prevalent in Asia form, including overdrafts, credit cards, infrastructure, they have been able to quickly accounts and have the ability to monitor conducting business over their phones. Many are now entering the labour market will be applied throughout the UK, US and and loans from family and friends. The vast launch products and features to keep pace the spending. “One of the problems is that it can still be and they are influencing companies in Europe. This allows a customer to access majority check their bank balance every with new demands. Typically, the challengers’ a cumbersome, very manual experience a permanent manner which impacts their banking services, in real time, through day, shunning physical branches and even service offerings share the common goals of Value delivery to deal with financial institutions,” says the capabilities that banks offer. We are any channel they choose, be it the physical online banking in favour of mobile apps. providing affordable and transparent fees, This of course is not the death knell of the Julie Harris, head of global banking digital seeing a blending of home and work, with branch, an ATM, a call centre or online. This easy to open bank accounts with access mainstream, but longer-established banks strategy at Bank of America Merrill Lynch. people moving larger sums of money in gives customers the freedom of choice Although Gen Zers inhabit a virtual world from any part of the world and an enhanced have to step up the learning curve if they “Gen Z are no longer just our kids, they are transit than ever before, whether they to access their finances anywhere, at any characterised by convenience and speed, customer experience, either via mobile or want to compete more effectively with now entering the workforce full-time. This are on holiday, going to the office or time, via any medium. security and privacy are of paramount through multiple access points like social these innovative upstarts. They will need to population doesn’t need to adopt a digital working abroad. They want applications importance. A report from Kantar Media media. As they mature and develop, these pay particular attention to segmentation, way of operating – they simply expect it. to be simple and fast, but secure. For this Patel believes that, given their high shows they are more concerned about services are differentiating through premium customisation, attitudes and insights They want to do everything as cheaply, as reason, we have enabled biometric access expectations around technology, a ‘one protecting their online personal data than subscription services, in-app ‘marketplaces’ in order to develop the right products, quickly and as securely as possible on their to mobile banking in 40 countries. We have size fits all’ strategy is unlikely to work any other generation. In comparison with that offer products from third-party services and experiences. While security mobile phones. These expectations are taken lessons learnt in Asia, where mobile for Gen Z. Nor should incumbent banks millennials, they are less likely to impart providers, budgeting and individualised and cost efficiency are significant, the true changing how banks are interacting with apps are very popular, and applied them to see challengers as their only rivals in a information such as transaction history, financial planning advice and international appeal of digitsation is the value-add to the their customers and clients.” other markets.” continuous battle to retain customers. “We mobile banking activity and geolocation expansion. customer. are seeing Gen Z adopting a cherry-picking with their main financial institution, even approach versus building a relationship in return for more tailored products and Challenger banks have been making their “When engaging with Generation Z, banks with one bank,” she says. “However, in services, or personalised financial advice. In presence felt particularly strongly in the need to understand that it is no longer time I can also see bigtech firms disrupting addition, they are more reluctant to disclose UK and Europe. The UK’s Monzo, launched about value proposition – where strategy the financial landscape as they develop information with third parties, including four years ago, is among the fastest is the main factor – but more about value sophisticated products and services.” account balances and spending history. growing, standing out for its bright pink delivery, which is obtained through a debit cards and an app designed to easily focus on engagement and alignment,” For example, the Barclays report notes Banks will have to work hard and organise, track and save money. The firm says Jean-Philippe Richard-Charman, a widely-publicised discussions last year reconfigure their models, but they will recently debuted Monzo Plus, which offers brand development director and MBA New between Amazon, JP Morgan and Capital be rewarded. Gen Z are expected to have additional services such as travel insurance student at Henley Business School, Reading One to create an Amazon-branded, serious financial clout. “We believe this for a small monthly fee. University. “There needs to be a deeper expectations mobile-friendly current account aimed at coming of age is worth capitalising on focus on values, and the interactions younger and underbanked customers. If now, with Generation Z in the US already In Europe, Germany’s N26 is one of the between people, i.e. relationships.” successful it would allow Amazon to draw having US$200 billion in direct buying most popular of the new breed and are changing in Gen Z early, and provide the online power and US$1 trillion in indirect spending recently opened its virtual doors in the UK. Not surprisingly, many conventional retailer with a greater understanding power, as they command significantly more The company provides budgeting tools, banks are forging ties with fintechs and how banks are of their purchasing habits as spending influence on household purchases than prior spending insights and easy payments as leveraging their technology. However, as power rises. A report by consultancy generations,” says Hiral Patel, an analyst part of its basic current account, but also Patel points out, it is two-way street, “One firm Bain estimates that this type of at Barclays and co-author of ‘Generation Z: offers a Black premium account with free of the biggest challenges for fintechs is interacting with service could garner over 70 million US Step aside Millennials’. “By 2020, Generation ATM withdrawals anywhere in the world scale and these partnerships enable them customer accounts within the next five Z is expected to be the largest group of for frequent travellers. Meanwhile, France’s to expand their business models,” she adds. their customers. years, equalling the size of the country’s consumers worldwide, making up 40% Pixpay, a fintech started by parents, is third-largest bank – Wells Fargo. In a Gen Z of the market in the US, Europe and BRIC planning to give children aged 10-18 a Global players are also investing heavily Julie Harris, world, it seems market share – as well as countries, and 10% in the rest of the world.” mobile bank account, contactless payment and developing their own digital offerings, Bank of America Merrill Lynch payments – can shift in real time. n

30 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 31 PAYMENTS Next generation: The new A to Z of banking

Securities: Investor needs driving post-trade revolution Delivering a digital future The race is on to transform the customer experience. How will banks deliver value in the digital era?

Regulators and market infrastructure Architecture for open banking is being operators have spoken – and now banks introduced, the Bank of England’s CHAPS must respond. ISO 20022 migrations, will be replaced and the Faster Payments new open banking architectures and platform renewed. strengthened cybersecurity defences are planned across multiple geographies. In Add to this mix the planned phased Europe in particular, banks are facing an migration of SWIFT MT cross-border unprecedented amount of mandatory payments and cash management messages change that reaches deep into their core to ISO 20022 and banks really do face a systems and business models. tsunami of regulatory, operational and business-critical imperatives. The Eurosystem’s TARGET2 (T2) real- time gross settlement system for high- A common vision? value payments will migrate to a new The common objectives of these plans are consolidated platform for all TARGET to open up banking to more competition, services in a ‘big bang’ in November improve the speed and efficiency of 2021, affecting more than 1,000 direct payments for customers and foster participants (T2 handles 90% of the total innovation. The ultimate vision is for end- value of high-value payments in euros). to-end, digitally connected eco-systems to Among other changes, T2 participants will deliver fast, frictionless payments account- be required to use fully-fledged ISO 20022 to-account wherever, whenever. Value-added messaging. EBA Clearing’s EURO1 RTGS- services based on rich, structured data equivalent net settlement system will also carried via payment messages will enable move to ISO 20022 in the same timeframe. customers to operate more efficiently and banks to build new revenue models. Meanwhile, the second Payment Services Directive (PSD2) is re-shaping the Although the impetus has come from European payments market and opening regulators, the market is coordinated and it up to competition from non-bank proactive in planning for the changes. For providers. And in the UK, a New Payments Marion King, group director of payments

32 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 33 Trade: chasing the value We’re looking at instant as the priority, market by New solutions market. should be Anupam Sinha, interoperable Citi and bring real value for clients.

Anne Cécile Delas, Natixis

at UK bank NatWest, aligning the market by 2028. NatWest’s King says her bank is initiative, will inevitably put some friction for example, request-to-pay services. “How around ISO 20022 and open banking is now seeing some business users of BACS back into the system. will it be embedded in the e-commerce the major theme. “Banks and market (bulk ACH) moving to Faster Payments. experience? Clients have to be at the Can next-generation technologies finally relationships, not just transactions, so infrastructures have a complex air-traffic Despite increasing volumes, making a centre,” he says. bring speed and efficiency to complex our approach is always collaborative.” control task to manage the timetables For Anupam Sinha, global head of domestic business case for instant may be the trade finance transaction chains? With and interdependencies of changes which payments and receivables at Citi, instant biggest challenge of all. “Banks are Peers agree that much remains uncertain multiple competing digital platforms in the French bank Natixis is actively involved go deep into operational flows,” she is the future. “It’s starting with retail struggling to maintain payment margins today. “The ultimate path and impact market, the jury is still out. in several blockchain initiatives for says. With one in four payments in the payments but moving rapidly to the and it’s clear that moving value is not of of open banking and ISO 20022 is not large corporates including Komgo for UK going through NatWest, she is keen corporate world as transaction value limits itself going to deliver a sustainable revenue completely clear,” says Sungmahn Seo, head “Corporates generally take the view that commodity financing and the Marco Polo that all parties get to the finishing line rise,” he says. Citi is taking the opportunity stream,” says Simon Wilson, director of of EMEA payments at JP Morgan. “However, disruptive technology will work best when platform for supply chain finance. “So together, using the same standards and to fundamentally re-architect its systems payments solutions at Icon Solutions. these are transformational levers that, along it is ecumenical; unless it’s accessible to many projects are under development infrastructures. and operating model to deliver instant Reducing operating costs (for example, by with other tectonic shifts such as real-time all it will fail to provide substantial value,” and so many technologies are being tried, payments along with a consistent customer increasing processing speeds using cloud payments, the rise of the app and API-driven says Geoff Brady, head of global trade and but we are beginning to see concrete new The unstoppable momentum behind experience across its markets in Europe technology and partnering with fintechs) interfaces, will drive foundational change supply chain finance, Global Transaction solutions,” says Anne Cécile Delas, head instant payments is a key challenge for and elsewhere. “We’re obviously driven by is part of the calculation. Wilson quotes in banking. API-enabled real-time multi- Services, Bank of America Merrill Lynch. of trade and treasury solutions, Natixis. banks and payments providers as they market timelines, but where we can, we’re one bank aiming to increase rates from banking, AI-enhanced cash flow forecasting, “We continue to invest heavily in the “The important thing is that they should plan their transformation strategies. In the looking at instant as the priority, market by 60 transactions per second to 300, while virtual assistants that can answer ‘where global evolution of digital technology, but be interoperable and bring real value for last two years, many European countries market,” he says. Worldwide, Citi is already reducing total cost of ownership by 50%. is my payment’, enhanced fraud detection equally, success is measured by strong clients.” have introduced an instant payments connected to 20 instant payments systems – these are just some of the services the service for their domestic market while and expects to add another 15 or so. Value through innovation future holds.” the Eurosystem’s TARGET Instant Payment Alongside efficiency gains, banks will need Settlement (TIPS) and EBA Clearing’s No doubt, instant is challenging for banks to harness the promise of digital and open NatWest’s King stresses the importance of RT1 have made cross-border instant euro with a large estate of legacy systems. banking to deliver innovative, value-adding strategic partnering to deliver well-targeted payments a reality. Deep investment is needed. Batch-based services to end-customers if they are new offerings quickly. For example, Open processing systems have to be renewed to stay in business. Success, according Banking Payments by NatWest is a multi- Gradual adoption or replaced and customer service and to Wilson, depends on focusing on the bank, API-driven payments service for Experience in the UK, which introduced its compliance must be re-modelled to customer journey, picking the right niche business customers which makes it easy Faster Payments scheme in 2008, shows respond in a 24/7 environment. And then markets and the right technology partners. for them to pay suppliers without using a gradual but strong adoption of these there is the increased risk of fraud. Some card. NatWest’s parent, RBS, is also setting payments. According to UK Finance, two necessary prevention measures, such as Citi is one of the first banks to register as a up a completely new online-only bank, Bó, billion consumer and business transactions customer authentication requirements Payment Initiation Service Provider (PISP) which will be targeted at consumers with went over the Faster Payments service in which come into force in the EU this under PSD2. Citi’s Sinha says the market is less than £100 in savings. Bó has been set 2018, with 3.2 billion transactions predicted year, and the UK’s confirmation of payee currently evaluating how clients will adopt, up rapidly, using cloud technology.

34 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 35 Join the conversation Open banking and ISO 20022 are transformational levers. @Sibos #Sibos

Sungmahn Seo, JP Morgan

Data services which can either be monetised, or used to drive trust and customer ‘stickiness’ are also going to be Corporates: smarter data, an important part of the mix – for example, providing rich information for utility contract renewals. faster

Just-in-time? For all the talk of digital eco-systems, transparency and certainty to cross-border Given the imperative to meet the corporate treasurers are still looking for payments, but that’s not the whole picture. demanding timetables for business-critical some fairly basic deliverables from their Digital should deliver transparency on infrastructure migrations such as the @Sibos #Sibos LinkedIn.com/company/Sibos banking relationships, according to Naresh charging, real-time views on liquidity, new TARGET services and ISO 20022 Aggarwal, associate director for policy and immediate notification of incoming migrations, will banks also be able to match technical issues at the UK’s Association funds and a consistent, automated way the agility of challengers and fintechs and of Corporate Treasurers. “Treasurers are to handle compliance data, he suggests. deliver digital transformation in time? still spending huge amounts of time on “For example, as individuals, we get such things as managing bank account notified when a payment hits our account, Icon Solutions’ Wilson does not think signatory changes, understanding bank but that’s not necessarily the case for incumbent banks have missed the boat yet, charges, fulfilling multiple requests from corporates. For a small company, knowing suggesting we may see a “levelling of the the same bank for KYC and AML data and that a payment has come in may be regulatory playing field” for the challenger even handling paper documents.” critically important.” banks, with established players benefiting from a trust dividend. “We will see Corporates are beginning to benefit It all boils down to smarter data, faster. consolidation amongst smaller players over from their banks use of SWIFT gpi to add Will digital deliver? time, but change will be gradual.” n

Treasurers are still spending huge SibosTV Sibospics amounts of time on managing account signatory changes.

Naresh Aggarwal, Association of Corporate Treasurers

36 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 37 SECURITIES Payments: Delivering a digital future

FX Day: Two drivers for change in the world of FX

Investor needs driving post-trade revolution

Post-trade service providers in the and virtual. There is also more urgency Integrated technology securities sector are being asked by to their needs, with passive investment asset managers and other investment vehicles, digitized wealth managers and data capabilities intermediaries to provide more and robo-advisers offering attractive transparency, more access and above all alternatives, many targeted at a new are needed in more data to help them meet the evolving generation of investors. Asset managers’ needs of end-investors. With revenues margins fell last year to their lowest level response to evolving no higher – and sometimes lower – than since 2008, according to a recent analysis1 a decade ago, judicious investment in by Deloitte’s Casey Quirk unit. appetites and technology and data capabilities is an integral element of the response. For Appetite for data preferences of end- many, this is part of a fundamental Custody clients have an increasing business model reappraisal, with appetite for data, says Tom Casteleyn, investors. partnerships and skillsets also global head of custody at BNY Mellon up for change. asset servicing. The order management systems (OMSs) used by the firm’s clients The principal priorities of the buy- are becoming increasingly complex, and side have not changed. They still need existing ways of exchanging data cannot to generate alpha, reduce process inefficiencies and deliver a smooth client 1 Margins shrink for public asset managers experience. But in a hyper-connected as fees compress, according to Casey Quirk world they are increasingly aware of the Analysis (press release: February 7, 2019) potential of data to bring new insights and – https://www2.deloitte.com/us/en/pages/ efficiencies to the investment process, and financial-services/articles/press-releases- to support streamlined access to a wider casey-quirk.html?icid=nav2_press-releases- range of assets in markets, both remote casey-quirk

38 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 39 Clients are pushing us ever harder We should on the use of APIs. be allowing

Margaret Harwood-Jones, Standard Chartered consumers to invest at a fractional level.

Phil Goffin, FNZ

Breaking it down for always handle the richness and diversity of choosing. As noted in a recent report2 for our own sake as well as for our clients, be able to assist clients in their wish to Single global ecosystem? data clients now require, nor the frequency published by SWIFT and Boston Consulting as prices have not gone up,” observes participate in Chinese assets, but this is This is not to say that distributed ledger millennials with which they want it. Group, asset managers and custodians are Casteleyn at BNY Mellon. far from straightforward. The rules around technology (DLT) has not got a role to working on numerous pilot schemes and new and existing investment channels play in the post-trade world; far from it. Greater use of DLT in the investment BNY Mellon has invested heavily in APIs to use cases to further leverage APIs. Automated solutions that deploy natural (from QFII to the more recent Stock and The digitisation of traditional assets, for management space could attract a new facilitate these requirements and is also language processing (NLP), for example, Bond Connect initiatives) are in flux, whilst example, has significant potential. While generation. Those who invest wealth rolling out real-time dashboards for client However, the institutional buy-side can be used to route a client enquiry to concerns around China’s beneficial owner progress has been slower than expected, regularly in the financial markets tend to use. It is making efforts to integrate its covers a multitude of different client the right place much more quickly and model persist. It’s a significant and ongoing many believe DLT can be a game-changer be middle-aged, partly due to prohibitive systems more closely with client OMSs as segments, and while some have responded efficiently than by employing people to exercise to keep up; the complexity of the in the post-trade world. By creating a costs of entry. Recent surveys3 of well. In April, it announced an agreement enthusiastically, others are more cautious. answer emails and phones. Previously task is not always apparent to clients. single, immutable register, it could remove millennial investment habits reflect the with BlackRock whereby BNY Mellon’s data “Some clients are massively keen and paper-heavy processes like preparation at a stroke the multiple layers currently importance of low fees. and accounting tools are integrated with pushing us ever harder on the use of APIs. and filing of tax forms could be handled by Then there’s crypto. Despite the recent involved in post-trade processes. Aladdin, BlackRock’s operating platform for Some say they are not ready. I can show machines – if the relevant tax authority is bounce in the value of leading crypto- DLT, however, could make investment investment managers. you names that are best in class and I can set up to receive information in this manner. currencies, most post-trade servicers are “DLT will improve the time and cost of relatively small sums financially show you others that are more hesitant. not rushing to provide solutions for crypto involved in post-trade due to the friction viable. Recording new investments or Other major players in the post-trade world You will see tier one names on both lists,” The application of technology to improve users and investors. One points out that the between disparate systems and databases portfolio changes via DLT is immediate speak of a growing need to facilitate more says Harwood-Jones. information flows cannot stop with overall market capitalisation of the top ten by moving to single, global ecosystem and direct, requiring little if any human granular and continuous communication custodians and asset servicers. Having crypto-currencies is only around US$300 where standards are common and across intervention, thus allowing a reduction of with clients. “We’re building a new client Streamlining workflows experienced the upheaval to their billion – half that of the most heavily valued which people can interact seamlessly,” fees that would reshape the economics of ecosystem through APIs. It’s all about how Pressure on asset servicers and custodians operations and business models from single stocks. explains Phil Goffin, head of innovation smaller investments. These incremental you access and transfer data for clients. to operate more efficiently and cheaply is TARGET2-Securities and the Central at FNZ, the Edinburgh-based wealth investments could be made via a We’re bringing in new services not only at the heart of a great many initiatives in Securities Depository Regulation (CSDR), Further, a highly fragmented and management platform. smartphone app, in line with Millennial based on our own data but also data from the post-trade world. As well as competitive European CSDs in particular recognise the uncertain regulatory situation across and Generation Z preferences for third parties. It’s very different from the forces, regulatory change has also need to shift investment priorities from jurisdictions contributes to something of a It is difficult to over-estimate the potential conducting commercial transactions. traditional model,” explains Margaret squeezed margins for asset managers – regulatory compliance to technology. chicken-and-egg situation in terms of the of this technology. At present a fund Harwood-Jones, global head of securities for example by requiring additional cost expansion of post-trade service provision. transaction might pass through various “None of these original products have services, transaction banking at Standard transparency – thus requiring securities A further challenge is the opening of new Although institutional funds are finding iterations between the fund platform, the been designed for a digital age. We Chartered. service providers to reduce costs to retain markets and new asset classes. For many, an increasing number of technically order originator, the fund administrator absolutely should be allowing consumers market share. “The pricing structure in China remains top of that list, not least sophisticated custody offerings available and the fund accountant. No single to invest at a fractional level via their One of the appeals of APIs is that they custody means we must be more efficient because major index providers are in the for crypto-assets, relatively few yet unimpeachable source of truth exists, smartphones as easy as buying a cup of facilitate self-service. Not only are clients process of increasing the representation of have an established track record. As resulting in risk, cost and delay. coffee,” says Phil Goffin at FNZ. receiving better quality and more plentiful 2 APIs in Securities Services (July 2019) – A-shares and Chinese government bonds long as regulatory uncertainty persists, data, they can better interrogate the https://www.swift.com/news-events/press- to their global and emerging markets custodians are expected to tread On a DLT platform, the history and 3 https://www.visualcapitalist.com/millennial- asset servicer about their positions and releases/swift-and-bcg-say-securities-industry- equity and bond indices respectively. cautiously around the space, many status of every trade would be visible to investing-habits/ performance at intervals of their own ripe-for-apis Post-trade service providers need to maintaining a watching brief. interested participants and there could be

40 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 41 FX DAY Securities: Investor needs driving post-trade revolution We must be more efficient for our Compliance: own sake as well as for our clients. Inflection point

Tom Casteleyn, BNY Mellon Two drivers

no dispute about errors. Not only lower In common with many areas of the financial costs, but far greater transparency would markets in the post-crisis world, asset for change Serving be introduced and, says Goffin, a greater servicers have to do more with less. It’s not rigour to the whole order management easy to square this circle, but technology process. The shift has already started. innovation offers a path to survival and the ethical The Australian Securities Exchange (ASX) success. n is replacing its equities clearing and settlement system with new technology in the world investor based on DLT for equities transactions. The target completion date is spring 2021. SWIFT also has a part to play in this shift, Both at a retail and institutional level, with an ISO 20022 messaging channel into investors are increasingly keen to invest the new system which will enable a smooth in a way that accords with their ethics migration for SWIFT users. of FX and values. Asset managers and their suppliers must respond to maintain market share. “While arguably the Complex interplay concept of impact investing has been around for a long time, the term was only between regulation, coined about ten years ago. We’ve only seen a real external shift in the visibility principles-based of and interest in this topic in the last 12- 18 months,” says Damian Payiatakis, head supervision, of impact investing at Barclays. innovation and Payiatakis and his team focus on differentiating investments according to technology is religious and ethical principles. The small matter of meeting financial goals can’t be The idea that ‘every investment reshaping the world’s forgotten, but the ethical angle demands largest financial a new approach from asset managers. makes an impact’ changes the

“The idea that ‘every investment makes market. an impact’ changes the whole investment whole process. process: how we engage clients, how we Damian Payiatakis, choose asset managers, or how we build Barclays portfolios and report. We expect our asset managers to think more holistically about impact for both alpha generation and societal outcomes – and be able to report on these so we can share them with our clients,” says Payiatakis.

42 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 43 Clients want a more transparent Pricing will and smoother process. become more

Brian McCappin, Citi transparent, delays lessened, risk mitigated and messaging volumes reduced.

Phil Bowkley, Barclays

The foreign exchange market is one of the large market-maker might have as many as an API and send the funds. This can save timely, efficient and robust confirmation A new standard most vital parts of the financial plumbing of 10,000 customers that continue to confirm the client days compared to traditional and settlement. The FX post-trade process Technology is driving innovation, but the global economy. FX business facilitates trades non-electronically. To try and raise execution and settlement”. isn’t a mess; but it is true to say that implementation of the FX Global Code global trade, cross-border capital flows, standards of behaviour and to improve settlement processes today are definitely at the behest of central banks will also foreign direct investment and is increasingly operational processes, central banks are When it comes to asset managers, they fragmented,” says Alan Clarke, vice change the FX world. Initiated by the Bank traded as an asset class in its own right. campaigning for the industry to sign up to are no longer content to leave execution president of ACI UK, the trade body that for International Settlements in 2015, The FX Global FX is the largest market in the world with the FX Global Code that was introduced in to their custodians. “This is a complicated represents traders and brokers. central banks and market participants about US$5 trillion of volume traded daily 2017. As such, there is a complex interplay business, involving several layers of – including buy-side, sell-side and Code is clear in around 180 currencies, incorporating of regulation, principles-based supervision, interaction, and increasingly clients want Deutsche Bank’s Leigh explains some of end-users from 16 jurisdictions – have retail customers, major banks, corporations, innovation and technology driving the a more transparent and smoother process the reasons. “Post-trade systems are quite developed a common set of guidance for central banks, non-bank liquidity providers, future shape of FX markets. more akin to the third-party execution fragmented because they have evolved the FX market. The overall objective is about the need matching platforms, fintechs, trading they do every day. This means greater from a period in which operations were to restore trust, and to give participants venues, asset managers and others. FX Setting the pace immediacy, transparency and automation,” largely manual. Participants have built their much greater confidence that the for timely, trading is an OTC market where trades are The FX front office has already significantly says Brian McCappin, global head of FX and own systems, adding on aggregation layers, market is functioning appropriately. The made on a bilateral basis via over 70 trading evolved to facilitate the shift away from EM rate sales at Citi in London. amendment layers and so on. All that has code contains 55 principles describing platforms and a multitude of proprietary a voice-driven market, and continues to created a complex post-trade landscape,” recognised best practices for ethics, efficient trading desks owned by the top banks and innovate. The focus today is on improving “If you’re a large asset manager, you can he says. In addition, local rules and market governance, execution, information newer players known as non-bank liquidity the client experience, partly due to the do large trades more easily than before. structures are also a barrier to post-trade sharing, confirmation and settlement, risk and robust providers (NBLPs). highly competitive nature of this business. Our clients see greater depth, greater efficiency. “In Asia, we have done as much management and compliance. It sets a The flows involved are the typical transaction transparency and greater consistency,” as we can to make payments efficient, new standard for trading practices, and Every day, banks allocate hundreds of banking flow between corporate and their says McCappin, going on to explain that but ultimately there are regulatory behaviours, in a market that urgently confirmation and billions of dollars in credit to clients – servicing banks, but also those between the automation has taken processing times requirements which we have to observe.” needed reform. including NBLPs. But whilst some market asset manager and their custodian. down from hours in some cases to a matter settlement. participants see an orderly two-way market, of seconds. “Margin pressure is coming Some expect greater use of APIs will help The code has been rapidly adopted on the others see a highly fragmented market David Leigh, global head of spot FX and together with technology to make a task FX transactions become simpler and faster. sell-side, but the number of statements Alan Clarke, beset by ‘flash events’ and periods of eFX at Deutsche Bank in London, gives significantly cheaper, quicker and also more “If we move to an increasingly API world, of commitment from the buy-side has ACI UK illiquidity. At the same time, new technology the following example of new technology accurate.” larger banks will be able to stream live been far fewer. This gradual adoption is is changing how FX trades are executed, and that can benefit the corporate client: “Our rates into buy-side systems, enabling the however being felt due to how seriously the promises to change post-trade work flows analytics look at the accounts payable Simpler and faster buy-side to consume rates and execute in buy-side is taking the code. Engagement drastically as well. This is probably just as and receivable in the client management The same cannot be said for post-trade FX. real time,” says Phil Bowkley, global head of goes beyond just issuing a statement of well given that many FX counterparties still system. Rather than the client working out As the FX market has evolved, additional the financial institutions group at Barclays commitment. The principles applicable to confirm trades by email, fax or telephone. As what payments and hedges they need to post-trade services and manual processes in London. “Pricing will become more the market participant need to be identified pointed out in a recent SWIFT paper – ‘The do, coming to the FX desk, then sending have been bolted onto aged systems. “The transparent, delays lessened, risk mitigated and implemented, with firms obliged to

Value of Standards in the FX Market’ – a a payment file, we can execute through FX Global Code is clear about the need for and messaging volumes reduced.” self-monitor adherence over time. n

44 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 45 COMPLIANCE FX Day: Two drivers for change in the world of FX

Technology: Enabling a collaborative model of finance Inflection point

The detection and mitigation of financial The rising cost crime has become one of the biggest challenges facing the banking industry. of financial crime Banks have responded to diverse risks and growing regulatory pressure by increasing compliance is not headcount in compliance departments as well as technology spend. But extra money sustainable, leading and resources are not enough in their own right. There also needs to be a carefully banks to explore crafted blueprint, informed by a top- down culture of compliance, that ensures new approaches and best practice is adhered to and risks can be managed throughout the entire technologies. organisation.

The number of high-profile fines and investigations launched over last year alone suggests that there is still a lot to be done. Financial crime has many moving parts, but from a compliance perspective, it typically encapsulates know your customer (KYC), anti-money laundering (AML) checks, sanctions and embargos. Historically, responsibility has often been devolved and fragmented, but banks are now seeking to converge their systems and approaches across these areas toward a holistic single assessment of risk.

In the last year, AML has attracted the most attention, but banks have been fined for failure to meet the full gamut of compliance requirements over the past ten years. Correspondent banking, wire transactions and sanctions violations are a frequent focus

46 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 47 There is The entire increased need organisation for real-time needs to be fraud prevention. responsible

Patricia Sullivan, Standard Chartered for combating financial crime.

Andrew Oates, Deloitte

of enforcement actions. The US regulators better integration of teams, systems has been significant investment in people management of data, and be able to pull account for the bulk of fines, while European and processes under one financial crime and resources. What is needed now is together information sources across all banks are also facing higher charges than banner. Arguments are also being made compliance 2.0, which is a fine-tuning financial crime activities,” says Oates. Counting the cost in the past due to the more stringent rules for a shift of priorities to detection and of the engine with industrialised, digital “Although many use big data lakes, embedded in the updated European Union disruption of criminal activity from a solutions, creating a seamless end-to-end there are more effective cloud-based Anti-Money Laundering Directive. historic focus on reporting to regulators, processing experience.” solutions that can be linked with network According to US consultancy and by US regulators was 95% in 2017, and with suspicious activity filings rarely analytics making the information easier to advisory firm Duff & Phelps’ Global 96% of the overall sum since 2013, the It is easy to understand why battling resulting in regulatory action. One of the most important components understand and visualise. As for machine Enforcement Review 20181, the US report said, noting “large US fines are financial crime is an uphill struggle. It is the ability to connect the data dots in learning, we are seeing an increase in the accounts for the vast majority of fines also frequently levied against non-US is not only the sheer scale but also the “There needs to be a long-term plan to a much more effective fashion. Many are application of such technology and I think imposed by financial services regulators. headquartered firms”. growing sophistication and ever evolving ensure a consistent approach to financial still grappling with poor-quality and diverse it will become more important as the use Overall, fine totals rose from US$20.5 nature of criminal activity and regulatory crime compliance and an operating model sources which hampers data aggregation cases become more clearly defined and the billion in 2015 to US$26.5 billion in 2017, A separate study of penalties for AML, KYC requirements. Moreover, it is hard for often that is fit for purpose,” says Andrew and leads to bad alerts or false positives. results become more effective.” with US$8 billion levied in the first half and sanction violations from 2008 to 2018, labour-intensive compliance processes to Oates, forensic partner at Deloitte. “One A report by McKinsey last year noted of 2018. The share of these fines imposed by compliance service provider Fenergo, keep up with instant fund transfers and of the problems is that the functions that many banks are still making tens of Financial services firms are at different found that US regulators accounted for mobile payments. are siloed into customer on-boarding, thousands of costly customers’ calls every points in the journey, but many are 1 https://www.duffandphelps.com/insights/ nearly 44% of all global AML/KYC fines, AML transaction monitoring, sanctions month to refresh KYC documents, updating also looking at collaborative industry publications/compliance-and-regulatory- but almost 91% of the total value levied The pace of change is unprecedented, compliance and fraud with support information that is incorrect or missing in solutions. As in other areas, these have consulting/global-enforcement-review-2018 over the period. according to Patricia Sullivan, global provided by IT and operations teams being their databases. proven particularly valuable in fostering co-head of financial crime compliance at fragmented. The business and the entire best practice and serving as a breeding Standard Chartered. “There has been an organisation need to be responsible for Harnessing technology ground for innovation. “Firms need to uptick in money laundering activity which combating financial crime. It is not just Technology of course will be an enabler take care of their individual infrastructure, can be linked to growth in cyber- or digitally- about the technology but also a cultural with advances in artificial intelligence, but I also think there is a role for shared enabled crime. Payments are also moving change in the way companies work.” machine learning and natural language infrastructure, consortia and utilities,” says at a much faster rate and there is increased processing holding the promise of the Marelle. “We have seen this with SWIFT’s need for real-time fraud prevention. New Stephanie Marelle, head of compliance future (see box). These are already being KYC Registry as well as the regional payment methods such as virtual assets for BNP Paribas Securities Services, also used in automating data collection and platform being discussed in the Nordic also require new controls to be established.” believes that the industry needs to move screening of customers, but in time they countries.” into “the industrial age.” She adds, “If you will be able to better identify complex Fit for purpose look at securities services several years patterns of potentially unlawful activity. The KYC Registry, a global utility Given this backdrop, industry participants ago, it was not scalable and had too many launched five years ago, has over 5,000 believe organisations should adopt a manual tasks and human interventions. “Organisations need to implement financial institutions in 220 countries as more agile way of thinking, including This is where compliance is today. There robust strategies for the collection and participating entities. It provides a global

48 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 49 There is a role for shared infrastructure, consortia and utilities. Stephanie Marelle, Explore the new BNP Paribas Spotlight programme Machine-led at Sibos in London compliance?

While there is a lot of discussion about standard for correspondent bank data and times to share information and intelligence the use of AI in fighting financial crime, documentation, validated independently across the industry as well as with law the main focus today typically revolves and housed securely. As for the Nordic enforcement agencies.” around machine learning and natural platform, six banks including Nordea language processing. Together, they Bank, Skandinaviska Enskilda Banken, Change of mindset have the ability to mechanise manual Danske Bank, DNB, Swedbank and Svenska There are also calls for a change in the tasks, enhance onboarding processes Handelsbanken are joining forces, aiming regulatory mindset, partly because the and improve outcomes from sanctions to use advanced data management prevailing approach of regulators leads to screening, fraud detection and AML technologies to enhance the collection banks being focused on meeting the rules systems. and management of bank customer rather than truly innovating. Tom Keatinge, information. director at the Centre for Financial Crime In KYC, for example, AI can automate the & Security Studies at the Royal United creation and updating of the client risk However, market participants would like to Services Institute, believes supervisors profile to ensure continued compliance see even more cooperation between banks need to take a more forward-looking throughout the client life cycle. The and beyond. The appeal of shared utility approach. technology also enables banks to scan platforms is being supported by maturity vast amounts of data to identify patterns of APIs and cloud-based service provision, “Some banks may need to remain in special and thus discern a possible money whilst more countries are developing measures much longer, but there are those laundering threat from a sudden but frameworks for information-sharing across that can be supervised differently than legitimate spike in overseas transactions. the public and private sectors. “Due to they were ten years ago,” he says. “Many Further, AI can learn from previous the increase in number and complexity of are running compliance programmes for human investigations to ensure accurate the sanctions regulations, banks have to compliance sake. The incentivisation is decision re-application and to create respond quickly and have tailored controls lacking for banks to run a parallel system new methods to suppress or remove and processes in place,” says Sullivan. that uses data and technology more troublesome false-positives. A recent “They also need the expertise to provide effectively to prove there is a better and report by McKinsey notes that machine- guidance on how we can avoid conflicts of more intelligent way to produce higher learning algorithms can help reduce the laws, as other countries issue sanctions quality information that would support number of false reports by 20% to 30% outside the US. To fight financial crime or trigger investigations more effectively. while the manual work required can be and some of the bad acts that may lead Encouraging innovation would in turn lead cut by as much as 50%. to sanctions, it can be more effective at to more meaningful change.” n

50 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 51 TECHNOLOGY Compliance: Inflection point

Innotribe: Understanding trust The lifeblood of wholesale banking and payments is Enabling a data.

Tom Durkin, collaborative Bank of America Merrill Lynch

Cloud and APIs are central to banks’ efforts model of to deliver the data-driven, frictionless services demanded by wholesale clients.

finance Wholesale finance is seeing a large- they may look at as disruptive, but we scale transformation, as corporate and embrace. For example, API integration institutional clients step up their demand helps to leverage data; embrace it, for 24-hour access to services ranging harness it, and use it to become more from trade finance to cash management to predictive versus reactive.” foreign exchange to securities services. Building connectivity is key for the For banks, delivering this level of support strategies of many wholesale banks, requires a technology framework that can not only in terms of their client-facing capture and store the data clients need activities, but also with respect to and deliver it in a way they can easily collaborations with other financial services process. To allow customers to make providers and technology partners. decisions with ever greater speed and efficiency, banks are increasingly reliant “We see huge opportunities for corporate on application programming interfaces clients to use APIs to connect with the (APIs) which facilitate the exposure of banking landscape and also in how banks data and services to various internal and integrate with external developers to external systems. facilitate connections,” says Michael Gorriz, group chief information officer, “The lifeblood of wholesale banking Standard Chartered. The bank’s securities and payments is data, it runs through services division offers customers access everything,” says Tom Durkin, global head to their holdings information via APIs, of digital channels at Bank of America while 50 corporate clients are accessing Merrill Lynch. “Clients who are looking to real-time FX, balances and payment extend their supply chains globally want initiation through APIs, allowing for to harness more power from the data faster decision-making. “The pipeline we provide. We are moving to a point of customers interested in using APIs where clients use new technologies which is growing fast. At the same time, we

52 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 53 The offerings APIs are the key to enabling digital of major cloud conversations between systems.

Paud O’Keeffe, vendors are well BNP Paribas developed and provide robust controls.

Michael Gorriz, Standard Chartered

have seen the demand for cloud services payments sector. A study by SWIFT and “About five years ago, ISO standardisation growing in tandem with the adoption of Boston Consulting Group published in in XML for payments and SEPA led to APIs,” he adds. July 2019 found that awareness of APIs Moving on from on-premise questions about supporting industry amongst asset managers grew from standards; wouldn’t standards potentially Gateways to growth approximately 46% in Q1 2018 to 72% in help a client leave Bank of America and The development of APIs in retail finance has Q3 2018. Legacy systems have historically been deployed on-premise, making the adoption of move to a competitor bank?” explains been driven in markets across Europe and cloud a change of model as well as of the systems themselves. Determining where and Durkin. “There has to be better reasons for a Asia by a direct supervisory push towards “There are more pilot schemes and use when to apply each model must be based on the advantages and practicalities. customer staying than it’s too hard to leave. open banking, with regulators mandating cases than before, particularly between Instead, you focus on differentiation through adoption of standardised APIs in order to asset managers / asset owners and their Standard Chartered’s Gorriz says, “We adopt a flexible strategy that combines the best of data, the value add, the client experience. facilitate competition between incumbent custodian banks,” the study noted. “It is legacy, on-premise tech with private and public cloud services. This gives us optionality in There is value to industry standardisation firms and challengers. While industry experts in this corridor that we see the lowest terms of speed, scalability and cost efficiency.” and we have been supporting that in terms say API adoption would help compliance with levels of post-trade straight-through of working with banks in our peer group.” regulations which require the transfer and processing and automation today, This optionality is made more necessary by the global nature of the bank’s business, reporting of data, such as Europe’s Central and as post-trade adoption is driven which makes the ability to comply with local regulatory requirements for hosting The industry-level conversation around Securities Depository Regulation, there by commercial rather than regulatory personal data an important consideration. Combining API and cloud approaches gives greater API standardisation to drive down has been no equivalent regulatory diktat to pressures, it is perhaps not surprising banks real flexibility over which legacy platforms they maintain or replace. cost and complexity involves SWIFT and is open banking for securities services or cash that API solutions have gained the most ongoing. management businesses. ground here.” BNP Paribas’ O’Keeffe says, “Every organisation still has some legacy systems. If you build APIs onto those systems you could look at getting data into a centralised source, “Over time, and as more banks start “There is a good opportunity here for APIs “APIs are really the key to enabling digital or potentially there are new innovative approaches for legacy systems that are already to invest in these technologies, we will to facilitate the system-to-system, straight- conversations between systems,” O’Keeffe message-enabled to deliver messages via an API in the future.” develop standards together,” says Umar through processing that we are all looking says. “When you ask a question, you get Farooq, head of digital treasury services for,” says Paud O’Keeffe, global head of an answer, you can query that again and and blockchain at JP Morgan. “We have client digital experience at BNP Paribas get more information. It’s not the one-way had an incredibly useful dialogue with Securities Services. “There is potential traffic of sending a file at a certain time, peers across the globe about developing to increase efficiency, improve customer it’s the kind of interaction our customers API standards, for example. We’d expect experience and speed up processing. are looking for.” that kind of dialogue to continue.” A lot of firms, ourselves included, have invested heavily in the core building blocks, This enabling capacity offers strong Cloud evolution including data governance, data quality, commercial imperatives to address Rapid and responsive deployment of data lineage, and security.” API adoption, but moves to encourage banking services is also contingent upon greater interaction and interoperability the further development of flexible cloud- Further evidence suggests the securities can encounter some familiar counter- based services which meet client needs on markets are ready to catch up with the arguments. an on-demand basis.

54 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 55 Sibos Big Issue TUESDAY 24 Debates 2019 SEPTEMBER We have had an incredibly 11:00 useful dialogue with peers about The future of developing API standards. Banking Umar Farooq, JP Morgan

“Cloud technology enables a significantly well developed and provide robust controls, higher level of agility in developing and comparable to most corporate data centres. Cyber risk with deploying new applications,” says Farooq. Speed of adoption will be determined by “The primary impact is the ability to business model and operational changes, react to client needs a lot quicker, and as well as regulatory requirements,” says TUESDAY 24 WEDNESDAY 25 distributed have a shorter go-to-market cycle for Standard Chartered’s Gorriz. new products. APIs are having an equally SEPTEMBER SEPTEMBER transformative effect on how clients utilise Banks that are deploying API and cloud ledger products and services; they allow them to technology effectively will be able to 14:00 11:00 connect with their transaction banking and create real advantage for their clients, securities services providers using a much Durkin argues, reinforcing the relationship For banks, the opportunities for efficiency broader set of tools – like ERP systems, between wholesale financial service offered by technology innovation in a treasury management systems (TMSs) provider and customer. Cloud, AI and Have new hyper-connected world are inevitably and in-house platforms – rather than being offset by concerns about cybersecurity. limited to a bank’s web portal or dedicated “The opportunity for corporates is to privacy: Building business models New models, such as distributed ledger file exchange systems.” improve their working capital, their technology, can create lightweight shared integration with their banking partners, the blocks of a universal created a perfect transaction layers across multiple parties. The provision of massive cloud architecture connectivity between the corporate, their These can remove the need for post-trade by firms including Amazon, Google and treasury management system, and the data collaborative cybersecurity reconciliation between firms and allow Microsoft has allowed services to become their banks provide,” he says. “It can move transactions to be automated, conditional standardised, tried and tested. Cloud- them from looking back at past activity, to platform storm? upon specific rules. based data services can be offered by both looking forward to where they are going

dedicated providers – allowing users a and how to get there more efficiently.”n In its 2017 paper, ‘Banking on Blockchain: repository for data and service provision A Value Analysis for Investment Banks’, – and software firms, which are delivering consultancy Accenture suggested firms their technology via cloud-based ‘as a could find savings of over 30% across service’ models to increase efficiency and WEDNESDAY 25 THURSDAY 26 middle- and back-office functions while adaptability of deployment. cutting compliance and operations costs SEPTEMBER SEPTEMBER in half. But, among the potential concerns, Pay-as-you go cloud service providers offer questions remain about security aspects firms cost-effective scalability by making 14:00 11:00 of blockchain-based initiatives, such as their infrastructure more elastic, while the control of access to end-points. software-as-a-service promises flexibility as well as minimising the need for a local “There are always risks associated with footprint, installations and maintenance Navigating an era Banking new technologies,” says JP Morgan’s resources. “You won’t find an ERP or Farooq. “Crucially, any new technology TMS vendor talking about their new on- of renewed great perspectives – needs to be fully evaluated from a premise application,” says Durkin. “When a cybersecurity and controls perspective. corporate is choosing new capabilities, they power competition – understanding the To this end, our innovation and emerging are presented with cloud-based models.” technology teams work very closely with new challenges for next generation of our cybersecurity and controls partners Banks of all sizes are weighing up to ensure that we understand and their existing capabilities. “For cloud countries, markets customers mitigate any risks.” infrastructure and services, the technical offerings from the major cloud vendors are and investors

56 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 57 INNOTRIBE Technology: Enabling a collaborative model of finance

SWIFT Institute: We need The present and future shape of banking better digital tools to establish trust.

Kaliya Young Understanding a.k.a. Identity Woman trust

You can’t get closer to the future of finance Sharing the map The migration of than the Innotribe stage at Sibos 2019. The Don’t just pick up on a new tech and week begins with a discussion of identity think you’ve moved forward. We’re on an trust from humans to – tomorrow’s crucial enabler for banking advancement journey, to borrow Lloyd’s services – and we’ll also talk about trust phrase, on which we’re sharing the map systems has begun. in the digital age. Our focus on the future with our customers – and increasingly, will encompass discussions on the future they’re the ones who know which way But will customers of money, currency, humanity (and trans- they want to go. “As we move towards humanity), technology, security, privacy – more digital solutions, clearly anonymity, be both safe and and on the potential transformation facing privacy, data ownership are the big topics banking itself. right now,” Lloyd continues. They’re our satisfied? customers’ issues. So much of modern The future is full of opportunity for banks, commerce is driven by data, but so much because the future rewards flexibility, of that data belongs to customers. And creativity and, crucially, the capacity increasingly, customers know that – and to maintain established values while don’t necessarily like it. embracing change. Banks have displayed all of these qualities over the centuries, but That’s our first opportunity, but it’s one that isn’t an argument for complacency. that we can only grasp, paradoxically, Another of the week’s take-aways will be if we find ways to innovate around our simply this: applied innovation affects traditional role. “Banks have been the everything. “I’d like to avoid the notion that arbiters of trust for a long time, but with we are on an advancement journey wherein the advent of the internet, as well as the more technology solves problems in growing compliance burden of AML/ KYC relation to money and finance,” says James checks, we need better digital tools to Lloyd, partner and fintech and payments establish trust,” says speaker Kaliya Young, leader for the Asia-Pacific region at EY, a.k.a. Identity Woman, co-founder of the who will moderate Wednesday’s ‘Future of Internet Identity Workshop and co-author Money’ session. of ‘A Comprehensive Guide to Self-

58 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 59 Why is consumer China is authentication setting the going backwards standard for while e-commerce is innovation going forwards? globally.

Eric Sachs, Pascal Coppens, Google nexxworks

Sovereign Identity’. “People assume that with our customers in the future. “I’ll talk By embracing the new? Yes, but you can’t the transformation that China is going trust is about facts. It’s not, at all,” Young about the triangle of privacy, security and expect a smooth ride. Glen Fernandes, through, and I’ll also talk about why,” says Join the conversation continues. usability. Today, it seems as though you group strategy, Euroclear, says: “Regulators Pascal Coppens, innovator, nexxworks, can only have one of those, two at best,” are looking at this. How can we enable and author of ‘China’s New Normal’. We rely on facts; we mine data. But we says Sachs. How do we achieve three? innovation by providing the right “Consumers want more. It’s the economy; You don’t just attend Innotribe; you live with it; you take it home. Every day at Innotribe, neither secure nor enhance our customer We can respect our customers’ privacy sandboxes and tools, the right guidance, the people want a better quality of life, there’s a Curated Networking session in the Discover Zone, to give you the opportunity relationships solely by those means. – using new technologies to establish and by reviewing existing regulations, and they want it now,” he says. As we’ll to meet the day’s speakers, network with other delegates, and form the relationships, What is our customers’ perception of us, the ‘old’ virtue that is trust – and we can but at the same time, how do we ensure hear, China is a market where innovation is perhaps even forge the strategic partnerships that will take you forward into the if we reveal knowledge that hasn’t been maintain security. But usability – meaning that we’re not causing disruption, or accepted and encouraged. future. Curated Networking builds on the principle that some of the most rewarding disclosed to us, but that we’ve worked out accessibility, flexibility, choice and control creating additional risks, in the process?” conversations at Innotribe happen after a session, later in the day – after a time for from analysing their personal data? If we – is the necessary basis for an enduring Innovation necessarily takes us away from Contrarian arguments reflection, during which questions can be formulated. Attend the day’s sessions – then detect spending patterns consistent with relationship. the familiar. Discussing his own approach So much of the global future will be driven come back later with your questions. a life-changing event, for example, but we to innovation, Sachs says: “For every nine by the consumer, the customer, the end send in our relevant product offering before “Over the past twenty years, there have mistakes, there’s one success, and I think user. At the core Future of Money session Curated networking brings together speakers, subject experts, delegates, thought the happy news has been shared, does that been a lot of improvements in e-commerce that’s where most of the industry’s success on Wednesday morning, we’ll find out leaders, innovators and representatives of the fintech community in a relaxed make us a welcome and trusted partner in from the end-user perspective. But if you has come from. You have to find ways to be what’s happening to the basic ingredient. atmosphere that is itself conducive to the generation of ideas. Practical innovation does, the couple’s intimate relationship? Or not, look at what it takes for consumers to log able to experiment, and perhaps fail, or you Later in the day – the future of money is too after all, depend on the open exchange of ideas and insights. Come and network with do you think? Making a serious point lightly, in, that’s getting worse. Why is consumer can’t move forward.” big a topic to be contained in just a single Innotribe. Join the conversation. Make it your own. Young adds: “I’m going to explain how the authentication going backwards while session – there’ll be a session on AI and new technologies work, so that nobody has e-commerce is going forwards?” says A balance must be struck. We have to its governance, and how AI impacts trust. to take it all on trust.” Sachs. Trust is the underlying theme here, protect all that’s valuable about banks and Later, just when you thought it was safe to but the question is immediate and practical: banking, but we also have to open up to assume you’d heard everything, there’ll be Two out of three whether or not for e-commerce, how experimentation and change. On Tuesday a “truly contrarian, fast-paced, wild-west- What of the future opportunities that do we authenticate the customer of the at Innotribe, we’ll also hear a detailed style debate salon session to address the await bankers who have secured – and future, without trying their patience? And account of how one market is changing, nuances of not just identity, but humanity, optimised – their relationships with their once we’ve achieved that, in the changing, and how one possible future is manifesting the future of money, privacy and security”. customers? We’ll hear from Eric Sachs, distracting commercial world of that future, itself, today, in Asia. “China is setting the Don’t miss ‘Contrarian arguments: product management director, fulfilment, how do we innovate the services to hold standard for innovation globally. I will payments are just a killer app for identity’, Google, on how most effectively to connect their attention? talk about the speed and the scale of Innotribe’s first scheduled argument.

60 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 61 SWIFT INSTITUTE Innotribe: Understanding trust Anonymity, Standards forum: The great payments privacy, data The present and future evolution ownership shape of banking are the big This year’s SWIFT Institute programme topics right shares diverse now. insights from academia, focusing James Lloyd, EY on transformation, technology and talent.

For thought leadership on the critical issues facing us at Sibos 2019, start with some rock’n’roll at 9am on Monday morning. “Our first session – ‘From rock star to rock band: deliver their research, their insights and business models; does it present a viable But what of the future of money? What collaborating with competitors’ – will really their independent views on the present and alternative to bank-based systems? impact will future changes have on set the scene for the week,” says Peter future shape of cost-effective, competitive, Discover for yourself physical cash, virtual cash, fiat currencies Ware, director of the SWIFT Institute. collaborative, customer-friendly, secure On Thursday, Lunch & Learn will address and other units and tokens of value? and profitable global banking. There’s even gender diversity. New SWIFT Institute Are we heading for pure digitisation? The session will be led by Keith Bear, an opportunity to meet tomorrow’s leaders research will give us insights into the If you want to find the future, head for Innotribe. But be sure to take in the Discover Not necessarily. Lloyd says: “What are a fellow at the Cambridge Centre for today; don’t miss the ‘Student Challenge’ progress that the finance industry has made Zone on the way. Don’t miss the Discover Stage, where there’ll be a structured the scenarios in which you would wish Alternative Finance at the Judge Business and ‘The Ethics & Trust in Finance Prize on the issue. The session will compare and programme of talks by fintech innovators and thought leaders, further developing to retain anonymous payment methods? School, University of Cambridge, and it Nominees’ sessions on Talent Thursday. contrast London and Frankfurt, two centres themes discussed at Innotribe, and make time to visit the Discover Pavilions, where Do we see a world in which every will address the range of fintech-driven with different approaches – and outcomes. you’ll find accelerators and industry trade associations showcasing a number of fintech transaction is not only digitised, but also changes currently impacting the finance You’re also invited to lunch. Every day’s brands. The Discover Zone is all about the demonstration and practical implementation mined for information?” But Lloyd is industry. To survive in today’s complex Lunch & Learn session will take an in-depth The SWIFT Institute sessions at Sibos 2019 of future-proofed innovation. keen to balance potential upsides with global financial world, we need to combine look at a topical issue, with intellectual and will all be presented by one or two speakers, the potential downsides. For example, collaboration with competition; we need to nutritional sustenance provided. On Monday, a diverse group of thought leaders all There’ll be the banks’ own innovation labs – don’t miss those demonstrations – and in the moves away from cash to e-money – master the art of smart partnering. And we ‘Financial market infrastructures – the bigger speaking in a lecture format – with one Discover Park, there’s space for 100 fintech firms offering expertise in fields ranging from wherein people and businesses gain need to do much more besides. picture’ heads the menu, and on Tuesday, notable exception. Monday afternoon’s cybersecurity, machine learning, AI, big-data management and analysis, to blockchain, an electronically-verifiable transaction the SWIFT Institute is serving a “realistic and session – ‘Data science and the future cash management, supply-chain management and regtech. Innovators all, these are history – in developing markets has huge To be a banker today is to face a pragmatic” analysis of blockchain. We’ve of banking’ – will be a panel discussion. the people building the future. The Discover Zone at Sibos is the meeting place for potential to bring people on to the formal multiplicity of challenges: from geopolitics, heard a lot about blockchain as a solution; How can banks most effectively use data stakeholders from across the financial services community; it’s where decision-makers go financial grid. through regulation, to diversity, artificial what problems are we trying to solve that science? The session will be moderated to find innovative partners who can help them develop customer solutions for a digital- intelligence, blockchain, real-time platforms need blockchain? Come and find out. by Mark Kennedy, associate professor and first, data-driven world. Or a world in which privacy itself is an and perhaps also the ‘noise’ generated by director of Imperial Business Analytics at asset? Young says: “I see a world in which advocates of solutions that are exciting, Wednesday’s Lunch & Learn session takes Imperial College Business School, and the banks could go into the data-banking compelling, yet sometimes cost-heavy and us into the realm of ‘bad money’. Kristin van panel will include one member who isn’t business. The money in my bank account not yet fully proven. Zwieten, Clifford Chance associate professor there. Chris Philips, senior vice president is mine, not the bank’s. Part of the vision of law and finance at the University of for technology corporate systems at Royal is that data about me is stored in cloud As we’ve come to expect, the SWIFT Oxford, will present new SWIFT Institute- Bank of Canada, will attend as a hologram. services that I control.” Who could we trust Institute is bringing to Sibos 2019 many sponsored research mapping the shadow

to store our data as well as our money? n of the keenest minds from academia to payments system: how big is it; what are its That’s the future, perhaps. See you there. n

62 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 63 STANDARDS FORUM SWIFT Institute: The present and future shape of banking

Women of the World: I see an Put gender on your Sibos agenda opportunity to become faster and more precise The great in flagging risks.

Jean-Francois Mazure, payments Societe Generale

The global correspondent banking network head of cash clearing services at Societe evolution Adoption of ISO Generale. “It is a global assessment. We and the cross-border payments industry at large is facing a huge change in how it have to set up a central team in order to 20022 in the operates, as the deadline for the migration ensure that no activity is missed.” of payments messages to the new global payments sector will standard language – ISO 20022 – moves Gaining commitment from senior into focus. management is important to project lay the foundation for success at an early stage. “It is vital to By November 2025, more than 10,800 not only inform but to involve senior a new generation of banks in 200 countries will have management to secure the necessary changed the language and the rails of prioritisation and commitment to the data-rich services. the correspondent banking business. project in terms of resources and budget,” For many, that journey is already says Paula Roels, head of SWIFT and under way. High-value payment market market infrastructures at the Global infrastructures in the reserve currencies Transaction Banking division of Deutsche have already announced their plans to Bank. “Securing resources, and in move to ISO 20022, most by 2021/2022. particular ISO 20022 experts, will be one of Bank-to-bank payments are to go through the big challenges.” the same transition, starting as early as November 2021. To achieve this, planning Getting the resources and a solid plan in needs to commence in institutions as soon place as soon as possible is important as possible. because the deadlines for implementing the new standard are coming up quickly. Strategic planning While the final deadline for migration To prepare for ISO 20022, each bank of 2025 may seem a long way off, the needs a clear strategy that takes into November 2021 deadline reflects far consideration the wider aspects of more than a simple ‘soft launch’ of the such a project, including the benefits initiative. and consequences, as well as the risks associated with the move and their “In Europe, we are actively supporting approach to making the required changes. the adoption the new standard,” explains Dimitri Pattyn, head of market “The first thing that banks have to do is infrastructure development at the to describe all the activities, tools and European Central Bank. “We have processes that will be affected by this embedded it in the renewal of our real- migration,” says Jean-Francois Mazure, time gross settlement system (TARGET2/

64 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 65 We expect It is a really corporates to good time be the biggest to assess beneficiaries. your current

Paula Roels, Deutsche Bank state across technology, processes and people.

Chris Jameson, Bank of America Merrill Lynch

T2S). Any bank that is active in Europe will “If you are an intermediary service provider more costly it might be,” says the ECB’s around the world,” she explains. “We architecture while continuing to ensure sanctions alerts because of the richer have to do the necessary adaptations to its and are using a tactical solution, you will no Pattyn. “It is difficult to put in place bits are using the unique opportunity of the resiliency across technology platforms. It information the new format provides. If legacy systems in order to be able to use doubt face an issue,” explains Roels. “You and pieces of a migration across a timeline migration to streamline processes and is a great opportunity for banks to drive this happens, we will be better off for it. the new system from 2021.” still must get the initial information to your of four to five years. We advise against this market practices to be able to deliver to change.” In the longer-term, I see an opportunity customer. If you only have a tactical solution approach. Its looks easier, but in the end it our corporate customers a payment format to become faster and more precise in The technological aspect to ISO in place, you will only be able to deliver a is more costly.” that works no matter who they are dealing Another benefit is the impact ISO 20022 flagging risks.” 20022 migration is one of the obvious limited level of data in the legacy format. In with globally.” will have on straight-through processing considerations but, as usual, there is a this case, you would risk not providing all Importance of community (STP). “ISO 20022 comes with a granular The richer nature of ISO 20022 messages people aspect to understand as well. data to your customer. This could be crucial But no bank should bear the weight of Corporate clients also need to be brought model to transmit all the data that you also offers the potential for banks to for compliance, sanctions screening, or even migration alone. According to Roels, the in on the migration project to ensure require, in a very structured manner,” develop new services for customers. “One practical point is that SWIFT’s in terms of preventing fraud.” challenges posed by the adoption of ISO they achieve the benefits predicted by says Roels. “This is important because “Talking to corporate treasurers, the MT messages are people-readable,” 20022 – in terms of budget, IT resources Roels. For a bank to deliver structured today, while we have a high STP rate – at biggest pain point for them is still acknowledges Chris Jameson, head of FI Societe Generale’s Mazure also notes the and all the business models in scope – counterparty information for the creditor, Deutsche Bank it is around 98% when reconciliation,” says Roels, noting sales for EMEA, Global Transaction Services competitive implications of any migration require a unified approach by the financial i.e. the counterparty of its customer, the processing a payment – there is still a limitations in the formatting and level of at Bank of America Merrill Lynch. “The strategy. “If you don’t act now and you let community. bank needs that information from its potential hit rate related to transaction detail provided by banks in statements. XML messages, in MX format, won’t be your competitors get ahead of you on this client. Therefore, banks need to explain due-diligence that requires intervention. “Once the migration is complete, we as people-readable or naturally familiar migration project, you put in danger your “This requires working with market to corporates the level of information This could exceed 10%, or even 15% in expect corporates to be the biggest as the legacy MT messages. As a result, market share and the influence you hold with infrastructures, with the banking industry they need to execute payments after the certain markets.” beneficiaries. This is creating a single the industry will need to spend significant your clients,” he observes. “New products globally and with SWIFT to define the migration. standard for all types of payments, time training people to understand how to and services based on ISO 20022 can be payment standards, and it also requires all While a bank may still be able to process and at the same time it will deliver respond in the future to client queries with developed by banks and vendors for clients. the other functions in an institution to work Benefits of ISO 20022 the payment, the data it is delivering via the information for reconciliation and the XML format.” The migration period offers those banks that together and enable those that represent While the scope of the change is huge in the current standard is often not sufficient liquidity management that the corporate make the first move the chance to give their the industry to actually consider their terms of time and resources it will demand to allow banks to carry out due diligence treasurer requires in a fully structured and Considerations for 2021-2025 clients an enhanced experience.” aspects as well,” she says. of all banks, it is important to keep in mind of a payment in a fully automated manner. automated way.” While the initial ISO 20022 service will the benefits that the change in payment ISO20022 has the potential to resolve this launch in 2021, there is a four-year window Additionally, while taking a step-by-step SWIFT’s role in bringing together the message format will bring. market-wide problem. “The possibilities for the client are where conversion services – translating approach may seem a sensible way to different stakeholders is particularly significant here,” agrees Jameson. ISO 20022 messages to MT – will be spread the cost over a number of years, significant says Roels, citing the formation “This moment is a great catalyst for “In terms of compliance, ISO 20022 “The richness of data, such as tax and available. It is thought that smaller banks this could actually increase the overall cost of the High Value Payments Plus (HVPS+) infrastructure investment within banks,” should make it simpler to find the regulatory information, is the type of data in particular may look for a tactical for institutions. and the Cross Border Payments and says Jameson. “It is a really good time information we are looking for concerning that you just can’t get through today’s solution for a period of time. However, Reporting (CBPR+) working groups. to assess your current state across the parties involved in the payment,” MT messaging format. This opportunity taking this approach can potentially put “With migration to ISO 20022, we know “These consist of large banks, country technology, processes and people, and to agrees Mazure. “It could be that after is something to support and be excited banks at a disadvantage. that the more you spread the effort, the representatives and market infrastructures consider how to simplify and improve the migrating we initially see a rise in about.” n

66 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 67 WOMEN OF THE WORLD Standards forum: The great payments evolution

Spotlight stage: The most necessary change is that Lights, camera, action of mindset.

Martina Gruber, Clearstream

careers of these five pioneering women academic studies. “Companies can derive SWIFT is also active at a local level. As a Put gender will provide the physical backdrop and significant value from ensuring that a range Belgium-headquartered organisation, it has motivational context for the evening, their of skills and profiles are represented at signed up to the Gender Balance in Finance stories illustrating the barriers women have senior levels. We all have a natural tendency charter drafted by Febelfin, the trade faced in forging ground-breaking careers to hire people similar to ourselves, but a association of the Belgian financial services across diverse fields. range of perspectives is more effective in sector. In Malaysia, home to its Kuala Lumpur positioning the firm competitively over the Corporate Services Centre, SWIFT supports on your Sibos In addition, WOW will offer opportunities to longer term,” she observes. a government scheme to help women back chat with today’s female pioneers within the into the industry after a career break. finance sector as well as those hoping to Whilst the finance sector has made progress follow in their footsteps. SWIFT has reached in recent years, Gruber suggests the Earlier this year, SWIFT signed the Women across its community to invite women industry could do much better. “At Deutsche in Finance Charter, pledging the cooperative recognised as role models in the industry, Boerse, 29% of mid-level staff are women, to support the progression of women into agenda many having already successfully navigated but we strive to do even better and are senior roles, measure and report on progress the tough competitive landscape of the working consciously to improve,” she adds. achieved, build a talent pipeline and publish City. They will be joined by the first cohort “We can bring diversity KPIs and targets a comprehensive diversity strategy. of scholars from the STAR (Sibos Talent into the appraisals of senior managers, but All are welcome to our second annual networking event aimed at Accelerator Route) programme, launched I think the most necessary change is that of Overcoming barriers at Sibos 2019 as part of SWIFT’s strategy to mindset. That means buying into the idea of Rosemary Stone, global head of HR at SWIFT, recognising and supporting female leadership in the finance sector. support the female talent pipeline in finance. drawing in and promoting talent from the says the cooperative continues to challenge other 50% of the population.” itself to improve gender diversity. “We’ve got Following the success of the inaugural event The initiative is designed to encourage and better at entry and mid-level positions, but at Sibos 2018 in Sydney, we hope you will all facilitate the next generation of female Alongside these policy changes, Gruber adds we need to ensure that there is also a clear join us on Wednesday for this year’s Women leaders in the finance industry by providing that all firms could do more to recognise the path to talent development,” she says. of the World (WOW) networking evening. women in junior and middle management practical realities of modern life, and make positions with opportunities to expand their better use of the opportunities afforded by Stone emphasises the importance of putting Essentially an opportunity to celebrate the networks and expertise. For the launch, today’s technologies. in place the right policies and processes achievements of women in finance and to 30 banks have been asked to nominate a in order to achieve change. “Improvement encourage the next generation of female high potential, ambitious female employee “An important way in which companies need on gender diversity is a matter of using leaders in the industry, this year’s event to participate, including a free full week to change is to use technology to grant multiple levers rather than a single silver brings together a number of elements pass to Sibos and a dedicated programme, parents the flexibility they need around bullet,” she explains. “It’s important to use designed to inspire and motivate. As in tailored to the interests of the individual childcare. We all have complicated domestic data and analytics to make sure we have Sydney, there will still be plenty of space participants. lives at times and now we have the an accurate picture of the present, drawing and opportunity to broaden and reinforce technology to allow all staff the flexibility information from talent review processes, your network and share experiences in a Range of perspectives to leave work at 5pm on some days or work exit interviews, and key performance relaxed atmosphere. Martina Gruber, member of the executive from home on others,” she says. indicators etc. Human resources teams can board of Clearstream Banking and head then work together with business lines to The event will kick-off with a short welcome of relationship management for Northern Achieving balance ensure our diversity and inclusion policies speech – reflecting on her success in the Europe, CEE and CIS, says events such as In recent years, SWIFT has initiated or offer opportunity for all.” traditionally male-dominated world of WOW provide an important opportunity supported a number of programmes comedy – from Sandi Toksvig, equality to build informal networks and to share focused on increasing gender diversity. But honest, personal conversations also activist, broadcaster, writer and presenter experiences. “Women who are in the earlier In 2017, SWIFT launched Women in Cyber have a place alongside the hard data. “By of The Great British Bake-Off, one of the stages of their careers can learn a lot from to address the underrepresentation of talking to women in leadership roles, you highest rated shows on UK television. As hearing about how more senior women women in information security teams in the can get a better understanding of how chair of the high-brow BBC quiz QI, it’s grew into their roles,” she says. finance sector, enabling six women from they manage their commitments and a very possible that Sandi already knows non-technical backgrounds to take a three- greater appreciation that multiple roles everything about Nina Simone, Agatha Gruber sees the need for gender balance year training programme that mixes work are compatible. Openness is an important Christie, Rita Levi Montalcini, Ada Lovelace in terms of productivity and performance, experience with one-on-one coaching and part of understanding how barriers can be

and Wu YiFang. But for the rest of us, the noting the evidence now abundant in technical training. overcome,” says Stone. n

68 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 69 SPOTLIGHT STAGE Women of the World: Put gender on your Sibos agenda

SWIFT at Sibos: Around the world in real time Lights, camera, action

Brand new for Sibos 2019, the Spotlight will also look further into the future and awaited rematch of ‘hacker versus bank’, stage is a platform with a difference. It’s contemplate the potential move from Open a fun and informative demo showing where you’ll hear quick-fire talks and Banking to open everything. the need for comprehensive security The Spotlight stage will offer an interactive presentations from some of the world’s programmes that go beyond ‘checking the leading financial industry experts – Speakers will include Imran boxes’. and fluid platform for learning, networking and delivering what you need to know about Gulamhuseinwala, implementation trustee the very latest industry trends. at the UK Open Banking Implementation Speakers will include Andrew Gray, debating the hottest topics in the industry. Entity, and Jason Bates, co-founder and managing director and group chief risk Each day of the conference, the agenda deputy CEO of 11FS. officer at the DTCC, and Steve Silberstein, will focus the debate on a distinct industry CEO at FS-ISAC. theme, from open banking to customer Customer experience experience to cybersecurity to banking for Segueing from a focus on technology Banking for a better world a better world. The speaker line-up has innovation, Tuesday looks at the enduring While most banks have programmes been expressly curated to ensure each importance of the human element in in place to ensure they have a positive issue is covered from a wide range of banking. Aligned with the Sibos conference impact on their local communities, some angles and viewpoints – giving you a fully- sub-theme ‘exploring the human element’, are increasingly turning their attention to rounded picture of the opportunities and the day will centre on customer experience, some of the world’s most urgent problems, challenges for the industry. See below for with talks on topics ranging from helping such as climate change, extreme poverty, an overview of each day. improve consumers’ financial choices and financial exclusion and gender equality. On creating non-bank like experiences, to Thursday, Spotlight speakers will explore Also don’t miss the new Chat & Connect weighing up security and convenience in how the financial industry is addressing lounge, located next to the Spotlight customer service interactions. these global and pressing concerns, and stage. In the lounge you can meet, greet discuss what more needs to be done. Topics and network with speakers and experts Speakers will include Rupert Nicolay, will range from engaging with Generation Z following the Spotlight sessions. Join us in worldwide services architect at Microsoft, to sustainable finance, financial inclusion, the lounge for the opportunity to discuss and Peter Neufeld, EMEIA head of digital the role of technology and how to remain with the specialists on the topics that advisory and customer experience in human in a digital world. matter to you. financial services at EY. Speakers will include Sir Roger Gifford, chair Open banking Cybersecurity of the Green Finance Institute, and author

Open banking will be put under the In an ever-evolving threat environment, and broadcaster Julia Hobsbawm. n spotlight on Monday, reflecting the Spotlight turns its attention to the thorny importance of such initiatives around subject of cybersecurity on Wednesday. the world. Expert speakers will exchange The debate will address the key cyber risks ideas on the progress and challenges and challenges surrounding industry-wide surrounding data guidelines, regulations coordination and intelligence sharing. and global standards and their impact on During the day you’ll able to join SWIFT’s the commercial viability of solutions. They Red Team of ethical hackers for the long-

70 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 71 It’s a great honour to host Sibos 2019 in London. We hope you have an inspiring and enjoyable experience throughout the week, and look forward to offering you a warm welcome at the SWIFT stand. Cate Kemp, head of UK, Ireland and Nordics, SWIFT

SWIFT has already begun to imagine this confirmations will provide the certainty future and is taking practical steps with that banks and their customers need to members of its community and other keep business flowing and avoid frustrating SWIFT at Sibos partners to build the infrastructure required investigations on the whereabouts of a to realise it. This is of course no small payment.” undertaking. It’s nothing less than the reinvention of payments. Critically, by linking SWIFT gpi to the Around the world domestic instant payment services and Need for speed 24/7 real-time gross settlement systems being implemented across multiple “Domestic payment infrastructures are jurisdictions – as recent trials in Australia, driving huge improvements in the way Singapore and Europe have shown to be in real time payments are made, notably with the move successful – the reality of a truly global, to real-time,” explains Harry Newman, open, real-time payments system comes head of banking at SWIFT. “We’re aiming within grasp. The reinvention of payments is well under way. to repeat that internationally, which is not Domestic payment straightforward when there are hundreds of Shared purpose; Use Sibos to find out more about how the SWIFT currencies and different jurisdictions, local common language infrastructures rules and practices to account for.” community is creating a new global ecosystem. Smooth integration and interoperability are driving huge A key step in this reinvention was the between domestic and international improvements in the launch of SWIFT gpi in 2017. Already, gpi payments processes is key to unlocking this Across the globe, many lives have already convenience, and responsiveness – many of has made cross-border payments new vision for payments. been transformed by the application of today’s services are limited by geography or way payments are between correspondent banks much faster, digital technology to payments services. membership. more transparent, and trackable from This is a core aim of the current migration Whether accessing micro-credit services, made, notably with the end-to-end. to the ISO 20022 message standard receiving remittances or checking balances Reconceptualising payments move to real-time. framework. Many platforms have already on the move, the increased speed and “More than 50% of gpi payments are started migrating to ISO 20022 and all new availability of a new generation of payment Imagine a world in which payment was real Harry Newman, SWIFT already reaching the end beneficiary in infrastructures are built using the standard. services has helped many millions to time, convenient and secure between any under 30 minutes, many of those in just Banks are embarking on their own transition, manage their finances – in both their two accounts, anywhere across the globe. minutes or seconds, and nearly 100% supported by SWIFT. business and personal lives – with greater Not just between two residents of the same of them are made within 24 hours,” says efficiency, transparency and control. country, or two users of the same chat app, Newman. “Our attention is now turning to Use of this common standard across all but any two account holders, transferring address the areas where frictions still arise. payment flows is fundamental to the core According to the triennial Global Findex funds from Amsterdam to Accra or Bogota We’re doing that through a number of characteristics needed of a truly global database1, the proportion of adults to Bangalore. initiatives to help our clients to make those system – open, ubiquitous, innovative, worldwide holding an account with a payments smoother, more predictable and trusted and hyper-connected – primarily financial institution or mobile money service This ubiquitous ecosystem would open faster.” due to the rich, structured data it can carry. rose from 62% in 2014 to 69% in 2017, with up new horizons for consumers, small With ISO 20022 supporting end-to-end a steeper increase in developing economies. businesses and large corporates alike. More than 3,500 banks are committed to consistency of business process, the SWIFT Much of this can be traced to the It would create new opportunities to buy adopting gpi, with over a million payments community, fintechs and other players can penetration of mobile and internet networks, from, sell to, and work with counterparties now sent via gpi every day, worth more than explore the potential of new technology such on which multiple platforms and services and collaborators with minimal friction, US$300 billion. By the end of 2020, the as APIs and cloud to connect systems and have subsequently been built. and with optimal trust, transparency intention is for every SWIFT payment to be a users in a flexible, user-friendly, ‘plug and and security. For banks, it would offer gpi payment. play’ fashion. But the digital payments revolution is far the chance to develop a new generation from over. In fact, it is just getting into its of differentiated services as customers “Our next step is to enable confirmation that SWIFT is also working to support stride. Despite myriad improvements to the explore new possibilities, markets and the beneficiary account has been credited – harmonisation of API standards as the user experience – in terms of immediacy, business models. for every payment,” says Golnaz Amininejad, finance sector transitions to an API-driven product manager, SWIFT gpi. “Universal economy. 1 https://globalfindex.worldbank.org

72 SWIFT at Sibos 2019 Preview edition SWIFT at Sibos 2019 Preview edition 73 “With APIs, cloud and machine-learning, we see new business models that were not possible a couple of years ago,” says Luc Meurant, head of marketing, SWIFT. “This We see new business is not about SWIFT doing everything itself. We are enabling players to develop value models that were not propositions on top of gpi.” possible a couple of The compliance challenge years ago. As payments get faster, so does the Luc Meurant, SWIFT imperative to screen them faster, using the most efficient tools to detect and prevent abuse of the financial system. This means building out compliance tools that help banks to know their customers, screen their Networking events at payments and detect breaches, increasingly using data analytics to focus resources on key risks, pre-validation tools to check data Sibos - open to all accuracy, and deploying new identification technologies. MONDAY 17:30 “Real-time payments really depend on banks having a clean, correctly formatted 23 SEPTEMBER Reinventing Payments cocktail data set,” says Julien Blanchez, head of SWIFT stand data and analytics, SWIFT. “With increasing Universal confirmations compliance challenges and regulatory will provide the pressures, having good quality, accurate WEDNESDAY 06:00 payment data has become very important.” certainty that banks 25 SEPTEMBER Sibos 5K Fun run and walk Cleaner data unlocks the potential of new and their customers technology, such as artificial intelligence and machine learning, which will be pivotal need. 17:00 for compliance teams looking to reduce Golnaz Amininejad, SWIFT WOW (Women of the World) the number of false positives and boost the effectiveness of their screening. networking event But what does real-time, 24/7 cross-border The Bridge (ExCeL) Benefits for all payments mean to the customer?

With the necessary protections and To the parent, it means funding an overseas 19:00 precautions in place, a global stage is set university education with control and for efficiency, automation and innovation. without sinking into the red. To the portfolio Innotribe networking event manager, it means elimination of securities Giant Robot, Canary Wharf settlement fails and a faster response to investment opportunities. To the small exporter, it means easier, quicker access THURSDAY 17:00 to funds and reduction of friction in trade finance. For the global corporate, it means 26 SEPTEMBER ‘Best of British’ - streamlined treasury processes across FX Sibos closing event and payments, reducing hedging costs and increasing cashflow transparency and ExCeL predictability. To all customers, it means the disappearance of boundaries, but also perhaps of payments as we know them too Real-time payments – as payment processes are increasingly embedded within tools and services with the depend on banks power to transform lives. having a clean, Throughout the Sibos 2019 programme, correctly formatted you will find many dedicated sessions aimed at exploring elements of this data set. payments revolution in more detail. To join the conversation, come and find us at the Julien Blanchez, SWIFT SWIFT stand. n

74 SWIFT at Sibos 2019 Preview edition SWIFT at Sibos 2019 Preview edition 75 76 Sibos Issues 2019 Preview edition Sibos Issues 2019 Preview edition 77 Sibos Issues Sibos 2019 London 23-26 September

Thriving in a hyper-connected world

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

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Legal notice: SWIFT © 2019 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.